Total Revenue - Total Expenses = Net Operating Income
When you purchase a FedEx Ground route for sale, fundamentally what you are purchasing is a revenue stream. FedEx Ground routes have predictable revenues with few variables. It’s what makes these businesses such solid investments!
If your revenue is predictable with few variables to significantly change it, then how do you impact your Net Operating Income (or take-home pay)? You focus on Total Expenses.
This is what we’re looking at today.
As a Reminder: How Much Money Can You Make With a FedEx Ground Route?
Profit Margin is your Net Operating Income represented as a percentage of Total Revenue.
Healthy FedEx Ground pickup and delivery (P&D) routes have profit margins ranging between 15% and 20%. Linehaul operations have profit margins ranging between 20% and 45%, depending on the included distances and solo driver vs team driver structure.
Expenses You’ll Find On a P+L Statement
Salaries + Wages
In our experience, salaries and wages (payroll) costs between 40 and 50% of total business revenue. Some resourceful businesses keep payroll costs to 35%, but we are skeptical of any claims where payroll is less than 35% of Total Revenue.
Businesses showing payroll costs above 50% have serious efficiency problems. For potential buyers, this may look like opportunity.
On Profit + Loss (P+L) statements you’ll typically find salaries and wages calculated by averaging weekly payroll records and annualizing. You should see this expense moving proportional to changes in revenue if the business operates efficiently.
In our listings we help P&D businesses calculate fuel factoring in a business’s average miles per day and total number of routes. We assume 255 working days per year and that fleet trucks average 10 miles per gallon.
We calculate fuel for linehaul operations using average miles per week. We assume 52 working weeks per year and that tractor-trailers average 6.25 miles per gallon.
When appropriate, we may add a cushion to account for rising fuel costs.
The vast majority of businesses will use a fuel card for this expense. If you need vendor recommendations, please reach out to our team. Fuel cards are one critical tool for reducing employee theft; additionally they make tracking and vetting average fuel expenses easier.
In our experience, plates cost approximately $200 per P&D truck and $2,350 per linehaul tractor-trailer. We use these numbers to model expenses for our listings.
Payroll tax rates are state-specific. To calculate payroll taxes, find the tax rate for the state where the business is located and multiply the tax rate by Total Salaries + Wages.
Worker’s comp. insurance rates are state-specific. To calculate worker’s comp., find the rate for the state where the business is located and multiply the worker’s comp rate by Total Gross Salaries + Wages.
Truck insurance typically costs around $1,000 per year per P&D truck and $2,000 per year per linehaul tractor-trailer.
This number may vary, but we see it typically hovers around $500 total.
Uniforms cost approximately $300 per employee annually.
Accounting and Legal
A average FedEx Ground route business can generally cover required accounting and legal costs for $2,000 per year.
Most route business spend approximately $2,000 in supplies per year.
Travel and Entertainment
You should allocate roughly $1,000-$2,000 annually to cover employee appreciation or travel.
Equipment Maintenance and Rental
Typical P&D repair and maintenance costs are between 11-15% of Total Revenue. To better estimate this expense, we recommend evaluating the age of the fleet and the daily mileage per route.
For linehaul tractor-trailers, we find typical repair and maintenance costs are between $0.15 - 0.25 per mile.
Where Do We Go From Here?
Understanding a business’s Total Expenses will help you better understand its challenges and opportunities.
Furthermore, a close look at Total Expenses is an excellent sniff test for an attractive listing. Is the Profit Margin suspiciously high (> 30%)? Which expenses might not be accurately represented? Which expenses fall outside industry standards?
If you need help digging into a business’s expenses or modeling expense, our team would love to help!