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How to Become a Freight Broker - Your Ultimate Guide
Everything You Must Know and Do: Step-by-Step
The freight broker industry is an expanding field that offers huge potential rewards; it also is a competitive one, requiring thorough industry knowledge and the navigation through a sea of legal requirements.
We recommend that you download our free freight broker starter kit e-book, which explains everything you’ll need to know in one place including what a freight broker is, the startup costs, how to obtain your authority and more.
Freight Broker School and Load Board E-Book Guides
You can also take a look at our other free freight broker guides, which cover some of the most important information you'll need to know regarding freight broker training, and how to leverage load boards to grow your brokerage. Take a look at the topics covered in our e-book guides below:
- The importance of training for freight brokers
- How to get the proper training
- The benefits of load boards for your freight business
- How to find the right load boards for your brokerage
These e-book guides were created specifically with freight brokers in mind, and provide all of the crucial information you need to help ensure your brokerage thrives in this competitive profession.
Why You Should Become a Freight Broker
It’s a great time to become a freight broker as a result of several industry trends coming together at the right time. Current forecasts predict solid 2.1% GDP growth for 2017, which is an improvement from the 1.9% estimate for 2016. The high level of integration which shipping enjoys within the larger US economy means that this trend is sure to benefit trucking brokers as well. If you can couple this with starting your business in a high growth area of the country, then you’ll be positioning yourself well!
New software promises to make the process of finding the right carrier for your client’s freight easier and easier. With hundreds of options out there and new ones entering the market regularly, you’re sure to have ample opportunities to keep your business running efficiently. Combine this with the declining costs of the most basic tools of the trade, like computers, and it’s clear that technology is another reason to enter the freight brokerage industry.
Becoming a freight broker is surprisingly affordable, here’s a breakdown of all the costs.
- Freight Broker License: a one time $300 fee for obtaining a license from the FMCSA.
- State Registration and Fees: The process and cost of registering a business is different in each state. But fortunately, the federal process is standard and described in our guide further below, as well as in our free e-book.
- Equipment: For a basic freight broker just getting started, a computer, phone, and an internet connection should suffice. As you expand, you can consider renting office space, but there’s no need to factor that into your initial budget, as most freight brokers initially work from home.
Freight Broker Surety Bond: It’s important to note here that this is going to vary depending on your credit score ($500 - $2,000), business financials, and the agency with which you obtain your bond. With JW Surety Bonds, 90% of bonded freight brokers pay less than $2,000 a year.
- Software: There’s a huge variety of software available and new market products are constantly arriving, and they generally range from $600 - $1,200.
- Insurance: Like any business, you need insurance to control legal liability, which will cost roughly $3,000+ depending on your brokerage. Freight brokers can be sued for fatalities or injuries from a third party carrier, for not following legal contracts or for employment disputes.
- Marketing: There are a lot of potential marketing strategies out there from simple cold calling to complex online content marketing campaigns. These have widely varying costs. If you’re starting off with personal contacts to get your business off on the right foot, you might save a bit of money here. But if you’re really starting from scratch, it would be best to budget for some serious marketing.
- Extra for Unexpected Costs: This is really up to you. Ideally, you’ll want to keep a reserve, so you’ll be prepared for unexpected costs like having to replace equipment, which might suddenly break, or handling payment issues from a shipper. Keep in mind that early cash flow problems are a classic small business killer.
How Much Money Can You Make As a Freight Broker?
Even if you're a lone freight agent new to the industry and working from home, you can earn somewhere in the realm of $30,000 - $50,000 per year in commissions. More experienced freight agents can earn in the neighborhood of $100,000 - $400,000 per year in commissions.
Once you form an established freight brokerage, you have the option of hiring freight agents to further bolster your annual revenue and help you move to the higher end of the pay scale. Take a look at the staggering billions of dollars of revenue the top U.S. freight brokerages bring in on a yearly basis.
Most freight brokers experience about 10-20% gross margins (in 2016, the top 100 U.S. brokerages experienced an average margin of 21%). Taking a real world example, $2,000,000 in revenue can result in $200,000 - $400,000 in gross margin. Keep in mind, you will have to account for expenses, so let's assume 10% of your revenue for this example (which is on the higher end of what freight brokers might experience). After all is said and done, this would leave you with $180,000 - $360,000 pre-tax profit.
According to PayScale as of 12/03/2017, the freight broker total pay can range anywhere from $29,000 - $72,000 per year. Keep in mind, your total pay can vary greatly depending on your location, commissions, level of experience and the tools you leverage (such as load boards; you can check out our guide to find the right load board for you).
How to Start a Freight Brokerage and Be Successful: Have a Solid Business Plan
Making a great business plan is an essential step of any business, especially if you’re starting your own freight brokerage. There are many ways to get started. For example, the Small Business Administration (SBA) has a useful online business plan tool, which you can use. But, there are some specifics relating to becoming a freight broker which you should definitely keep in mind. Here’s our step-by-step guide to help you along:
Step #1: Choose the Right Legal Framework
Deciding which legal structure will work best for you is an absolute must. Only once you’ve made this choice can you begin the legal process of founding your company. Legalzoom offers some excellent and inexpensive assistance in this process. As for the type of company, your main options are:
Limited Liability Corporation
Limited liability is exactly what it sounds like – it has the advantage of avoiding personal liability on the part of the owners for any debts incurred by the company. It’s also easy to raise funds by selling new membership interests with this type of structure. For the other advantages of an LLC, check out Legalzoom’s excellent summary.
When two people decide to form a company together, this is the simplest way to do it. A partnership can take many forms, but it always has certain advantages and disadvantages you should consider in terms of liability, flexibility, and longevity.
This is essentially a company which consists of a single individual and would be a great option for someone looking to start a smaller freight brokerage on their own. However, a sole proprietorship does involve putting all of your eggs into one basket, so to speak. Thus, be sure to consider liability issues involved with this business structure.
Corporation (S or C)
Corporations are more complex and difficult to set up, but they offer serious tax and legal advantages if you’re looking to build a larger freight brokerage business. The biggest difference between S and C corporations is that C corporations pay taxes as a corporation and as an individual shareholders while with the S type taxes are only paid by the shareholders. But unless you’re looking to sell shares and employ more than around 20 people, you can probably stick with a simpler business type.
Step #2: Incorporating Technology
Technology is a critical part of any modern freight brokerage business. It’s not only crucial to choose the best brokering software for your needs, but it’s also important to take advantage of standard business tech to streamline your work. That includes having a smartphone, so you can keep up with developments on-the-go, and using accounts and billing software to simplify your life at tax time. Plus, by using the latest applications to more efficiently match freight with carriers, you’ll be a step ahead from the start.
Step #3: Choosing a Location
While transportation brokerage can be done remotely, face-to-face meetings and personal contacts can really make a big difference. It’s important to think strategically about where economic growth is highest so you can position your business to benefit from the increased freight shipments which accompany your main location.
Step #4: Finding a Niche
Beyond positioning yourself in a great location, finding a market niche can help boost your business’s natural potential for growth and success. For example, by finding an area where a lot of commercial retail development is about to begin you can build contacts early and become the go-to freight broker for all new businesses as they open their doors and require regular product shipments.
Step #5: Funding Your Business
While starting a freight broker business is quite affordable, compared to many other types of companies, it’s still important to understand the licensing fees, application fees, etc. Therefore, the question of funding needs to be incorporated into your business plan from the start. Fortunately, there are many new companies like Lendio dedicated solely to finding peer-to-peer lending options, so keep in mind you have options beyond a traditional bank loan.
Freight Broker Requirements: How to Get a Freight Broker License
As you read above, starting your own business requires many steps, such as making a great business plan, creating your company, and getting the training you need, but once you complete these preliminaries, it’s time to make it all legal. At this point, you’re ready to officially register your brokerage and get your Motor Carrier (MC) Operating Authority from the Federal Motor Carrier Safety Administration (FMCSA). This trucking authority functions as your freight broker license. Getting it and fulfilling all the other legal requirements can be a long and grueling process, so here’s a step-by-step guide to make it easy!
Step #1: Obtain Your MC Authority from the FMCSA
What is an MC number? It stands for “motor carrier number” and it’s a necessary component of making your brokerage legal. Obtaining your broker authority will take several weeks from start to finish. So, make sure you get started as soon as you can.
Obtain a Pin:
To begin the process of obtaining your MC Authority online, you must first obtain a PIN from the FMCSA. Applying for an PIN requires a valid credit card, though no charges will be made. The PIN will be securely shipped to your business’s address in 4-7 business days.
How Do You Get Your Broker License? Submit Your MC Authority License Request:
What is a freight broker license, anyway? Also known as an authority, this is a key item you'll need in order to become registered as a freight broker with the FMCSA. Once you have your PIN, you’re finally ready to submit an online OP-1 application for your MC Authority. Begin by selecting the first option, “New or Additional Registration” and continue from there filling out all the relevant information. The filing fee is $300 and is not refunded if you’ve made a mistake and need to refile. Therefore, be sure all of the information is correct before submitting!
If you want multiple licenses (say, to be a broker and a carrier), then you’ll have to file for them separately and pay $300 for each one. The processing time for your ICC authority is 4-6 weeks, but you can check your application’s status online anytime. If you are a carrier and work in interstate commerce, you will need a DOT number to operate and need to apply for it separately with an MCS-150 form.
Submit Biennial Updates:
Bear in mind that once you’ve obtained your DOT registration, you must file a biennial update by submitting an MCS-150 form online. Fortunately, this process is free.
You’re required to provide this update even if your company has not changed its information, has ceased interstate operations, or is no longer in business.
Step #2: Obtaining Insurance
Liability insurance is legally required by the FMCSA for all freight forwarders and carriers, but not for anyone operating only as a freight broker. Once you obtain your insurance insurance, you’ll have to submit proof to the FMCSA.
Step #3: Obtaining Processing Agents
For each state in which your brokerage will be operating, you must obtain a processing agent. If you’re only a broker, “operating” refers to having an office or making contracts. If you’re also a motor carrier, then “operating” means your freight passes through that state.
The role of the processing agent is to be the person who can be served papers if a claim is filed against your brokerage in that state. There are many commercial firms who will provide processing agents for a fee. The FMCSA has a useful list of such firms. You can also get someone to work directly for you, since freight agent training is easily available.
Once you’ve obtained the necessary processing agents, either you or the firm you may be working with need to submit a BOC-3 (Designation of Processing Agents) form both to the FMCSA and to each state in which you’ll be operating. Having submitted this form, the FMCSA recommends you keep a copy in your own files.
If you'd like to avoid the extra paperwork, our company can handle your BOC-3 filing for you.
Step #4: Getting Your BMC-84 Bond or BMC-85 Trust Fund
Freight Broker Licensing and Bonds Explained
Part of getting licensed is getting bonded. But what is a bond and how do you get it? At the most basic level, it’s insurance for your customers. And as part of the MAP-21 law, all freight brokers are required to have a bond or trust in the amount of $75,000 in order to work legally.
There are a few different ways to satisfy the bonding requirement, among which are the BMC-84 bond and the BMC-85 trust fund. How do you decide which one’s right for you? To learn more about how both of these work, check out our article that has been dedicated to the topic of BMC-84 vs. BMC-85.
Step #5: Getting Your Unified Carrier Registration
Once you decide to get either the BMC-84 or BMC-85, the final step in the legal process is obtaining your Unified Carrier Registration (UCR). For freight brokers, it’s relatively simple and inexpensive at only $76. If you’re also a motor carrier, then your registration cost will vary depending on the size of your fleet. In either case you’ll need to re-register and pay the fee annually.
Fortunately, the system for registering has been updated relatively recently. The UCR system registers and collects fees from the operators of vehicles engaged in interstate travel. Registering through this system can be done online at the UCR application website. They even have a mobile application.
However, it’s important to note that this system currently operates in most states except the following: Oregon, Wyoming, Nevada, Arizona, Florida, Maryland, New Jersey, and Vermont. If you operate in one of the latter, you’ll have to complete a separate process to register there.
Expert Marketing Tips for Your Freight Brokerage Business
Good marketing is critical for freight brokers, particularly when you’re just getting started. You’re going to need a solid base of contacts to begin brokering freight, and marketing is a great way of finding that base. Once you create a pool of leads, marketing continues to work for you by helping you turn these leads into actual clients. Just follow this step-by-step guide, part of our Freight Broker Starter Kit e-book, and you’ll be well on your way to a solid list of clients. This is the lifeblood of your freight brokerage, so make sure you invest enough time into making it work.
Marketing Basics for Freight Brokers
At the beginning, freight broker marketing looks just like any type of niche-specific marketing. There are basics you simply can’t do without, such as having a great website, understanding your customers, and figuring out how to stand out online. Only once you check these off should you focus on starting a freight brokerage marketing strategy to attract your customers.
#1: Make a Great Freight Broker Website
All of your marketing efforts need to start with a well-designed website. Your website will usually be the first thing a potential client encounters and needs to make a good impression. Lucky for you, this is easier than ever with affordable hosting and website building tools like Squarespace. Providing information about your services and a place where potential clients can contact you is absolutely essential.
But beyond simply making a great website, you also need to take into account Search Engine Optimization (SEO). This means avoiding things which Google’s algorithm punishes, like having duplicate content, lists of keywords (instead of keywords which are incorporated naturally into content), purchased links (paying people to link to your site), or usability problems like slow load speeds.
#2: Understand Your Clients
“Buyer persona” is a marketing industry term for a semi-fictional representation of your ideal customer. To create one, you need to think about your ideal customers’ demographics, behavior patterns, motivations, and goals. The most basic step towards providing a great service and having a successful marketing strategy is creating one or more detailed buyer personas. Once you know who your customers are, you can start to consider strategies to target them specifically.
#3: Find Your Niche with Keyword Research
This is a list of the main keywords that anyone looking for a freight broker would use in their online searches. Companies like Hubspot provide great video tutorials on all aspects of online marketing, and their article on keyword research should provide some great tips for finding what you’ll need for your business. In general, tools such as the Keyword Planner from Google Adwords are helpful in seeing what keywords have higher volume and lower competition. Those are the ones you want to target.
#4: List Yourself in Business Directories
You need to make it as easy as possible for potential clients to find you. One essential step is making sure you’re listed in business directories. The most common online directories you should place yourself in are:
Add to these any local online or offline directories which are popular in your area and you’ll be set. Just make sure you create your listings using the same Name, Phone, Address (NAP) and have this information visible on your website, or Google won’t be able to connect the dots.
Targeting Your Buyer Personas Online
There are a variety of ways to target your buyer personas online. The two most basic types of strategies are those which allow you to reach out to potential customers, and those which bring those customers to you. You can choose to use one or both of these in your marketing campaign.
Strategy #1: Going Local
When you’re starting your own business, one of the most important choices you make is the location. You want to set up your brokerage in an area which will support your business goals and growth. Well, after you’ve made your decision, it’s time to take advantage of your location!
When somebody’s searching for freight brokers in your particular area, you want to show up in Local Results, since that’s the easiest way of making it to the top of the results page. To start, you should find some great local long-tail keywords that help people find your business in your specific area. You’re probably not going to rank in Google for “freight broker,” but you may very well be able to rank for “freight broker kansas city.”
Once you’ve got a list of targetable keywords, it’s time to get to work and help Google rank you higher for them. There are a few ways to do this:
- Incorporate these location-specific keywords into important site content, such as page titles and headings.
- Add your location to all of your local listings.
- Update existing Name, Address, and Phone (NAP) to be consistent across all directories, so they all point back to one and the same business.
- Encourage your satisfied clients to leave reviews in the directories.
Strategy #2: Using Lead Lists
This is a solid strategy for any customer-driven business. It involves making a list of potential customers. In particular, one which allows you to clearly organize all the information you have about them. This will not only help you stay organized, but it will help enormously in targeting your customers individually. Top Ten Reviews has a fantastic survey with tons of information to help you choose the best lead finding and organizing software.
Besides software, you can make a lead list in several ways. The most basic is to use your own knowledge and personal contacts to draw one up. If you’re not in a position to try that strategy, there are companies specializing in finding sales leads. You should also be attending industry events and conferences when possible to continue building a solid network and to bring in new leads.
Once you have your list, you need to decide on the best method to contact your leads. One way is by simply cold calling (a business term for calling a lead with whom you haven’t interacted before). If you have a large list and feel you don’t have the time to make the calls yourself, you can try outsourcing them to a call center. But most brokers can and prefer to reach out to potential customers on their own. You could also try sending personalized emails.
Strategy #3: Targeted Ads
Another great way to target potential customers is through targeted ads. There’s a huge variety of platforms for doing this. One of the most basic is Google Adwords. Here you can target people searching for very specific keywords on Google, as well as in particular geographic locations. This can be immensely useful for a freight broker, since you can target people searching for brokers in your specific region.
Beyond Adwords, social media sites like Facebook, LinkedIn, and Google+ also offer similarly targeted advertising opportunities. The kinds of users on the social media site and the cost per click of advertising vary between them and are worth considering. LinkedIn, for example, has excellent professional networks, but is much more expensive than Facebook. For more details, check out Hubspot’s guide to social media marketing.
Strategy #4: Content Marketing
The key to driving organic traffic to your site is content marketing. Sure, you can spread your business’ brand by word-of-mouth, cold-calling, and old-fashioned networking, but content marketing is how you make sure people who are looking for you online can actually find you.
Great content marketing involves creating high quality content like blog posts, which incorporate those keywords you listed before. The key is to always think about your potential clients and readers; your content should always provide value to them. Give them something they want to read.
Doing this can increase your ranking in Google and bring relevant traffic to your site. You can even develop a nice reputation in the industry on the way. All in all, it’s one of the most consistent and effective forms of online marketing.
Calculating Return on Investment (ROI)
One common mistake many companies make when they begin their first marketing campaign is ignoring the essential step of calculating ROI. So, once you’ve started a strategy you need to think about how you can quantify your results.
This means using things like Google Webmaster Tools to look at your website’s traffic and where it’s coming from. Beyond that, every social media platform you may be advertising with will offer you plenty of data. So take a look at what works, what doesn’t, and how much it all costs to determine the best marketing strategy for your brokerage. For a more detailed guide, check out this article from Marketo.
Bottom Line: Discover Your Best Strategy
In the end, it’s all about picking and choosing from our recommendations to find the best strategy for you. Don’t be afraid to try something new and see how it goes. Just don’t forget that many of these marketing techniques take a few months to show their results.