If you're working in the transportation industry, you may regularly come across freight brokers. People in this career path have the essential job of managing shipments. A broker assists shippers and carriers with all the little details of scheduling shipments, hiring carriers, and managing real-time logistics. Is this a lucrative job? The answer to that question depends on a few factors.
How Does a Freight Brokerage Make Money?
All freight brokerages earn their money through the same basic principle. They get paid a certain amount to handle shipping for a customer, and then they have to pay shippers a certain amount to actually ship the product. With their extensive knowledge and expertise, brokerages can save money on shipping, and then they make their money off these savings.
There are a few different ways that a freight broker's income is earned. In some industries, especially the auto freight industry, freight brokerages are paid on a per-unit basis. This pricing structure means that the freight broker makes a set amount of money for each unit of freight that they ship. For example, an auto transport broker can make between $150 to $300 per car.
Another common method of payment, which is used in the trucking industry, is a commission fee. In this payment method, brokers are paid a variable percentage that is determined by how much money they can save on shipping. So, if the customer spends $5,000 and the trucking company charges $4,000, the broker's commission would be the $1,000 net revenue or a percentage of the net revenue. Not all freight brokers make their money solely through commissions and fees. In some cases, a brokerage might be part of a larger company that agrees to pay a base salary to individual brokers.
Are Freight Brokers Profitable?
Freight brokers are an essential part of supply chain management, so they often make impressive profits. A good freight broker is far more than a middleman. They are a logistics expert who can find new and innovative ways of saving money on shipping. They also justify their costs by helping customers save time and money moving their goods around.
In order to be profitable, a brokerage has to earn more money from its customers than it spends on shipping costs. This is the key challenge for any brokerage. A good broker can get a very large profit while a bad freight broker might barely break even. Statistically, freight broker businesses are typically profitable. Data shows that freight brokerages generate a minimum of 10% profit on their loads.
How Long Does It Take for a Broker to Make a Profit?
Due to the way most brokers are paid, they don't turn a profit right away. Instead, most customers will only pay their freight broker once their shipment has actually been completed. This means that you can expect to spend money hiring carriers without actually having your customer's payment in your pocket yet.
The average freight shipment can take anywhere from one to 45 days, and it can take additional time for payments to go through. This means that a broker might not actually get their profit for a month or two. When you're just starting out, this can be challenging. A new freight broker may go a few months without actually making any significant profit for their services.
What Margins Do Freight Brokers Work With?
To get a better idea of how much money a freight broker agent makes, it is helpful to take a look at their margins. In the freight brokerage industry, margins refer to the profit you make by subtracting shipment costs from payment. Margins are usually expressed as a percentage of the total amount the customer pays their broker.
The types of gross margins a broker can expect will depend on their business skills. More experienced brokers with a lot of contacts make bigger margins. Depending on your expertise, your salary range can be anywhere from 10% to 35% commission for each truckload. Ultimately, the average broker ends up getting margins of around 15%.
This percentage is a portion of the total amount of money that customers give you. So, how much do freight brokers make? Your final profit usually depends on the value of the shipments you handle. On average, industry-standard margins usually translate to an average salary of somewhere between $44,000 and $58,000.
Can Licensed Freight Brokers Set Their Own Rates?
When you're working for another freight brokerage business, you are often stuck with whatever commission rate they offer you. If you feel like your services command a higher rate, it can be worthwhile to get your freight broker license. Getting a license often requires freight broker training and obtaining a freight broker bond, but it can be worth it because it allows you to open your own business and set your own rates for clients.
Just keep in mind that you'll need to exercise some common sense when setting your rates. The bottom line is that clients pay you because they expect you to save them money. If your rates are so high that they're wasting money, they'll start working with someone else.
To determine reasonable rates, you'll need to create a detailed business plan. You'll need to be familiar with all the regulations set forth by the Federal Motor Carrier Safety Administration (FMCSA). Also, look into including surety bonds in your plan. It's necessary to find out how much you can expect to pay a truck driver and other carriers before you set your rates. To avoid overcharging clients, it's usually a good idea to set your rates at no higher than 30%. Usually, you can justify a higher rate if you're handling additional logistics or if you have no competitors in the area.
How Can You Earn More as a Freight Broker?
If you want to earn more as a freight broker, you have a few different options. In many cases, earning more is simply about working more. Freight brokers who handle more shipments get more opportunities to make a commission. This ability to manage more shipments often comes naturally with years of experience.
You can also enhance your freight broker salary by working with higher-level shipments. It can take the same effort to ship $1,000 or $10,000 worth of goods, and the commission you get on the bigger shipment will be far more. Since these good freight shipments are so lucrative, there's a lot of competition for them on load boards. To actually win these sorts of contracts, brokers often need to enhance their skills, work with helpful freight broker software and spend a lot of time networking.
The final method for earning more money is by offering better services. Customers are paying you for convenience and savings, so offering them more of these perks can help you justify a higher commission. For example, a broker who offers pickups instead of requiring clients to drop off their shipments can ask for a higher rate. You can also increase your rates by taking the time to seek out lower-priced motor carriers and owner/operators who can provide you with a higher margin.
Ultimately, if you want to become a freight broker, you can end up with a rewarding, and engaging, job. Those who think creatively and make an effort can enjoy a very nice salary.