Do you want to know how much freight brokers make yearly? If YES, here are 10 factors that determine the income & profit margin for freight brokerage. The primary job of a freight broker is to connect shippers who have goods to transport and carriers who have the capacity to move those goods.
Today’s freight brokerage market is rich with opportunities, but the ease of getting started and straightforward licensing requirements does not guarantee future success. The rapid growth cycle of the logistics industry has led to a rise in the number of freight broker agents.
All the freight broker courses and training provide an individual with general knowledge of tasks but cannot indicate the level of persistence necessary to obtain shippers, or to know when to adjust rates to accommodate market fluctuations, or when to get tough during negotiations with carriers to protect profits.
Nonetheless, freight brokerage has the potential to yield high annual revenue with exciting profit margins! Depending on various factors, including number of customers, volume of shipments, and profitability on those shipments, a freight broker can make between $50,000 (inexperienced) and $500,000 (very experienced) per year.
Aside from experience alone, there are other contributing factors that play a role in how much freight brokers are compensated. Here are some of the most common things that will impact earnings for a broker.
10 Factors That Determine How Much Money Freight Brokers Make Yearly
Table of Content
1. Market Adaptation
Note that the transportation industry finds itself in a very interesting situation right now. With the shortage of drivers and trucks out on the road, rates have increased as a result. In this industry, growing rates reflects positively on carriers, but can place brokers in some tight positions.
To compensate for the lack of driver supply, brokers will find themselves occasionally overpaying to acquire a truck and move their load. However, if this becomes a common occurrence, it could be detrimental to the profitability of the broker.
This is now a carrier’s market, and they are getting all kinds of great pay due to the shortage. Owing to this, the approach of the broker will have to change to accommodate the driver and eventually grow their profit line. Shippers are also affected by the shortage, and should be understanding to the situation.
Even if they are not willing to cough up more to move the shipment, they can accommodate the drivers by providing adequate parking measures and comfortable areas for the drivers to take breaks. Shippers and brokers with poor reputations can also be cause for elevated rates as a method of avoiding working with them.
Rates in this industry tend to fluctuate, especially when there is seasonal merchandise and fresh produce that need to be transported. Although shippers may pay more to move the shipment, increased rates to accommodate the load can offset the difference. Pricing services too low can lead to a loss instead of profit for the business, even though it may generate more customers. Alternatively, pricing on the high end of the spectrum may turn customers away over time.
Indeed getting into the freight brokerage industry takes some industry experience as well as business connections, but those don’t get brokers far unless they are willing to put in the work. Acquiring new customers, creating new opportunities, and staying on top of business management all require time and effort. The most profitable freight brokers determine the most efficient ways to manage their time, often outsourcing tasks to other professionals when it is beneficial to the business.
5. Licensing requirements
Indeed one of the most important requirements in becoming a freight broker is the federal regulation that requires specific licensing. New freight brokers, regardless of how much industry experience they have, need to acquire a freight broker license as well as post a freight broker bond or trust to operate legally.
Misunderstanding these requirements or failing to meet them before starting a brokerage have led to severe consequences in the industry, and have affected the profit margin of most newbie’s in the industry.
6. Prospects and customers
Especially since there are so many freight brokers in the industry today, being able to communicate effectively with prospects and current customers dictates the income and profit of a freight broker. Not returning phone calls or e-mails, avoiding uncomfortable calls when loads do not go as anticipated or failing to provide accurate information during any part of the sale process can be devastating to the income of a business.
7. Marketing needs
The freight brokerage industry is highly competitive, with newly licensed brokers entering the market each year. With so many options, shippers and carriers need to know that a freight brokerage is both available and able to take on new business.
Creating a marketing strategy is necessary for any broker who wants to remain relevant to their current or potential customers. When this factor is neglected, it thoroughly affects the bottom – line of the business and ensures they are not as profitable as the rest.
8. Networking opportunities
Just like it was stated above, marketing is a necessary component of being a successful business owner. However, networking can make all the difference in making the right industry connections. For freight brokers new and old, having the ability to meet and build relationships with other industry professionals, including other brokers, is a helpful aspect of business growth. This goes a long way to dictate the amount of business and then profits a freight broker can make.
9. Technology tools
Most industries are moving toward a digitized business model, and freight brokers are no different. The use of technology tools designed to make managing business financials, scheduling, communication, and marketing easier can leave more time and energy for building customer relationships.
Instead of being concerned about the investment of new tech into the business or a steep learning curve, brokers who use digital tools enjoy more profits than those who merely focus on the traditional way of doing business.
Just like many other professions, having the most up-to-date training and education is crucial not only to personal development but to the profit a business owner can make as well. Freight brokers have several options for freight broker training, in person and online, that can help them stay abreast of best practices and trends in the industry.
In conclusion, a freight broker’s income varies based on a variety of factors mentioned above. Overall, brokers need to realize that the market is undergoing a shift, with the rates going in the favour of the drivers. To be successful in this kind of market, brokers will need to accommodate more to the needs of the carriers. Loads need to get moved and the carrier side ultimately decides whether they want to move them.
Estimated Profit Margin for a Freight Broker
According to reports, businesses within the industry offer commission splits and profit margins that range from 25 – 70 percent to the broker. However, note that the amount of commission varies depending on the third – party logistics company the broker works with and how they structure their compensation.
Sometimes, companies will supply their Independent brokers within the ballpark of 50 – 65 percent commission. The compensation figure usually depends on company size, whether or not company is asset – based, and how many brokers they already have in the field.
Have it in mind that being in the top 5 – 10 percent of freight brokers in terms of revenue will make the long hours and hard work worth it. Ultimately, income and profit margins depend on the experience, availability, and work ethic of the broker.
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