A freight broker’s income varies based on a variety of factors. Those factors include their level of experience, gross revenues for their book of business, profitability of those customers, amount of support they have, company business structure, and much more.
To better analyze this question, I think it’s important to group brokers into one of three categories: The W-2 Employee, the Licensed Broker running their own company, and the 1099 Agent.
Let’s look at each and see how much they earn with the same amount of business.
For this example, I will use the following reasonable metrics:
Annual Revenue: $2,000,000
Annual Gross Profit: $350,000 (17.5% margin)
The W-2 Broker
Typical Job Titles: Account Manager, Logistics Account Executive, Logistics Coordinator
This is the most common freight broker in the market.
There are a lot of large freight broker companies that operate using this model.
They might resemble the boiler room type of sales environment with thousands of employees or be much smaller with 10 employees or less.
In general, the company has a broker authority and hires employees to drive sales and manage operations. The company owns the customer accounts, performs all back-office business functions, and furnishes the broker with an office to work in.
W-2 brokers typically earn a base salary with a commission directly tied to their profits. According to a recent Freightwaves survey, median pay in this model is $40,000 salary plus an average commission rate of 13.2% on gross profits.
The benefit to this model comes in the paid training and consistent paycheck from day one. New brokers need to learn the ins and outs of the industry, and a company like this offers a paid way to do that. Training can last three months or longer. In return, the company retains most of the broker’s profits and usually includes a non-compete clause in that employee’s contract to prevent them from leaving the company and taking business with them to a competitor.
The base salary is a “safe” way to work with a guaranteed paycheck for those that might be afraid of underproducing.
W2 Employee at $2M sales with 17.5% margin:
$40,000 salary + $46,200 in commission
Total annual income: $86,200
The Licensed Broker
(with own MC authority)
This broker has the highest failure rate but can have the highest success in the long run if they have the assets to invest initially and can scale their business over the long-term.
In this case, there is no employee or independent contractor, just a business owner.
This freight broker obtains a legal broker authority from the Department of Transportation. They also must obtain a surety bond of at least $75,000 as well as the proper insurance that goes along with running a freight brokerage. These are the minimum requirements to start.
Other common expenses include a transportation management system (TMS) to conduct business, access to freight matching tools such as Truckstop.com and DAT, website development, lead generation, marketing materials, accounting staff, factoring fees (or liquid cash) to cashflow receivables with payables.
These are just some of the expenses, and this is before a single dollar is even made.
Let’s look at the costs of some of these:
- DOT Authority: $300 application fee
- Bond: $1,800 – $10,000 annually (depending on credit)
- Insurance: $1,500 – $3,000 annually
- Software: $1,500 setup + $500/month (depending on features)
- Load Boards: $300+ monthly (depending on choice)
- Cashflow $500,000 in liquid cash or 3.5% on gross revenues for factoring
- Wages: $40,000+ (depending on staff size)
As you can imagine, these can add up very fast. Therefore, an initial investment and long term customer stability are crucial to making this option successful. The business owner is responsible for every function of the business and will likely hire his/her own staff in order to scale and sustain the business over the long term. The benefit is, they have 100% control over ever attribute of their company, and they retain 100% of what’s left after all expenses are paid. Because of the costs involved, most brokerage owners fail in the first 1-3 years because they don’t have the startup cash or recurring revenue to sustain their operation.
The 1099 Agent
Typically Known As: Freight Agent Programs, Broker Agents, Agency Owners
This is a hybrid model that gained traction in the last 15 years.
Freight agents are brokers that work as independent contractors under a licensed broker.
The licensed broker (usually a mid-size company) maintains the legal authority, bond, and insurance while the day to day brokering is conducted by the agent or group of agents. The agent works from their home office and only focuses on getting freight and moving it. All other back-office tasks are completed by the licensed brokerage. Back office tasks generally include billing, collections, claims handling, cash flow, marketing, IT support, agent development, and sometimes pricing/dispatch services.
While agents are only responsible for the sales and operations of their business, they can still choose to sub-contract or hire employees to scale their agency’s business.
This model offers superior flexibility but is not for the novice freight broker. Agents obtain their own customers, schedule/dispatch trucks for the customers, and receive a commission as a set percentage of their profits.
While agents are commission-only, top agent-based companies pay up to 70% commission. The other 30% is retained by the licensed brokerage to cover operating expenses. This is a great scenario for the broker that has their own book of business, has experience, and wants the flexibility to manage their business with complete freedom.
1099 Agent at $2M sales with 17.5% margin:
Total annual income: $245,000
As you can see, there are different answers to the question “how much does the average freight broker earn?” It all depends on the business model of the company, the role of the broker, and what they bring to the table.
The one thing we didn’t analyze is the time that agents save by not conducting back office tasks. That time by itself allows most agents to grow their business far quicker than a licensed broker can.
The independent agent earns the most money in our scenario here, but not everyone does $2M a year in business, especially not in their first year as a W-2 employee or new licensed broker. With a smaller amount of annual business, the numbers point even more at the 1099 agent as the desirable way to go. If those numbers were multiplied by 10, you might have a case to start your own brokerage, but not everyone wants to handle back office work when they can focus on gaining additional profitable business.
To get into the Agent Model today, contact me at firstname.lastname@example.org.