Understand FedEx Route Financials: Profit Margins, Financing Options, and More!

  Photo by Jeremy Bishop

Photo by Jeremy Bishop

Here are the Financial Highlights from Our Industry Overviews This Year

We focused on content this past year on giving you as much insider information as possible—especially information on the financials of buying a FedEx route.

In case you missed one or more of these posts, here’s a need-to-know round-up.

Look for P&D businesses with profit margins between 15 and 20% of revenue

For example, if you purchase a FedEx route with approximately $800,000 in revenue per year, you can expect to pull in approximately $120,000 in profit (or 15%).

Net incomes within that 15-20% range are what FedEx P&D routes are actually capable of making.

Routes for sale that advertise profit margins of 30% or more are likely exaggerating their profit and you should be extremely cautious.

Potential buyers often turn to bank financing to purchase FedEx routes

If you are considering financing a FedEx route, the two most common types of loans are a Small Business Association (SBA) loan and a conventional loan. 

Many investors do not want to invest all cash in the purchase cost of a route (typically ranging from $300,000 to over a million dollars). Some investors simply do not have that type of cash on hand and others want to hold back cash in order to cover capital and maintenance expenses for business operations after purchase.

Route Consultants has a deep well of quality FedEx routes for sale with plenty of routes where financing should not be a problem.

One strategy for acquiring sufficient down payment funds is to reduce the loan amount via seller financing

A FedEx route deal with seller financing means that the seller essentially loans you part of the cost of your purchase and you will pay back the seller this portion of the price (usually with interest). Rarely does a FedEx route seller provide all of the financing for a deal.

Seller financing can often help cash-strapped buyers afford higher cost routes. It can also help buyers who have plentiful cash on hand, but struggle to secure additional funding via the SBA or a bank.

Have a Deep Understanding of the Charges you Will Negotiate in Your ISP Contract

You are charging FedEx for your services. You will negotiate ten separate charges with FedEx. All of these charges combined account for money flowing into your business.

As a new FedEx contractor, you may find contract negotiations overwhelming. There are a lot of moving pieces to the puzzle! Complete your research on each of the ten charges and hire a consultant to help you navigate the process, if necessary.

Read More:

The Benefits of FedEx ISP Compliance and P&D Route Overlap

  Photo by Vidar Nordli-Mathisen

Photo by Vidar Nordli-Mathisen

In past years, FedEx contractors might have owned home delivery routes, grounds routes, or both. As part of the FedEx transition to ISPs, FedEx requires a single contractor to operate both home delivery routes and ground routes within a given area by Summer 2020.

The process of merging these two segments is frequently referred to as overlap. You may also hear some contractors or consultants refer to it as ISP compliant routes, though this is only one component of ISP compliance. The two merged routes—home delivery and ground—are collectively known as FedEx pickup and delivery (P&D) routes.

There are many benefits to P&D route overlap, but before we dive into those benefits: a quick reminder about what FedEx home delivery and FedEx ground routes look like.

  • The FedEx home delivery routes:

  • Primarily deliver to residential households.

  • Operate Tuesday through Saturday.

  • Have smaller to medium trucks and boxes.

  • Have high seasonality (with businesses often making a large part of annual revenue in the four weeks leading up to Christmas).

Ground routes are the other side of P&D routes. FedEx ground routes:

  • Deliver primarily to commercial businesses.

  • Feature heavier packages and larger trucks.

  • Run Monday through Friday.

  • Have less seasonality than home delivery routes.

Route Overlap Highlights

One of the clearest benefits of route overlap is that it is ISP compliant. By ISP transition completion in 2020, all FedEx contractors will need to operate both home delivery and ground routes in a given geographical territory on a six days-per-week schedule at scale. Most terminals minimum transition scale is 5 PSAs or 500 stops (although those numbers may be lower in designated terminals).

Moreover, overlapped P&D routes are more efficient for contractors as you can schedule your drivers so that they complete both ground and home delivery routes in a more concentrated area. In some cases, this can reduce your fuel and vehicle expenses per route.

Similarly, if you have more stops in a concentrated area you may be able to complete more stops per driver/route. This may have a positive impact on your variable stop charge.

Prepare for Overlap and Increase Your Efficiency

As you begin to think about route overlap and the six-day-per-week schedule, consult with us on how to prepare as a contractor.

If you need additional help increasing your efficiencies and planning for these changes, our team is ready to work with you!

Reach out for a free initial consult to get a sense of our consulting services and results.

How to Buy a FedEx Route for Sale

  Photo by Nathan Anderson

Photo by Nathan Anderson

As an investor, you have many options for maximizing your time and capital. One of the strongest opportunities investors have today, however, is FedEx routes for sale.

You can buy, operate, and sell the routes that move FedEx packages from one location to the next. FedEx routes have a long history of solid profit margins and FedEx as a company continues to outpace performance expectations. There’s much to love about this type of investment!

If you’re just dipping your toes in the waters, here are your next steps:

Do Your Research

Identify whether you want to purchase pickup and delivery (P&D) routes or linehaul routes (or both!).

Decide where you want to buy a route and get the details on how geography impacts FedEx routes for sale.

Understand what good profit margins in the industry look like: how much money can you make if you buy a FedEx route?

Narrow in on the right purchase price for your route and know ahead of time whether you will pay cash for your route or will plan to finance the route.

Know how to distinguish yourself as a buyer for the most competitive routes.

Think ahead to recruiting and retaining your best FedEx route managers and drivers.

Evaluate your route options

Every listing on our website is exclusive. This means we’re the only business to hold this listing and we’ve done initial due diligence with the seller. We work extensively with each seller to prepare their business for sale, getting the financials ready for you (the buyer) to dig into. We also help sellers understand how to appropriately price their route and we advise them on their sale price.

Our breadth and depth of experience allows us to steer potential buyers to the best listings for them: the routes that will meet their geographic, involvement, and financial preferences.

Additionally, because we’ve guided many new contractors, we understand exactly what FedEx is looking for in a new contractor. We have a 100% FedEx approval rate for our buyers.

Talk to a Real Person

If you’ve done thorough research online, it’s time to start talking with someone who can help you take your search to the next level.

Our team can guide you through your next step questions, help you evaluate our listings and which route may be the right fit for you, and she can help you get a to-do list together as you consider financing, establishing the business, and transitioning into a new business.

Join Our Mailing List




How to Become an Approved FedEx Driver

  Photo by Viktor Kiryanov

Photo by Viktor Kiryanov

Maybe you are interested in becoming a pickup and delivery (P&D) FedEx driver? Or, perhaps you are a FedEx P&D route owner and you are looking to add more drivers to your team?

The salary and benefits for FedEx drivers are excellent! And the good news is that the path to becoming an approved FedEx driver is relatively straight-forward.

In order to qualify as a FedEx driver, individuals must,

  • Have one year of professional driving experience in the last three years (or enroll in an entry-level driving program). Previous driving experiences can come from a range of industries: landscaping, construction, military, taxi/Lyft/Uber, or even food delivery.

  • Be 21 years of age or older.

  • Pass a DOT physical and a drug test.

  • Pass a background check; there should be no DUIs or felony convictions in potential driver’s background.

  • Have a valid driver’s license without excessive moving violations, accidents, or other driving violations (see the full list of requirements via FedEx)

What if you do not have prior driving experience?

If you (or an individual you wish to hire) has no professional driving experience, they may still be eligible to drive for FedEx with the completion of a FedEx-approved entry-level driving program, such as ADTP.

ADTP (which stands for Accelerated Driver Training Program) reduces the time it takes to educate, train and test new commercial delivery drivers. ADTP offers contractors a new and innovative approach to testing and training new delivery drivers in record time. Moreover, ADTP produces drivers that are trained on safe driving techniques, efficient delivery practices, and commercial driver professionalism.

Before being registered as an ADTP Driver Candidate, applicants must meet the following requirements:

  • Be 21 years of age or older

  • Have a valid driver’s license and a clean Motor Vehicle Report.

  • Have a clean background check.

  • Have a current DOT physical and be physically qualified to drive a commercial vehicle in accordance with Federal Motor Carrier Safety Administration (FMCSA).

  • Speak and read the English language sufficiently to converse with general public.

Driver candidates complete the following 3-Step Driver Certification Process:

  • A comprehensive online curriculum that culminates with online testing.

  • 18 hours of behind-the-wheel training without packages on board evaluated by a FedEx Road Test. (Occurring over at least 4 days)

  • 18 hours of behind-the-wheel training with packages on board signed off on by your organization’s ELDP Operator.

After completion of the ADTP certification process, drivers will be ready and eligible to drive for FedEx P&D routes.

The complete certification takes approximately two weeks to complete. This certification process is, at times, faster than the time it takes FedEx to approve a driver with past driving experience!

It does, however, take a bit of extra time for brand new operators to register and get rolling with the ELDP program via ADTP. If you have questions about your specific timeline, contact ADTP and they can help clarify the process and timeline.

New FedEx Contractor Step-By-Step Instruction Manual

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It’s finally here! Our New FedEx Contractor Checklist has been a hit for some time now, and the complementary manual is now ready for download.

The PDF is a step-by-step instruction manual that goes hand-in-hand with the startup checklist to break down each step of the startup process. This instruction manual not only explains what is required to satisfy each step of the registration process in greater detail, but also shows examples of the documents you need to complete and tips on where to find them.

We’ve packed A LOT into this 20 page manual. Check out our Table of Contents:

  • Establishing Your FedEx Business

    • Step 1: Government Incorporation

    • Step 2: Complete FedEx Request for Vendor Information (RFI)

    • Step 3: Senior Manager Email

    • Step 4: Safety Plan

    • Step 5: Terminal Visit

  • Completing Your Business Set-Up with FedEx

  • Back Office Set-Up

  • Stand-Up Week

  • Appendix: Sample Safety Plan

Spend less time on paperwork and more time learning about being an efficient operator! You can hop on over to our Resources to see the full range of downloads/help we offer.

Or, download the new manual below ↓

FedEx Goes to 6 Days Per Week: How this Impacts FedEx Contractors

  Photo by Sebastien Gabriel 

Photo by Sebastien Gabriel 

In September, FedEx Ground announced its US operations will expand to a 6-days-per-week plan to accommodate the booming e-commerce market.

In a press release about the change, FedEx noted,

“FedEx anticipated early on that the growth of e-commerce would significantly increase demand throughout our network, and we underwent a transformation by opening new facilities and investing in highly-advanced technology and innovations that have resulted in the most automated network in the industry”

The change will take effect after the 2018 holiday season.

The good news for contractors is that the demand for FedEx services is high! Business Wire noted that 10 years ago FedEx had a record-breaking day when they had 12 million shipments in a single day. As of 2018, 14 million shipments in a single day is just an average day for the fast growing corporation. There’s a lot to love about the growth in the FedEx business.

However, the move to a 6-day-per-week schedule will influence the ebb and flow of the work week for FedEx contractors. We predict that this additional day will change the way you schedule your team and may shift the volume per day that you are accustomed to seeing.

What Contractors Can Expect

Most FedEx contractors currently hold both Home Delivery (which run Tuesday through Saturday) and Ground routes (which run Monday through Friday). In the new plan, all routes will run Monday through Saturday. If you are already a contractor with overlapping routes (your routes include both Home Delivery and Ground) then you are already operating a 6-days-per-week business. However, you likely have only half your staff available on Mondays and Saturdays.

If you currently operate a business without overlap, you will feel the change more acutely on your current “off” day of Monday or Saturday. But, you were likely already looking ahead to additional staff as FedEx will require overlap by Summer 2020.

Contractors are likely to feel the most impact from this change on Mondays. While businesses are not likely to increase their weekend shipments, residential customers are likely to purchase more items with a Monday delivery.

We advise contractors to start looking for part-time team members for Saturdays and Mondays to accommodate this new schedule, and its corresponding labor requirements.

Tuesdays and Wednesdays are traditionally heavy delivery days for FedEx contractors and we may see volume shift from those days to Mondays. Reducing the historical Sunday/Monday backlog may eliminate the need for as many overflow drivers on Tuesdays/Wednesdays.

Presently, we do not expect a significant change required to contractors’ fleets. However, if this new schedule correlates with an overall uptick in volume (and we’re hopeful!) we’ll be singing a different tune.

Concurrent with the 6-days-per-week announcement, FedEx’s VP, Rajesh Subramaniam, took care to dismiss this plan as a response to Amazon’s new delivery operation.

In his statement he noted,

“While there has been significant media interest in what Amazon is doing to expand their in-source delivery capability, this should not be confused as competition with FedEx…The global infrastructure, the technology, the capabilities, knowledge that's needed to compete in our business is quite extraordinary, and we have built that up over 40-plus years.”

You can read more of our own analysis of the new Amazon routes on our blog. The bottom line: we still strongly believe FedEx routes are a better business opportunity for most investors.

Rather than resulting from Amazon-based pressure, the move to a 6-days-per-week schedule is the result of years of infrastructure planning based on overall FedEx growth. While e-commerce purchases historically peaked near holidays, the year-round demand and growth necessitated new FedEx structures.

If you need help understanding how the FedEx Ground move to 6-days-per-week will impact your business, reach out to our Route Consultant team.

FedEx Routes for Sale with Seller Financing Options

  Photo by Robin Pierre

Photo by Robin Pierre

The Basics of Seller Financing

If you are looking to finance your route investment, you will need to put down approximately 5-25% of the purchase price. The down payment varies based on your loan source: Small Business Association (SBA) loans tend to require less down payment while conventional banks ask for higher amounts.

One strategy for acquiring sufficient down payment funds is to reduce the loan amount. Obviously, that can mean purchasing a less expensive route. However, it can also mean reaching a financing deal with the seller.

This is called seller financing.

What is seller financing?

A FedEx route deal with seller financing means that the seller essentially loans you part of the cost of your purchase and you will pay back the seller this portion of the price (usually with interest). Rarely does a FedEx route seller provide all of the financing for a deal.

A seller financed deal will look something like this:

Buyer wishes to purchase a route for $1,000,000 and they have $100,000 cash on hand for the down payment.

However, their funding source informs them that with a $100,000 down payment they will provide a maximum loan of $500,000 (so that their liquid assets are 20% of the purchase).

Now we have a gap: $1,000,000 purchase price minus the $500,000 loan.

Here is an instance where a seller may offer seller financing to get the deal done. Seller financing counts as paid in capital in the eyes of the bank. If a seller agrees to cover $100,000 of the purchase price under separate seller financing loan terms, this seller financing amount combined with the buyers $100,000 in cash would combine to function together as the down payment.

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At $200,000 combined buyer down payment and seller financing, the buyer is effectively putting 20% down on the $1,000,000 purchase price. This gives everyone a much better chance of closing the deal.

Buyers work out separate repayment terms with the seller for the $100,000 financing.

How can seller financing benefit buyers?

Seller financing can often help cash-strapped buyers afford higher cost routes. It can also help buyers who have plentiful cash on hand, but struggle to secure additional funding via the SBA or a bank.

How can seller financing benefit sellers?

It gets the deal done! And, oftentimes, allows the seller to offload the route more quickly since seller financing is an attractive option to many buyers.

What are some of the risks?

Clearly, a seller risks the possibility of a buyer defaulting on their loan. And oftentimes, these seller financing arrangements put them last in line for recourse—behind a bank.

Additionally, if the buyer is funding part of their purchase with an SBA loan, many SBA rules prevent buyers from paying back a seller until the SBA loan is paid in full. Which is an unappealing arrangement to many sellers.

What can buyers do to make this seller financing a more attractive option for sellers?

Many sellers are opposed to offering seller financing because of the risks laid out above, but for the right offer, some sellers will consider it.

Buyers that know they need seller financing to complete a deal can offer a higher purchase price than they otherwise would to offset seller financing risk.

Moreover, buyers could look to allocate some type of specific collateral to give the seller piece of mind behind the note. This could include other real estate, businesses, or investments that they own.

Considerations Other Than Seller Financing

If you as a buyer are unable to reach a deal with a seller on seller financing, you are not out of options!

One alternative to seller financing could be that you, the buyer, assume any existing debt from the operation’s vehicles. If there is existing debt, the seller may be willing to reduce the overall purchase price when you agree to take on responsibility for vehicle debt.

Our Route Consultant team is available to help you think through your offer and purchase options.

Looking for a Route with Seller Financing Available?

While you can talk about seller financing as part of any negotiation, we have a few routes where we know sellers are more open to the arrangement.

The following Route Consultant listings have sellers that may consider seller financing:

As always, our team of consultants is an excellent resource for you to talk through possible offers.

Why You Should Buy FedEx Routes for Sale from Route Consultant

  Photo by Lance Asper

Photo by Lance Asper

In this series we’ve talked about Why You Should Invest in FedEx Routes, How to Find FedEx Routes for Sale, and How to Distinguish Yourself as a Buyer.

We want to conclude with a plug for ourselves!

We hope you’ll consider using Route Consultant as your consultant or broker in the process.

We are FedEx brokers and consultants with actual FedEx contracting experience. We have experience in Home Delivery, Ground, and Linehaul routes. And our team has worked across the United States managing a fleet of over 250 trucks and a staff of over 200 drivers!

We are invested in this business day in and day out and our advice to you comes from many hard learned lessons.

As a result of our experiences, our team has successfully negotiated many lucrative contracts with FedEx. Furthermore, we work with countless vendors and lending institutions that assist FedEx contractors. We can answer questions from someone brand new to FedEx routes and we can also assist experienced contractors looking to level up.

What do our consulting services look like?

We can walk a new buyer through every step of the process. We provide a startup checklist for free (and that’s absolutely something you should check out!); additionally our consulting packages give you someone to call or email with for all of the small and big questions that will come along in the process—you can start with a free introductory consult.

Our guidance includes things like understanding contract terms, optimizing your operations and fleet management. We also help buyers complete a business valuation. How do you look at a sale price and determine if the operation is worth that investment? We can complete the valuation and walk you through the logic.

Finally, in this day and age where driver recruitment and retention is critical to business success, we can offer consulting in recruitment and retention. We can also advise you on finding and retaining a qualified manager for your operation.

What does it mean to buy a FedEx route with us?

Every listing on our website is exclusive. This means we’re the only business to hold this listing and we’ve done initial due diligence with the seller. We work extensively with each seller to prepare their business for sale, getting the financials ready for you (the buyer) to dig into. We also help sellers understand how to appropriately price their route and we advise them on their sale price.

Our breadth and depth of experience allows us to steer potential buyers to the best listings for them: the routes that will meet their geographic, involvement, and financial preferences.

Additionally, because we’ve guided many new contractors, we understand exactly what FedEx is looking for in a new contractor. We have a 100% FedEx approval rate for our buyers.

Route Consultant FedEx Routes for Sale

How to Distinguish Yourself as a Buyer: Secure the Best FedEx Routes for Sale

  Photo by Jeremy Bishop

Photo by Jeremy Bishop

Note: This is Part 3 of a four-part series. The series includes Why You Should Invest in FedEx Routes for Sale, How to Find FedEx Routes for Sale, and How to Leverage Route Consultant’s Services.

Are you having trouble getting a response from a route broker? Or, are you finding that every listing that peaks your interest is under contract before you ever even make contact with the broker?

In this industry, there are 20 prospective buyers for every FedEx route for sale listing you see. As we noted previously, the market is hot!

As an investor, then, what can you do to be more competitive?

Follow These Tips to Have a Chance at the Best FedEx Routes for Sale

Do your research ahead of time. Hire a consultant, read online articles, and educate yourself on how FedEx works.

Just as you will evaluate a listing and a seller, a broker will be evaluating potential buyers. Does this investor understand what they want and how this investment works? Many investors are kicking the tires on FedEx investments these days and brokers are inundated with basic inquiries. Once you establish yourself as an educated and serious investor, brokers will be more likely to reach out to you when a strong opportunity becomes available.

Tip: test your broker on their knowledge of the FedEx. After doing your own research on FedEx, engage potential brokers in quality FedEx conversations. If a broker doesn’t know much about FedEx or has inaccurate information, this is an indicator that you should evaluate the listing cautiously. They may be misrepresenting information without even knowing it!

Create your corporation. FedEx requires an S Corp or C Corp; if you have an LLC it will not be useful in the purchase of a FedEx route. Establishing a corporation and holding a Federal Employer Identification Number (FEIN) will allow you to move forward with an application more quickly.

Prepare your Request for Information (RFI) ahead of time. FedEx requires that each prospective contractor submit a standard business plan that outlines their core competencies while addressing a variety of FedEx-related subject matter. Preparing one in advance of a potential purchase shows you understand FedEx and are ready to take action.

Have a Purchase Contract already reviewed by your attorney and ready to go. This will give you a significant timeline advantage when you are interested in the most appealing routes.

The most important thing you can do to distinguish yourself as a buyer is have your funding sourced and ready. If you are purchasing a route with cash, consolidate your purchase funds and be prepared to provide proof of funds.

If you are not paying with cash, you need to identify a lender. Ideally, you should find a lender who has FedEx experience. This lender experience will save you time and headaches in the process. Route Consultant clients receive access to a variety of qualified lenders based on their search criteria and eligibility.

As you evaluate listings, be sure to shop in the appropriate price range based on your funding source. Small Business Association (SBA) loans ask borrowers to have a down payment that is 10-20% of the route purchase price. The SBA does make exceptions to that figure, but borrowers chances of approval are significantly higher if they meet this criteria. If you plan to use conventional financing through a local or national bank, you will likely need to have a down payment that is 20-50% of the route purchase price.

As you evaluate listings, be sure to shop in the right location for your funding. Some loans will restrict buyers to their state of residence. If you are securing an SBA loan and wish to purchase a route that is out out of state, you must hire a manager with equity in the route or give an equity stake to the existing manager.

If you intend to purchase your route with a 401K rollover, please know that this process usually takes 30 days or more. Start the rollover early to avoid delays in a deposit or closing.

Need more help standing out?

If you need more help distinguishing yourself as a buyer, contact us for consulting.

We can help you get pieces of the puzzle in place so you can jump on the best opportunity as it arises. We can also help you with a full range of FedEx contractor pieces, such as:

  • IC vs. ISP Business Models

  • Overlap Requirements

  • Understanding Contract Terms

  • Optimizing Operations

  • Fleet Management

  • Business Valuation

  • Terminal Relationship Management

  • Driver Recruitment/Training

How to Find FedEx Routes for Sale

  Photo by Jesse Bowser

Photo by Jesse Bowser

Note: This is Part 2 of a four-part series. Look for our other posts on Why You Should Invest in FedEx Routes for Sale, How to Distinguish Yourself as a Buyer, and How to Leverage Route Consultant’s Services.

Now that you know why you should invest in FedEx routes, let’s consider how to best find FedEx routes for sale.

Not All Listings Are Created Equal

It should come as no surprise to you that the best and easiest way to find FedEx routes for sale is online. However, not all online listings are created equal.

Some times you will find FedEx routes for sale via a route broker. Respected brokers in the FedEx space list routes after having done initial due diligence. Here at Route Consultant, we work extensively with our sellers and potential sellers to ensure that they represent the breadth and depth of their business accurately. We also help them understand their responsibilities as a seller and encourage them to get their financials in order for a buyer to conduct their own due diligence. Finally, we work with sellers to price their routes so that they reflect accurate market value.

Other times, you may find a massive number of route listings in one location and you will notice the information from one route to another is inconsistent. These large listing sites are simply billboards on the web. The listings are not verified by industry insiders and the quality of the routes varies dramatically. It can feel helpful to see so many listings in one space, but more often than not it’s stressful trying to pick out the stronger listings from the heap.

Our advice for you as you evaluate online listings:

We highly recommend using established brokers to buy a route.

Further, we think there’s incredible value in working with a broker that specializes in the type of route you are interested in and has actual contracting experience. This type of deep industry knowledge is invaluable to you as you navigate a new investment.

Another way you can leverage brokers’ experiences is by hiring them on a consulting basis. Helping new investors navigate the field is one of our strongest service offerings.

How can we help you as a new buyer?

We can start by helping our clients understand how FedEx operates as a whole and what to expect as you get started as a new contractor. We can also help you evaluate routes for sale: we can use our experience to do a “sniff” test and see if the listing appears viable, the seller is representing their business accurately, the financials are strong, and whether or not the operation is priced appropriately. As contractors with operations across the country, we also know a lot of other current contractors. In many cases, we can seek out opportunities in markets you are interested in, before they ever even make it online via brokers.

Once you are in the purchasing process or operating as a new contractor, our consultants can help you think of ways to make your business more efficient (and more profitable!). We can also talk you through vehicle maintenance and acquisition strategies. And we can help you think through opportunities for business growth.

Why You Should Invest in FedEx Routes for Sale

  Photo by Jonas Von Werne

Photo by Jonas Von Werne

Note: This is Part 1 of a four-part series. Look for our other posts on How to Find FedEx Routes for Sale, How to Distinguish Yourself as a Buyer, and How to Leverage Route Consultant’s Services.

If you are an investor ready to chart your own business path, we think you should give investing in FedEx routes serious consideration.

You will be poised for success in the route industry if you bring a few of these traits and know-hows along to the investment:

Some type of business background

  • Past ownership or operation of a company with employees

  • Experience making payroll

  • Knowledge of customer management and addressing customer issues/concerns

  • An understanding of business financials and the basics of investment

  • A sense for how you will fund or finance a FedEx route investment

So, why do we think FedEx routes are great opportunity for this type of investor?

FedEx route businesses are straight-forward investments. Unlike product-based businesses, you do not have to manage supply chains, production, inventory, and sales. Rather, you are an Independent Service Provider (ISP) providing your business’s time and manpower to another company.

Sales are a nearly nonexistent piece of your business experience. FedEx corporate takes care of the company’s overall growth. And it is growing! FedEx leadership targets approximately 10% to 15% earnings growth each year moving forward. As an operator, your sole focus lies around expense management.

You don’t need to worry about Amazon. While the buzz in 2018 circled around Amazon’s potential delivery service, the business from Amazon makes up less than three percent of FedEx’s customer base. And, instead of worrying about Amazon, FedEx is busting into the Chinese market at a faster than expected pace. Industry experts predict continued year-over-year growth for FedEx.

This is also one reason why now is the right time to buy. Companies like Amazon are driving publicity and investor traffic to the delivery industry. As demand for FedEX routes continues to climb, so will the sales price of these operations. There are currently many opportunities to generate a larger return on investment (ROI) than just the net operating income (NOI) you secure from operating the business. Our team can guide you through the proper path to a successful investment.

FedEx routes are not part of a franchise. Corporations that own franchises often own the capital involved with your franchise. Or, corporations may collect franchise fees (you pay them) to use their branding and proprietary information. All franchise owners do the same thing, owe the same fees, and receive the same benefits. Fedex ISPs are the masters of their own universe in many ways. As a FedEx route owner/operator you will select your routes and negotiate your contract, independently of other ISPs.

FedEx routes are transferable. If you decide to move on from your investment, you can sell your routes (or a portion of your routes).

Well-run, efficient P&D routes will make a net income of about 15-25% of total revenue. (Anything advertised as higher than that is likely exaggerated.) This means, if you purchase a FedEx route with approximately $800,000 in revenue per year, you can expect to pull in approximately $120,000 in profit (or 15%).

While you will own vehicles as part of your FedEx business, you do not need to hold real estate. All FedEx ISPs operate out of FedEx terminals in their area. This significantly reduces your overhead and risk.

 

Current FedEx Routes for Sale

How to Find and Retain the Right Manager for Your FedEx Business

 Photo by Arthur Aldyrkhanov

Photo by Arthur Aldyrkhanov

Management Changes in the Purchase Process

When you purchase new routes, you may purchase routes with a manager already in place. You are probably excited about the experience this manager will bring to the table!

On occasion, however, existing managers choose to leave their position when a sale is in process. They may have stayed only to help out the previous owner or they may be looking for new work with someone they already know. Whatever the reason for their departure, it can add stress to the transition.

When purchasing a FedEx operation, you should always be prepared to have your manager give notice. Your manager will not be contractually obligated to you, so it is important to secure a window of support from the seller in case you lose your manager.

If this happens, you —or someone you trust—needs to be willing to step into that role for a few weeks, learn about what you need in a manager, and then take the time to hire a new one.

Though you may never face this challenge, it is important to have a contingency plan for your first weeks of operating.

Absentee Structures

To be a truly absentee owner, you have to have several layers of contingency plans in place. You would need a good manager, perhaps an assistant manager depending on the size, and part time drivers in place. If multiple drivers call out, you would have to make sure you have enough people in place to fill those spots.

Recruiting Great Managers

If you are looking to hire a new manager for your FedEx business, we suggest looking within your current operation first. Promoting an assistant manager, mechanic, or driver is a great way to ensure your new manager will be familiar with the operation from Day 1.

Moreover, a selection from among the team shows other team members that yours is a culture with opportunity and advancement potential. This feeling creates more loyalty in your employees.

You can also recruit with traditional online sources such as Indeed, Monster Jobs, Craigslist, and ZipRecruiter. You want to get a job posting in front of as many candidates as possible! Be sure to look for mechanical knowledge, logistics experience, and/or truck dispatch in their work history. We always tell owners that one of your first questions to a potential manager should be, “are you a halfway decent mechanic?” Managers who can help with the basics—oil changes, tire rotations, and wiper replacements—save you a lot of money overall.

With the scope of our operations, we’ve spent our fair share of time on job boards. And we have some pro tips to offer our consulting clients. If you’re interested in our insider tips to recruit more effectively, reach out for our consulting services.

You will want to use caution when you’re interviewing managers who work with existing FedEx businesses. You do not want to poach a manager from another contractor, specifically another contractor from within your terminal (because that's just not a good way to make friends!).

It happens from time to time that you do want to hire someone who is currently with another FedEx operation. In these cases we recommend working out a gentlemen's agreement with the other owner, giving them plenty of notice or waiting until they can fill the exiting manager’s position.

Retaining Great Managers

As with drivers, you should work hard to retain your manager. Keeping your team in tact is one way you can increase your business efficiency and, in turn, your profit.

It's also important to be honest and clear with your manager about your expectations for their role from the beginning.

In specific, you want to be clear about when they may be expected to drive for the operations and how often you expect this to occur. Your pay structure for the role should reflect these expectations. You manager needs a clear idea of how much they are expected to drive at their current salary. Additionally, they need to know how they will be compensated if they have to drive more than expected.

We also recommend offering an array of manager incentives as one method of retention.

Payroll Goal Incentive

Offer the manager a bonus for staying within his weekly payroll allocation consistently.

For example, if your business has 10 daily routes and the drivers make $600/week on average, your weekly payroll is $6,000. Allow an additional 5% for the manager to use during training and turnovers. This makes for a weekly payroll allocation of $6,300.

Let your manager know that If he/she maintains payroll at that level every week of the month, he/she will receive a $500 monthly bonus. Be sure to limit the amount your manager can drive in the operation if you implement a bonus like this! You want them managing, not driving to save on payroll.

Repair/Maintenance Incentive

If you’re willing to share books and records with your manager you can offer him/her a bonus for maintaining a total repair and maintenance number that is 15% (or less) of your total revenue.

Make the timeframe longer on this incentive to encourage preventative maintenance as well. You don’t want your manager cutting corners to save on the budget.

Linehaul Manager Incentives

The best bonuses for linehaul managers are ones that reward him/her for not declining runs or freight within a certain period of time. You want him/her to maximize your operations.

Need More Help?

We know recruiting and retaining drivers is hard work. We have experience across the United States managing a fleet of over 250 trucks and a staff of over 200 drivers. This challenge is real for us, too.

If you need help talking through your staffing issues, we’re here to help. Connect with us and we can work one-on-one with you as you navigate these challenges.

How to Retain Your Best FedEx Drivers and Handle FedEx Driver Turnover

 Photo by Oscar Nilsson

Photo by Oscar Nilsson

The route and trucking industry in the United States is in the midst of a severe employee shortage. The American Trucking Association (ATA) noted a shortage of 50,000 drivers at the end of 2015 and predicted that shortage would increase to 174,000 drivers by 2026.

Hiring New FedEx Drivers

The ATA’s own research says the trucking industry needs to hire 90,000 drivers each year in order to keep up with demand.

Low US unemployment numbers (less than 5 percent) further complicate the driver shortage. With so many employment opportunities, individuals can be pickier about the industry and company they work with.

Research shows that the booming construction industry directly competes with the trucking industry for employees. Construction and manufacturing opportunities often pay better with less travel, making the positions more desirable to potential employees.

How can you compete in these economic conditions and hire excellent FedEx drivers?

One of your best sources for finding new drivers is your existing drivers. We recommend offering an employee referral bonus. For example, you can offer your drivers a $50 bonus after the employee they referred is on the team for 30 days. And, and additional $100 bonus after the new employee crosses the 90 day mark.

You should also recruit with traditional online sources such as Indeed and Monster Jobs. In many ways, hiring new drivers is a numbers game. You need to get your opening in front of as many eyeballs as possible.

Retaining Your FedEx Drivers

Not only do these economic factors make hiring new drivers difficult, it makes retaining your current drivers difficult. Research shows that nearly 60 percent of new drivers will leave their current company within the six months after they start.

Extensive “poaching” occurs throughout the trucking industry: offering bonuses and higher pay for drivers to leave their current company. Moreover, the driver shortage often means that companies ask more of their current drivers and fail to keep their hiring promises (miles per week, time off, shift changes, etc.).

With all of this dire information, what can an owner do to retain the best FedEx drivers and hire great new drivers?

Build a Family Atmosphere and a Culture of Loyalty

Difficult days on the job are part of every job. They can feel particularly stressful for your drivers. And they have options to go elsewhere if they are stressed too often. Be sure you have an atmosphere where team members feel respected and can be open with management about their concerns.

When individuals feel as if they’re part of something bigger and they have an outlet for their frustrations, they are more likely to consider themselves as part of a family environment. And they stay on the job longer.

Similarly, be honest with your drivers about changes to their work experiences. If you are going to change their mileage or time off as a result of economic pressures, be upfront with them about how things are changing and how your team can support your drivers through the changes.

Purchase New Vehicles and Maintain Your Current Fleet

When drivers enjoy their physical working environment, they enjoy their job more. While construction jobs offer volatile weather and working conditions, there’s a lot to like about working in a clean, climate controlled vehicle most of the day.

However, that satisfaction will evaporate if the vehicles are old, prone to breaking, and dirty.

Leverage an Incentive Structure

Give your drivers a reason to perform above and beyond. Everyone enjoys recognition and appreciation for stellar work. A few incentives we recommend are attendance bonuses and raises for increased stop loads.

An attendance bonus example: promise your drivers that for every three months they go without a call out they will receive a full extra day of pay. That will keep drivers motivated to get in their seats!

Once you’ve established average daily thresholds for each driver, offer a raise for drivers who can increase their daily stop average by 20 stops (or whatever makes sense for your route). This gives drivers ownership over the efficiency of their day and incentivizes your team to think creatively.

Need more help?

We know recruiting and retaining drivers is hard work. We have experience across the United States managing a fleet of over 250 trucks and a staff of over 200 drivers. This challenge is real for us, too.

If you need help talking through your staffing issues, we’re here to help. Connect with us and we can work one-on-one with you as you navigate these challenges.

Amazon Delivery Service Partners Profit Margins and Other Details

 Photo by Irina Blok

Amazon made news in Summer 2018 when it revealed Amazon Delivery Services Partners. This program, sometimes known as a “last mile delivery service,” allows entrepreneurs to run independent companies that partner with Amazon to make deliveries happen.

Although the new structure made waves (as most Amazon announcements do), this business structure is nothing new. This is how FedEx delivers packages: with a network of independent service providers.

While we will monitor the Amazon route opportunities closely, we currently see no reason to consider them a threat to FedEx routes. Moreover, we still strongly believe FedEx routes are a better business opportunity for most investors.

Evaluating Profit Margins

Amazon’s new Delivery Services Partners website advertises an annual revenue potential of $1 million to $4.5 million. They also say that this revenue stream translates to an annual profit potential of $75,000 to $300,000.

The program is careful to note a few things: first, these estimates assume a fleet of 20-40 vans. Secondly, they admit they only estimate these numbers based on their internal research, “profit figures...are projections only and are not based on actual results of delivery companies. We do not guarantee results of any kind.

In a FedEx route business, we would expect a company with 20 vans or box trucks to generate annual revenue close to $2 million with an annual profit of $300,000.

Let’s break that down a bit more.

  Amazon DSP financials via the    Amazon Logistics    website. FedEx financial estimates based on    industry averages    from our experiences as brokers.

Amazon DSP financials via the Amazon Logistics website. FedEx financial estimates based on industry averages from our experiences as brokers.

We base these FedEx financial estimates on industry averages where FedEx Independent Service Providers earn approximately $100,000 in revenue per fleet van or box truck and healthy businesses have profit margins ranging from 15-20%.

A long history of savvy entrepreneurs investing in FedEx businesses gives us confidence in the financials of a FedEx business.

Conversely, there are unknowns and risks associated with an Amazon delivery business at this time. Beyond the profit margin discrepancies, we think there are several other issues potential investors must consider.

Operations Size

With an average 20-40 truck fleet, Amazon requires larger operations: more trucks and employees with smaller profits per truck.

Importantly, Amazon requires DSPs run operations seven days per week. Without a day off, owners will need two sets of staff since, under Department of Transportation (DOT) law, employees must have a 34 hour reset after 60/70 hours on duty in 7/8 consecutive days.

Thus, Amazon DSP businesses will likely need a Monday through Friday staff and then a Saturday/Sunday part-time staff. Owners of these businesses have a tall order to fill: manage a fleet of 20-40 vehicles and staff 40-100 employees each week of the year.

Based on operations size and Amazon DSP requirements, we expect that Amazon DSP owners will need to be hands on day-in and day-out. Conversely, owners of FedEx routes may choose to be very involved or operate as an absentee owner.

Training Requirements

Amazon currently requires all new Amazon DSP owners to travel to Seattle for one week of training. Further, Amazon then requires owners to conduct two weeks of in the field training. That’s three out-of-pocket weeks where income to your business isn’t flowing yet. FedEx does not have a similar requirement.

Insurance/Liability

One of the biggest considerations for investors looking at an Amazon DSP business is that Amazon requires contractors to hold their own DOT number. According to the DOT, “Companies that operate commercial vehicles transporting passengers or hauling cargo in interstate commerce must be registered with the FMCSA and must have a USDOT Number.

FedEx ISPs currently use a FedEx DOT number. Amazon DSPs will need their own number. This can have a significant impact on contractor’s costs and liability. The full scope of the implications of this requirement are still unknown, but buyers should be aware of this difference.

This is a game changer for the type of insurance contractors will need —it's much more expensive and riskier than being under FedEx's DOT number. This will undoubtedly cut into Amazon DSP profit margins and it represents an additional barrier to entry. The one upside to this is that the Amazon structure will likely make it easier to get drivers on the road since Amazon driver applicants will only be subject to DOT requirements. FedEx has more restrictive hiring policies in place currently, but recent announcements from FedEx suggests they are currently reviewing this model in an effort to lessen any potential recruiting pressures on FedEx CSP’s.

Demand

The high amount of publicity resulting from the Amazon DSP announcements increases the overall market interest in routes as an investment. This is a big positive for FedEx routes; as more investors wake up to the opportunity to operate delivery routes, many will realize how lucrative FedEx routes are for investors.


Current Route Listings

Understand How Geography Impacts FedEx Routes for Sale

 Photo by Tom Zittergruen

Photo by Tom Zittergruen

As you evaluate potential FedEx routes for sale as an investment, you need to consider the financial implications of each route’s geography. Routes that are more rural or more urban have specific challenges and benefits. 

Planning for the geographic impact of a route in advance will better position you to maximize revenue.

Rural FedEx Routes for Sale

In rural route districts, each stop is typically further apart than in more urban routes. A driver’s daily route will cover more miles. 

Vehicle Purchasing and Maintenance 

If your team covers more miles per day, you should adjust your vehicle purchasing and maintenance strategy accordingly.

Many rural contractors feel it’s better to operate used vehicles in rural routes because the extensive daily mileage increases wear and tear on the vehicles. However, while purchasing used vehicles reduces your upfront costs, you should expect higher and more frequent maintenance costs.

Additionally, consider the proximity of tow-shops, mechanics, and rental companies in rural areas. Some rural contractors need to drive 100+ miles for more significant repair work. This factors in to your overall maintenance costs. 

Fuel Costs

As your fleet travels more miles in a rural route, your team’s fuel costs will be higher than in other routes. 

 To maximize your profits, you will want to consider purchasing smaller and/or lighter weight fleet vehicles for better fuel economy. Gas vehicles may be preferable to diesel when available. 


Urban FedEx Routes for Sale

Routes in urban areas will cover less mileage per day. However, drivers in your fleet will stop more often. Your team will contend with urban congestion and difficulty navigating and parking in some areas. 

Vehicle Purchasing and Maintenance 

Because urban routes cover fewer daily miles than rural routes, many contractors in urban areas purchase a new or almost new fleet of trucks.

This strategy has a higher upfront cost, but saves contractors time and money in vehicle maintenance and repair. There is also greater depreciation capture with this strategy. 

Further, fleets servicing urban routes are closer to terminals for support if one of their trucks breaks down or is involved in an accident. 

If your route covers dense communities—downtown areas like Chicago, Indianapolis, and Nashville, for example—you should consider smaller vehicles (cargo vans, P700’s, etc.) for ease of use.

Customer Service and Period Safety Incidents

In urban areas your fleet will interact with more customers. They will come into contact with more commercial and residential spaces. And, they will encounter more traffic on the roads. 

This is a recipe for increased accidents. 

The Independent Service Provider (ISP) contractor model incorporates two types of bonuses: Customer Service Incentives (CSI) and Period Safety Incentives (PSI). You will negotiate these bonuses as part of your FedEx contract.

Each of the bonuses pays out at regular intervals and the bonuses decrease each period if violations or issues occur. For example, your CSI bonus may decrease if there were customer complaints against your team or if you had late or missed deliveries.

The PSI bonus may decrease for safety issues such as vehicle accidents, property damage, and individuals injured on the job. 

Consider the increased opportunities for incidents when you select an urban route (and, particularly, when you negotiate contracts for urban routes). 

What’s Next?

Potential buyers sometimes believe that urban routes are better because they can complete more stops in fewer miles. However, urban routes have their own challenges (as we highlighted above). 

Additionally, FedEx awards higher bonuses to rural routes to compensate for the fewer stops and increased mileage. Thus, there are compelling reasons to consider urban and rural routes as you plan your purchase.

We have listings across a range of geographies. Evaluate our listings and talk with us about the type of business investment you are considering.

As you evaluate potential FedEx routes for sale as an investment, you need to consider the financial implications of each route’s geography. Routes that are more rural or more urban have specific challenges and benefits. 

Route Consultant Listings

Interested in a FedEx Franchise? What You Need to Know Before You Buy a FedEx Route

 Photo by Aleksandr Kozlovskii

Photo by Aleksandr Kozlovskii

FedEx businesses are not, actually, franchises at all

Investors who buy FedEx routes provides services as Independent Contractors (ICs) or as Independent Service Providers (ISPs). Route owners do not operate franchises.

Traditional franchises do a number of things to control branding and ensure success. They provide franchise training and franchise rules/regulations. Corporations that own franchises often own the capital involved with your franchise. Or, corporations may collect franchise fees (you pay them) to use their branding and proprietary information. 

Franchises are often standardized. All franchise owners do the same thing, owe the same fees, and receive the same benefits. 

What Buying/Owning a FedEx Route Is All About

Fedex ISPs are the masters of their own universe in many ways. As a FedEx route owner/operator you will select your routes and negotiate your contract, independently of other ISPs. 

You are responsible for your fleet of trucks. Plus, you have full control as a business to hire and train your drivers. 

Additionally, you have the space as a business owner to creatively solve problems and maximize your profit margins. Healthy FedEx P&D businesses have profit margins between 15 and 25 percent—you can look to trend upward when you buy a new business.

And FedEx Routes are transferable. If you decide to move on from your investment, you can sell your routes (or a portion of your routes).

If you’re thinking of buying a FedEx route, we recommend you ask yourself these questions:

Do I understand business financials and the basics of investment? Do I know how these standard metrics apply to a FedEx operation? 
Am I comfortable managing customer questions, issues, or concerns? There won’t be much in the way of customer concerns to deal with. 
Have I previously owned or operated a company with employees in a high turnover industry?
Alternative question: Do I understand the important of choosing the correct fleet strategy for my business?


Types of FedEx Contracts

Independent Contractor (IC)

Historically, FedEx contractors operated under the Independent Contractor (IC) model. The IC model had standard payouts to contractors. 

Monthly IC bonuses award contractors $970 per ground Primary Service Area (PSA) and $600 per home delivery PSA. These are given 12 times a year. The percentage of the incentive received goes down with every complaint, missed delivery, accident, etc. 

Contractors received quarterly bonuses four times per year and the amount is based on the number of PSAs in the contractor’s territory.

Some existing contractors continue to operate under the IC model, but the FedEx base of contractors will fully transition to the ISP model over the next couple of years.

Independent Service Provider (ISP)

In January 2016, FedEx announced that all Fedex P&D contractors will transition to the  Independent Service Provider (ISP) model by May 2020. 

As part of your ISP contract, owners negotiate charges with FedEx. These are charges from you the contractor to FedEx the company. These charges reflect real cash flowing into your business. 

The charges you outline in your ISP agreement include,

  • Service Charge
  • Stop Charge
  • Surge Stop Charge
  • Per Stop Fuel Surcharge
  • Package Charge 
  • New Account Startup Charge
  • Apparel Brand Promo Charge
  • Vehicle Brand Charge

The ISP model also incorporates two types of bonuses: Customer Service Incentives (CSI) and Period Safety Incentives (PSI). 

Each of the bonuses pays out regularly at an amount negotiated in your contract. The bonuses decrease each period if violations or issues occur. For example, your CSI bonus may decrease if there were customer complaints against your team or if you had late or missed deliveries.

The PSI bonus may decrease for safety issues such as vehicle accidents, property damage, or individuals injured on the job. 

Both the CSI and PSI bonuses are ways in which FedEx influences contractor team behaviors without mandating behaviors. 

Linehaul 

It’s worth somehow noting that linehaul is, and likely always will, most closely resemble the IC model. 

Linehaul contracts pay owners based on miles traveled. Similarly, linehaul bonuses pay out based on miles traveled. As with ISP bonuses, linehaul bonuses decrease when there are service or safety incidents. 

These contracts are evergreen—they have no expiration. Annual revenue rates increase every year on September 1st. There is no annual negotiation or review per contractor.

Linehaul runs are a lucrative and risky business due to their size. Some contractors say linehaul runs are 90% boredom and 10% terror. But they can be an incredibly profitable investment for the right contractor. 

What’s Next?

If you’re just starting out, looking at FedEx routes for sale, we recommend you do your research. We have topics including,

If you need to talk to a real person to ask your questions and get a deeper level of understanding, connect with Annalee

And, if you’re ready to look at individual listings, give our exclusive listings a review and reach out with follow-up questions.
 

Looking at FedEx Routes for Sale? Here's How to Finance Your FedEx Route

 Photo by  Max Boettinger

Myth: Investors Can't Use Financing to Buy a FedEx Route

Fact: You Need to Find the Right Route and the Right Financial Institution

Potential buyers often turn to bank financing to purchase FedEx routes.

Many investors do not want to invest all cash in the purchase cost of a route (typically ranging from $300,000 to over a million dollars). Some investors simply do not have that type of cash on hand and others want to hold back cash in order to cover capital and maintenance expenses for business operations after purchase.

If you are considering financing a FedEx route, the two most common types of loans are a Small Business Association loan and a conventional loan. 

Small Business Association loans

Small Business Association (SBA) loans 

Pros

  • SBA loans often offer longer terms with lower monthly payments

  • Some SBAs have deep experience with FedEx operations (thus making it easier and quicker to secure a loan)

  • SBA loans often require a lower down payment (ranging from 5 to 20% of the purchase cost)

  • Loans via SBA are easier to secure for applicants with fewer liquid assets

Cons

  • SBA loans may have higher fees

  • For SBAs without experience financing FedEx routes the process may be longer and more difficult than a conventional loan

  • SBA discourages (at times prohibits) supplemental or additional financing to prevent SBA payback issues.

  • Any seller financing included in the deal cannot be paid back until after two years.

Conventional loans

Conventional loans would be a loan you received from a local or national bank.

Places where you have a checking account, a car loan, or your mortgage are all places that would possible provide you with a conventional business loan.

Pros

  • Conventional loans take less time and are easier to secure for qualified applicants

  • These loans typically have lower fees and rates

  • Applicants may use personal relationships (such as your existing mortgage or car loan officer) to secure a business loan

Cons

  • Conventional loans usually have shorter payment terms and higher monthly payments as a result

  • Securing these loans often requires down payments of at least 20-25% of the total purchase cost

Conventional banks and credit unions have higher standards for business loans and require borrowers to have better credit and more liquid assets.

How to Get Financing to Buy a FedEx Route

If there are financing options available to buy a FedEx route, why do some brokers discourage financing? They probably lack a quality pool of sellers and relationships with financial institutions.

In order to finance a business, banks require clean financial records and historical documentation from the seller. Some sellers keep messy record and these routes are difficult to finance. However, Route Consultants has a deep well of quality FedEx routes for sale with plenty of routes where financing should not be a problem. 

Moreover, we have excellent relationships with several financial institutions and these institutions we regularly work with are familiar with FedEx route sales. Familiarity = less hassle. 

Next steps in Understanding Your Finance Options

If you need help finding and financing a route, here's how to proceed:

1) Connect with our team and let them know up front that you will need to finance your route; our team can help you evaluate the listings with the strongest financials for financing

2) Begin conversations with our team about how to secure financing (note: our team does not provide financing, but can guide you through the process)

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How to Negotiate the Strongest Contract for Your FedEx Business

 Photo by Fahrul Azmi

Photo by Fahrul Azmi

Learn about the charges you will negotiate in your ISP contract

As a new FedEx contractor, you may find contract negotiations overwhelming. There are a lot of moving pieces to the puzzle! 

Following is a quick overview of the charges you will negotiate as part of your Independent Service Provider (ISP) contract. 

Contract Charges

When we talk about charges here we are talking about charges from you, the ISP, to FedEx.

You are charging FedEx for your services. You will negotiate each of the following ten charges with FedEx. All of these charges combined account for money flowing into your business.

It’s critical you understand how and when those charges occur. And how you can increase your cash flow!

Service Charge: This is a fixed amount of money that is paid every week. Think of this like your base pay. 

Stop Charge: This is a variable component that is the base amount paid per stop that each driver makes. 

Surge Stop Charge: Every contractor has a daily stop threshold, or a contractual maximum number of stops that FedEx says that you (their ISP) agree to make per day. Any stops your team makes above your daily stop threshold earn your an extra charge, on top of the regular stop charge. Contractors negotiate the surge stop charge with their agreement.

Per Stop Fuel Surcharge: FedEx helps subsidize fuel costs. This variable charge is paid per stop and fluctuates with current fuel prices. 

Package Charge: This is a charge that is paid per package delivered; you negotiate what that charge will be per package as part of your contract. 

Period Safety Incentive (PSI): This is a fixed incentive or bonus paid every four weeks. Contractors negotiate the payout with their agreement. Contractors receive 100% of the incentive it there were no safety incidents during the payout time period. If the contractor’s team had reported safety incidents (for example, truck accidents or personnel injuries), the incentive is subject to deductions. Each incident results in a tiered deduction of a percentage of the incentive.

Customer Service Incentive (CSI): This is a fixed incentive or bonus paid every four weeks. Contractors negotiate the payout with their agreement. Contractors receive 100% of the incentive it there were no service complaints or violations during the payout time period. Similar to the PSI, the incentive is subject to deductions if contractors receive customer service complaints. Each incident also results in a tiered deduction of a percentage of the incentive.

New Account Startup Charge: This is a fixed charge for every new account opened. New accounts may be businesses along your route who want to establish pickup/delivery services. 

Apparel Brand Promo Charge: ISP contractors receive a flat rate amount per pay cycle to encourage their team to wear appropriate FedEx brand apparel. 

Vehicle Brand Charge: ISP contractors receive a flat rate amount per pay cycle for every vehicle they operate that has a FedEx logo on it.

Need help understanding your contract?

We have extensive experience navigating contract negotiations. We can help you understand the contract terms and the negotiation process overall. 

Contact us for consulting or more information about our services. 

If you are interested in buying a new or additional FedEx route, check out our FedEx routes for sale listing page for operations currently on the market.

Grab Our Free Resources

What You Need to Know About P&D FedEx Routes for Sale

 Photo by Paul Hanaoka

Photo by Paul Hanaoka

Get the Skinny on Buying FedEx Ground Routes and FedEx Home Delivery Routes

If you are considering investing in a FedEx route for the first time we recommend starting with a pickup and delivery (P&D) FedEx business. A Fedex P&D route business is easy to learn and simple to operate.

The Structure of a FedEx P&D Route

FedEx P&D operations deliver to local homes and businesses in a designated territory, outlined in your Independent Contractor (IC) or Independent Service Provider (ISP) contract

There are two sides to the P&D coin: home delivery routes and ground routes. 

Historically, contractors could have either home delivery routes, grounds routes, or both.

Along with the FedEx transition to all ISPs, FedEx will require a contractor to operate both home delivery routes and ground routes within a given area by May 2020. 

The FedEx home delivery routes:

  • Primarily deliver to residential households.

  • Operate Tuesday through Saturday.

  • Have smaller to medium trucks and boxes.

  • Have high seasonal variability (with businesses often making a large part of annual revenue in the four weeks leading up to Christmas).

Ground routes are the other side of P&D routes.

FedEx ground routes feature:

  • Delivers primarily to commercial businesses.

  • Heavier packages and larger trucks.

  • Routes that run Monday through Friday.

  • Less seasonal variability than home delivery routes.

The Pros and Cons of a FedEx P&D Route

Pros:

  • Easier to hire drivers

  • Smaller trucks

  • Concentrated geographic territory

  • Lower risk than linehaul runs

  • Ability to increase business size and ramp up operations

Cons:

  • Lower gross profit than linehaul runs

  • You must own both ground routes and home delivery routes in your territory (this can also be a pro: overlap may be a pain, but it also increases the efficiency of the operation and can increase the profit)

  • Intense seasonal variability within home delivery routes

Are you the right investor for a FedEx P&D Route?

While the average investor in a FedEx route varies widely, we do notice a number of similarities among those who buy a FedEx route:

You might be the right investor to buy a Fedex route if you:

  • Have some type of business background

  • Previously owned or operated a company with employees

  • Have experience making payroll

  • Know how to manage customers and customer issues/concerns

  • Understand business financials and the basics of investment

  • Have a sense for how you will fund or finance a FedEx route investment

We’d love to talk with you more about FedEx P&D routes and how to evaluate the routes for sale. 
 

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Looking at FedEx Routes for Sale? Ask These Questions

 Photo by Martin Sanchez

Photo by Martin Sanchez

Questions that will help ensure Success when you buy a FedEx route

 

Do I have business experience? 

Operating a FedEx business requires you to manage all aspects of an independent business: payroll, taxes, maintenance, hiring/firing, insurance, customer service, etc. This is a detailed operation that will require strong problem solving skills and experience helps.

 

Have I previously owned or operated a company with employees?

A significant chunk of your business time will be spent managing employees. You will need to hire drivers and linehaul drivers will be more difficult to find. Once hired, you will need to onboard and train all news employees. You'll also need familiarity with making payroll, addressing employee issues or concerns, and handing employee disputes.

Productive, happy employees makes a sizable impact on your bottom line.

 

Am I comfortable managing customer questions, issues, or concerns?

FedEx uses (customer service incentives) CSIs to ensure high quality service among contractors.

All contractors receive CSIs on a regular schedule (based on a negotiated rate in their contract). The CSI bonus decreases in a given period if there were CSI complaints against that contractor. Your FedEx business profits when customers are happy and suffers when they aren't.

Being comfortable serving customers and addressing their issues (and training your employees to do so as well) is a must for FedEx business owners.

 

Do I understand business financials and the basics of investment?

Buying a FedEx route is more than creating a job for yourself. It's a serious investment with real profit potential.

Have a sense for how you will fund or finance a FedEx route investment. What's your best strategy? How will you pay off any funding or financing? Can you pay off financing sooner than expected?

Think short and long term about your capital costs and your profit margins. How can you improve that margin and bring real, additional cash into your pocket?

WHAT'S NEXT IF YOU WANT TO LEARN MORE?

If you are interested in buying a FedEx route, check out our listing page for operations currently on the market.

If you need more help with the details and navigating contract negotiations, contact us for consulting.

We can walk you through pieces of the puzzle for buying a FedEx route, such as:

  • IC vs. ISP Business Models
  • Overlap Requirements
  • Understanding Contract Terms
  • Optimizing Operations
  • Fleet Management
  • Business Valuation
  • Terminal Relationship Management
  • Driver Recruitment/Training

And, as always, give us a call and we can help point you in the right direction.