Understand the Profit Margins for FedEx Routes for Sale
You’re ready to buy a FedEx Ground route. You understand the difference between a pickup and delivery (P&D) route and a linehaul run. You know a P&D route is the right business for you.
After perusing the web and exploring your options you see a business for sale advertising a 30% profit margin.
Wow, 30%!? That’s amazing! But is it too good to be true?
Yes. That is too good to be true.
Evaluating Profit Margins
While a very profitable business, FedEx route businesses do not generate profit margins of 30% or more.
As you look to buy a FedEx Ground route, look for P&D businesses with profit margins between 15 and 20% of revenue. These are healthy businesses!
For example, if you purchase a FedEx Ground 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 Ground routes are actually capable of making. Anything advertised as higher than that is likely exaggerated.
FedEx Ground route businesses do not generate profit margins of 30% or more.
At times you will see brokers/sellers advertise FedEx routes for sale with extraordinary profit margins. They create this attention-grabbing margin by inaccurately calculating or intentionally misrepresenting the Total Expenses of the business.
The beauty of a FedEx routes investment is that revenue and expenses are consistent and predictable. Because of this predictability, industry experts can help you model business expenses and understand what’s possible/likely.
We recommend working with a respected, well-known industry consultant to model revenue and expenses before you purchase any business advertising eye-popping profit margins.
Linehaul Profit Margins
As we've noted before: everything is bigger with linehaul! This includes the profit margins.
If you are looking at FedEx linehaul operations, consider that healthy linehaul businesses may demonstrate profit margins between 20 and 45% of revenue. This wide range depends on whether your linehaul runs are solo, team, or combination runs.
Linehaul portfolios heavy with solo runs will have profit margins closer to the 20-30% range. FedEx businesses with a heavy composition of linehaul team runs have potential for the higher profit margins: up near 45%. Team linehaul runs have the highest profit margins in all of the FedEx Ground portfolio.
Beware of linehaul routes for sale that advertise crazy high profit margins (above 45%). Additionally, do not expect linehaul businesses with solo runs to have profit margins up near 45%—listings advertising higher profit margins on solo runs are misleading.
Evaluating Business Expenses
When you look at FedEx routes for sale, pay attention to their expenses. Look at what they claim to pay out for payroll, repair and maintenance costs, etc. Be leery of claims with figures far outside the ranges of other listed businesses.
In our experience, payroll costs equal between 40 and 50% of total business revenue. Some very resourceful businesses keep payroll costs to 35%, but be cautious of claims that payroll costs are lower than 35% of total business revenue. Businesses with payroll costs above 50% have serious efficiency problems.
Truck repair and maintenance numbers vary widely based on a businesses investment and efficiency strategy, but new contractors can expect fleet maintenance expenses to account for approximately 11 to 15% of revenue. If most of the trucks in the fleet are new models with low miles, the maintenance costs can equal less than 11% of business revenue, but this figure is rare.
Other business expenses will include fuel, taxes, insurance, license plates, equipment, uniforms, accounting, office supplies, and required medical physicals for drivers.
Conducting Due Diligence on FedEx Routes for Sale
As you consider buying FedEx routes for sale you need to know that these businesses are structurally simple and niche.
Someone steeped inside this industry can (and will) model revenue and expenses for a route business. However, if you are new to FedEx routes and you approach due diligence as you would a more traditional business for sale you are going to miss indicators.
When you buy a FedEx routes for sale, you’re buying the revenue stream. You need to work to model the revenue stream. Additionally, you need to identify efficiencies in the expenses.