The two most popular freight broker business models are the cradle to the grave (C2G) and the Chicago or buy/sell model. Both offer benefits and challenges when it comes to improving a freight brokerage’s profit and loss (P&L) statement. At the end of the day though, freight brokerages must commit to one or the other and hit the ground running with laser focus.
In this article we’ll define both of these popular freight broker business models and examine the pros and cons of each.
Defining each freight broker business model
Buy/Sell (Chicago model) – It’s often called the Chicago model because it gained popularity with Chicago freight brokerages, much like the West Coast offense in football started in San Francisco. The strategy is to divide the sales and operations into two separate roles. Sales is responsible for signing new shippers and expanding the amount of business with current customers. The operations or carrier sales team is responsible for moving loads, which includes carrier sourcing, negotiating freight rates and managing loads.
Cradle to the Grave (C2G) – This is the original freight broker business model. Each broker is responsible for maintaining and growing his/her individual book of business. From covering loads and making check calls to sourcing leads and closing new business, each broker owns his/her own process and book of business from beginning to end. This philosophy has always been popular, especially for independent agents and at freight brokerages that emphasize an entrepreneurial culture of ownership of the entire process. C2G brokers are often an island to themselves and tailor their processes and style to their shipper’s needs.
The pros and cons of each freight broker business model
Chicago model – By dividing sales and operations into two distinct teams, scaling a freight brokerage becomes easier. The sales team focuses on landing new shippers and upselling existing shippers. This dedicated focus on new revenue allows freight brokerages to grow their customer base much faster than the C2G model, in which freight brokers have much less time to dedicate to prospecting for new shippers.
The buy/sell freight broker business model has an inherent benefit in regard to training new employees. Rather than expecting inexperienced new hires to get on the phone selling freight to shippers, the buy/sell model inserts new employees into the role of carrier sales. By doing it this way, inexperienced new hires learn the freight business by covering loads and negotiating rates.
C2G – Total account ownership is the name of the game for the C2G freight broker business model. When one freight broker is the single point of contact for each shipper, then consistency of service is more manageable. One point of contact also builds a deeper level of trust, since one broker is handling all aspects of a shipper’s account including covering loads, negotiating freight rates, tracking shipments, and resolving billing disputes.
Another major factor that is considered a plus for C2G freight brokerages is cost. For those freight brokerages that believe any non-revenue producing employee is an avoidable expense, then bypassing the overhead of a carrier sales team boosts the P&L.
Using data and insights
as your guide to freight
Chicago model – While splitting sales and operations into two distinct groups sounds simple enough, it is challenging to implement and execute. For a new freight brokerage, the carrier sales team is a significant expense while the brokerage scales up by adding new shippers. This initial start-up expense places significant pressure on the P&L.
For C2G freight brokerages that want to capture the sales growth that is promised with the buy/sell freight broker business model, the transition pains can be intense. It is a complete shift in the culture. C2G freight brokers can be so worried about losing customers over service failures that they never fully let go of control of the day-to-day tasks. When this happens the transition to the buy/sell model loses momentum and eventually reverts back to business as usual.
C2G cons – The greatest strength in the C2G model is also its weakest link. Establishing one point of contact for a shipper leaves the account vulnerable if the freight broker leaves the company. C2G freight brokerages struggle with service levels from broker to broker. Each broker tends to have his/her own style that often is designed to meet the needs of individual customers. If one broker leaves and another takes ownership of the account, getting up to speed might not happen fast enough, and the circle of trust becomes broken.
The other major drawback of C2G described earlier is in scaling sales growth. With most time spent on servicing existing customers, there is little time dedicated to prospecting for new shippers large enough to move the needle. This dynamic puts the freight brokerage’s P&L in a dire position if any of their largest accounts leave.
How SONAR aids freight brokers
FreightWaves SONAR provides the fastest freight market data in the world, across all major modes of traffic. No matter your freight broker business model, the SONAR platform is the only freight forecasting and analytics platform that offers real-time freight market intelligence-driven off actual freight contract tenders.
SONAR has proprietary data that comes from actual load tenders, electronic logging devices and transportation management systems, along with dozens of third-party global freight and logistics-related index providers like TCA Benchmarking, Freightos, ACT, Drewry and DTN.
Whether you’re working from the office or from home, SONAR can provide you the data and intelligence you need to stay ahead of your competitors.
Find out more about FreightWaves SONAR for brokers.
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