How do freight brokers get paid?

Brokerage Floor in Chattanooga

Unlike many sales jobs, freight brokers are normally paid based on the gross margin of loads, rather than the gross revenue number. The reason for this is that gross revenue is not the key metric for a brokerage in any industry. The most important metric is the profitability of each individual buy and sell transaction. 

Gross margin vs. gross revenue – Gross revenue is what a freight broker charges customers, which are normally called shippers. The gross margin is the difference between what a freight broker charges a customer (GR minus the cost of purchased transportation, or the amount a freight broker pays a carrier to move the load). 

Gross Margin = price charged to shipper – price paid to a carrier 

The difference between the customer price and cost of purchased transportation measures the true profitability of each transaction.  

This is an important distinction for a freight brokerage in much the same way it is an important distinction for an individual freight broker’s commission. Gross revenues can be a deceptive metric for a freight brokerage. Unlike most industries that have relatively stable costs for manufacturing or providing services, the cost of purchasing transportation from carriers is highly variable. This can be illustrated by comparing the following two loads: 

$5,000 charged to customer – $4,500 paid to the carrier = $500 gross margin or net revenue 

$2,000 charged to customer – $1,500 paid to the carrier = $500 gross margin or net revenue 

In the example above the $5,000 load will represent 250% more in gross revenue, but at the end of the day both loads bring in the same amount of gross margin.

Net revenue – is another term used to describe gross margin. Net revenue is usually used in accounting and finance to differentiate between the gross revenue collected from customers and the revenue left over after the freight brokerage pays a carrier to move the load. 

Unlike industries that produce tangible products and have a stable cost structure for production, freight brokerages’ cost of purchased transportation is volatile and variable. Freight brokerages operate like financial brokerages that buy and sell varying assets on a daily basis and only charge a commission for their services. 

One prime example of a brokerage model is eBay. While there might be billions of dollars bought and sold each year on this platform, the company only really earns its commission on each transaction. So, only the commissions eBay earns – its net revenue – is available to pay technology, marketing, administrative and payroll costs. Of course, what is left over is the company’s profits. 

Commission for freight brokers – So, whether a freight broker sells $50,000 or $500,000 of freight to customers is immaterial to the commission. How do freight brokers get paid? The only metric that really matters is the profitability of each of those transactions or loads, which is described as the gross margin or net revenue. 

Compensation and commission plans vary from one freight brokerage to another, so there is no one universal commission plan. Some freight brokers earn a base salary plus commissions and others are paid on commission only. According to FreightWaves 2019 freight brokerage compensation survey, the median entry-level salary for a freight broker is $40,000 per year with an average commission of 13% to 15% of gross margin on loads. 

What is the average commission rate on gross margins at your brokerage office?

Source: FreightWaves 2019 freight broker compensation survey. 

So, an entry-level freight broker selling on average $20,000 per month in gross margin would expect to earn $71,200 per year with a 13% commission. 

You can find more information on freight brokerage sales on the popular FreightWaves sales show, Put That Coffee Down

SONAR provides the fastest freight market data in the world, across all major modes of traffic. 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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What's the SONAR ROI?

By increasing the number of loaded miles per day your drivers drive by 1% and your rate per mile by $0.03 you will make more per week #WithSONAR.

#WithSONAR you can save up to per week through better bid negotiations and more effective management of your routing guide.

#WithSonar you can add 1 more load per person each day and increase $5 margin per load, earning your company an extra per week.

Disclaimer: Every company’s circumstances are unique. Fixed and variable expenses, market conditions and operational factors vary. Unforeseen events may also affect results. Calculated potential results reflect the consensus expectation of FreightWaves’ experts. Actual results may vary.

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