How to Scale Your Freight Brokerage Profit to $1M
Updated: Jan 9, 2019
Arik Bibicoff Contributor
Marketing Director at Eagle Express Service
Freight brokerage has become a desirable career path among experienced logistics professionals and even those with no prior experience at all. Whether you do or do not have an extensive history in the transportation industry, the process to reach a 7-figure income is relatively similar. In order to be able to make $1 million, a business must first be capable of supporting that kind of revenue stream. Essentially, you must treat growing your brokerage like building a home; build the foundation so that it can support the home following its completion. Similarly, here are the essentials for building a sturdy foundation for your freight brokerage business:
· Surety bond
· Integrated TMS
· Good turnaround time for carriers’ pay
Freight brokering has become increasingly popular among industry professionals and those with no logistics experience at all. The industry has been undergoing continuous growth over the past several years and forecasts that this performance will continue to head in that direction. In fact, the freight brokerage market is expected to grow at a Compound Annual Growth Rate of 4.33% between 2018 – 2022. Some of the rises in participation could be a result of increased media coverage and awareness, while reports suggest that the growing market for outsourced operations services have played an integral role in its growth as well. There are countless companies that now specialize in freight brokering related services: dispatch, accounts receivable, accounts payable, customer set up, transportation management software (TMS), etc. As the cost process of operating a freight brokerage continues to become simpler and more cost-effective, there will continue to be steady growth in the number of its participants. Despite the continually increasing competition in the market, there is still the opportunity to make good money, including generating over $1 million per year.
Operating a freight brokerage that generates seven-figures per year requires an infrastructure designed to support its sustainability and potential for scale. Today, most operations are managed through a plethora of industry-standard technological utilities. However, the main technology system used to manage a freight brokerage is known as a transportation management system (TMS). The TMS is designed to streamline planning and decision making, execute transportation acts, follow up with transportation, and measure key metrics of the business. A TMS can be stock or “off the shelf”, meaning the user has made no modifications to it. However, some brokers require there be customization made to the TMS, so it can run more efficiently or have alternate features, based on the needs of the broker. In addition to optimizing production, a TMS also rates the significance of various transportation metrics: the cost of transport, reducing lead-time, and maximizing quality development. Managerial capabilities also play an important role in the functionality of the TMS. For example, tracing shipments, confirming arrival time, invoicing, and providing customers with alerts in the case of unforeseen events: delays, accidents, or bad weather. This tool encompasses the entirety of the operation, which streamlines efficiency within the brokerage; optimizing the management of carriers and communication between broker and shipper. Providing shippers with frequent updates on their order institutes confidence that operations are under control and their shipment is going to get where it needs to go on time and in one piece. Frequent analysis of operations and financials are required to be able to continually elevate performance.
INTERNAL VS. EXTERNAL GROWTH
There are a couple of ways to scale a freight brokerage to $1 million; become the home of an agency or master the services side of brokerage. What will skyrocket a brokerage to $1 million the quickest is to be able to master both. A brokerage that decides to pursue the agent-based business will focus on developing the back-end office support needed to support brokers or independent agents that don’t want to deal with clerical tasks: billing, accounting, vetting carriers, setting up customers, and dealing with insurance claims. They would also be targeting those who don’t mind clerical tasks but simply don’t have the capital to purchase the bond and insurance and don’t want to deal with having to get partnered with a factoring company to compensate their carriers. Either way, the accessory work and capital associated with moving freight are eliminated. The agents benefit from the reduction of their responsibilities, allowing them to focus on the core essentials of optimizing their business.
The scalability of a freight brokerage is determined by its ability to accommodate a larger workload without forgoing revenue or performance. The key to executing this feat is in the timing; scaling either too quickly or slowly will make the process more challenging. Scale too quickly and the infrastructure will be unable to support the rapid growth in revenue, creating an inability to fund and manage volume shipments. However, scaling too slow will make inefficient use of systems put in place to support company growth and often results in little to no growth at all. There is that sweet spot in between these two that amounts for scaling at the correct rate while revenue increases. How do you know whether you're scaling correctly? Great question, if you can check off these four boxes, then you’re growing at the right rate. If not, it’s time to re-evaluate where your business is lacking.
1. Comradery among team members – In business, having a team that works together and can communicate and express ideas with one another is crucial. Try running a business where no one talks to each other and no one knows what the rest of their team is even working on. Teams need to be able to delegate tasks, help each other out, and exchange ideas to have a foundation off which they can scale. In freight brokerage, moving shipments is so reliant on communication that this rule applies double time.
2. Put your customers first – It should be quite apparent that your customers are the fuel in which keeps your business running. Without them, there is no freight to move or commissions to be had. Amidst expanding networks, improving systems, and growing technology, it is important to keep the thing most important to your business happy – the customer. They’ve entrusted you with their business because they appreciated the fact that you took good care of them when they needed it the most. Don’t start slipping now – keep the focus on running a customer-centric business. Dabble in the testing technology and business development strategy when the customers aren’t requiring immediate attention.
3. Don’t second guess yourself – Once it has been decided that the best thing for the brokerage is to begin scale, create a business plan and stick to it. How can you ensure you stick to your plan? It’s quite simple, make sure it’s in-depth. The trajectory of your path to a million-dollar brokerage will not be a linear uptrend. Like anything else in life, there are going to be ups and downs along the way.
4. Team up with others – There’s a saying that goes, “no one that ever accomplished anything great did it while sitting down”. That very well could be true, but no one who ever accomplished anything great did it alone either. Partnering up with like-minded people is a great way to scale your brokerage that much faster. For one, you now have two or more hands on deck, which instantly doubled or maybe even tripled your work output: phone calls, start-up capital, brain power, etc. Having business partners to weigh in on ideas and assist with problem-solving is also an added benefit. Hitting $1 million in business is a substantial goal no matter how many people you have working towards it, however, it becomes a lot more manageable when you compare it to going on the road alone.
Visit your customers
· They are your pot of gold
· Go above and beyond for them and they will return the favor
· Anticipate their needs
· Take care of them and even better care of their referrals
Work with reliable carriers
· Backbone of your business
· Have a consistent vetting process
· Don’t make exceptions at the expense of the customer
Charge fair rates in the given market
· Don’t overcharge your customer or underpay your carrier
· Take a reasonable brokerage fee and play the long game
· Long-lasting, grand reputation versus temporary small profits
· Know the market rates so you can maximize profits on a given load
Scale your business
· Reverse engineer how many customers, shipments, and profit margins you’ll need to generate to hit $1M in profit
· Industry standard profit margins are roughly 15% or $300 per load
· Average load amount $2,000
· 3,333 shipments to reach $1M or 277 shipments per month
· Gross revenue is $6.7M
· 80% of effort is designated towards the 20% of your customer base moving the most shipments
So how do you scale your customer base and number of shipments? Like in any other service-based business, growth originates through providing an elite service and follow through. If a broker is consistently delivering exceptional services to their customer, it is not unheard of for that customer to designate a larger portion of their shipping operation to the broker; granted they have the necessary capacity. Warren Buffett said it perfectly: “focus on your customers and lead your people as though their lives depending on your success”. In the end, the customers will dictate the success of a brokerage, so treat them well. Being able to attain more shipments from a current customer is one way of scaling a freight business, but it is not the only way. A good freight broker must be confident in their abilities to acquire new customers.
Hopefully, this post gives anyone who is looking to make it big in the world of freight brokering some additional insight into what it takes to generate a substantial income in this line of work. These basic principles carry over into any line of work really, aside from the industry-specific technologies and business model. Whether you’re a stockbroker, real estate agent, or an e-commerce start-up, apply these growth strategies and watch your business flourish.