What is the commission structure of a freight broker?
Freight Agent Commission Split
Since agents don't perform all of the tasks that go into running a brokerage, they don't keep all of the profits. Agents are generally on a commission split that will vary around 50-70%. This means that for every $1 of profit that they produce, they earn around 50-70 cents.
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.
According to a Freight Waves survey, the average commission is 13% to 15% of a load's net revenue. Example: A shipper pays $4,000 to a licensed freight broker to move a load. The freight broker negotiates $3,000 with the trucking company to transport the load, leaving $1,000 net revenue.
Freight brokers make their money in the margin between the amount they charge each shipper (their customer) and what they pay the carrier (the truck driver) for every shipment. Although it varies from one transaction to the next, healthy freight brokers typically claim a net margin of 3-8 percent on each load.
Data from throughout 2020 has shown us that freight brokers are averaging around 15% overall with each load yielding around $270 in profit. I tend to find most successful brokers average somewhere between 12-18% in margin.
Typical commission splits include 50/50, where the broker and real estate agent receive equal sums of money from a commission split, but they can also use the 60/40 or 70/30 split options. In these situations, the real estate agents get a larger sum of the money than the brokers.
One of the biggest downsides to using a freight broker is not having total control over the shipment. Once the load is given over to the broker, the shipper's ability to manage that load may be hindered. Freight brokers must make money somehow. They do that by charging more for a load than they're paying the carrier.
Freight brokers can be used by shippers or businesses of any size, but those who ship large quantities of goods may especially benefit. For those shipping large quantities, freight brokers can help the business find better pricing and volume discounts through their carrier network.
Stress: Work can be stressful, as freight brokers are responsible for ensuring shipments are delivered on time and in good condition. They also handle large sums of money and can have tight deadlines. Long hours: Freight brokers often work long hours, especially when there is a lot of freight to move.
Can freight brokers make 7 figures?
Yes, freight brokers can indeed make 7 figures – many have successfully grown 6, 7 and even 8 figure businesses.
High Demand and Growth
According to the U.S. Bureau of Labor Statistics (BLS), industries that hired the most cargo brokers include: Freight transportation arrangement (52,450 jobs) Couriers and express delivery services (7,570 jobs)
Freight brokers may not realize that they can still be held liable for damage to or loss of goods, even if they did not physically handle them. The reality is that when there is a claim related to shipment issues, it impacts all parties involved.
Shippers and carriers tend to approach freight billing on slightly different timelines. For example, many shippers operate on net-30 or net-60 terms, meaning they'll pay a broker's invoice within 30 or 60 days. Carriers, however, often expect brokers to pay much more quickly on a net-15, net-7, or immediate basis.
Consider filing a complaint.
If they refuse, you are within your rights to file a complaint against them with the FMCSA. At this point, you can communicate to the broker what you've decided to do and they may decide to pay you what you are owed to avoid any problems with the FMCSA.
Freight Brokerage has the potential to yield high annual revenues 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.
The fact is, the freight brokerage business is very fragmented with thousands of brokers and the majority of freight brokerage firms does less than $5 million per year in sales. It's important to note that while gross revenue is great, the key lies in running a profitable and sustainable business.
A common commission split gives 60% to the agent and 40% to the broker, but the split could be 50/50, 60/40, 70/30, or whatever ratio is agreed by the agent and the broker. It is common for more experienced and top-producing agents to receive a larger percentage of the commission.
Ultimately, the brokerage determines how the commission will be split, but this can usually be negotiated. In most cases, the split is an equal 50/50, but 60/40 and 70/30 splits can also occur. It will depend on factors like the size of the brokerage firm and your real estate experience.
For example, a 60/40 pay mix would be a 60/40 base to commission split, which means that 60% of OTE compensation is fixed base salary, and 40% of OTE compensation is Target Incentive (TI), or variable pay.
Is it better to be a freight broker or agent?
Freight agents have less liability in comparison to a freight broker. Freight agents need freight brokers to operate, whereas freight brokers can operate without freight agents. A freight broker will have a more consistent brand look and feel across its office(s) versus freight agents that operate under the broker.
While the job can be challenging, it offers numerous benefits, including higher earnings potential and the ability to work from anywhere. In this article, we'll explore what it takes to become a successful freight broker and why it might be the right career choice for you.
Sometimes, it's necessary for multiple freight brokerages to work together throughout the course of a shipment. This act, commonly referred to as co-brokering is not to be confused with double brokering (a far less ethical practice).
A recent nine-page study from Adamo looked at data submitted by DAT's customers and reported back analysis of the margins posted by brokers, as shown in the chart below. Flatbed brokers came out with the highest mean (average) margin of more than 15%, with reefer (almost 14%) and dry van (13%) following.
They work with a network of carriers to find available trucks and get their clients' loads to their destination on schedule. Freight brokers handle the logistics and scheduling of each shipment, and they negotiate rates as well.
