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.
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.
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.