5 Step Guide: How to Buy a FedEx Route to Make Money
Did you know that you can purchase FedEx routes and profit from every delivery made in your area? It’s a business strategy that’s been around for a long time now, and FedEx delivery routes have a thriving market. Here’s how to buy a FedEx route:
- Determine your budget and objectives.
- Learn FedEx’s Internet Service Provider (ISP) requirements.
- Search for available FedEx routes.
- Examine the FedEx route listings.
- Finance and contract.
In this article, I will also go through the benefits and drawbacks of owning FedEx routes so you can get a better idea of what it takes to run this type of business.
Let’s get started!
How to Buy a FedEx Route (5 Easy Steps)
In five easy steps, you can purchase a FedEx route. Here’s how to do that:
Step 1: Determine Your Budget And Objectives
Before you begin looking for FedEx routes, you must first answer the following questions:
Choosing the Right Size of FedEx Route Business
Possibly the most crucial question to answer. You can’t begin a successful search until you know how big of a company you want to buy and how much you want to pay for it.
If you have big bucks saved and have the time to spend training the personnel then you can go for a big purchase, but if you have little in savings, then I’d say make a small purchase.
Finances For a Down Payment And Financing Plan
You will need to figure out how much money you have (and want) to put into this firm and whether or not you’ll be able to get financing for it (have your records in order and make sure your credit is in good shape).
Determining the Right Category of FedEx Route
As previously stated, there are two types of FedEx routes available for purchase: P&D and Linehaul. When deciding between the two, you must be aware of the trade-offs and confident in your decision.
You will make less money on P&D routes, but there will be fewer complications and risks. If you’re just getting started, this might be the best option.
Linehaul routes, on the other hand, may allow you to make more money, but they will cost more to buy and operate, and your drivers will need to be more specialized (commercial driver’s licenses, or CDLs, for short).
CDL drivers that are dependable and safe may be difficult to come by and keep. And, of course, when transporting packages by a tractor-trailer, the risk of a disaster is substantially higher.
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Step 2: Learn FedEx’s Internet Service Provider (ISP) Requirements
You must sign a FedEx Independent Service Provider (ISP) agreement if you wish to own a FedEx route business. You must analyze and follow the precise conditions of that agreement about various parts of the route delivery company.
Key requirements under the FedEx ISP Agreement are listed below:
|Must be a non-profit corporation||No limited liability companies, limited liability partnerships, sole proprietorships, partnerships, or limited partnerships are permitted.|
|Must employ all personnel||Must have responsibility for the following:-Employee-related expenses-Payroll deductions-Training personnel-Ensuring employees are legally allowed to work in the US.|
|Must follow agreement terms||General contractual obligations include:-Maintain a safety and compliance program-Corporation in good standing-Service reliability-Vehicle maintenance-Maintain the image of FedEx-Remain committed to FedEx business.|
|Must comply with route requirements||ISP Agreement requires:-Minimum ownership of 5 routes or 500 stops per day-Cannot hold more than 15% of routes in a given termination (subject to certain exceptions)-Must provide both business and home deliveries within the territory.|
This table shows the key requirements under the FedEx ISP Agreement.
Obviously, if you’re serious about doing this, you’ll need to form a corporation that will sign the ISP deal. A knowledgeable attorney should be able to assist you with this.
You must also follow all of the other ISP standards, including establishing a safety program and putting in place all other employee-related procedures.
Now that I’ve covered the essential background information, let’s get to the interesting part: determining the ideal route for you!
Step 3: Search For Available FedEx Routes
You can start exploring routes that suit your criteria now that you have a clear understanding of your financial situation and the type of FedEx route you want to buy.
Let’s begin with the most obvious location: ‘FedEx’. On their website, buildagroundbiz.com, they have routes for sale. There are also third-party websites to look at.
Here’s a list of sites where you can buy FedEx routes:
Step 4: Examine the FedEx Route Listings
You should be able to get a fair idea of what types of numbers a FedEx route business should have as you read through the various listings. If you come across one that appears interesting, you should start the due diligence process on it right away.
The word “due diligence” refers to the process of performing research. Before buying a FedEx route company, you should do a lot of research.
Examining the FedEx routes involves:
- Reviewing the numbers
- Employee statistics
- Turnover rates
- Length of employment
- Age and condition of the fleet’s vehicles
You should also compare the data provided by the seller against industry standards to ensure that they are accurate.
If the data appears to be significantly better than the rest of the industry, and the seller is basing the purchase price on them, you should be skeptical and investigate further.
It can be a bit perplexing if you’re new to all of this. You can engage a diligent professional to assist you if you need help comprehending the figures or any other part of the purchase.
There appeared to be a number of them specializing in this space last I searched online.
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Step 5: Contract And Finance
You must enter into a contract to buy a FedEx route and examine and sign any other needed legal papers involved with the acquisition once you have decided on a FedEx route.
How Does a FedEx Route Get Funded?
FedEx routes are mostly funded by SBA-backed and conventional loans. but if the seller is prepared to offer it, you might be able to acquire seller financing. Fundera is a good option if you prefer to work from home.
Fundera is partnered with Nerdwallet and provides small business finance choices from a number of different lenders.
Once you submit an application, they will send you a list of lenders who are right for you.
How Much Downpayment Is Required to Purchase a FedEx Route?
To acquire a FedEx route, you’ll need to put down between 10% and 25% of the total purchase price once you’ve decided on the final pricing. For smaller purchases, this corresponds to a down payment of $60,000 to $100,000.
You should also have some cash on hand for operating capital. A route consultant proposes a budget of $75,000 for this project.
Negotiate the purchase price of your FedEx route business to reduce the amount of your down payment (and your overall costs).
As a result, even for a minor purchase, the initial costs are enormous. It’s something to consider while deciding whether or not this business is good for you.
You’re well on your way to being a successful FedEx route owner once you’ve signed the papers and completed the financing. Of course, this is only the beginning. You’re purchasing a genuine business, so you’ll want to make sure it works well.
Now I’ll shed light on some of the most critical queries related to FedEx routes and making money through them.
What Is the Difference Between a FedEx Route And a UPS Route?
FedEx routes are FedEx Ground delivery routes that FedEx offers to small businesses. They have trucks that deliver the products while the UPS routes offer the customers to drive their trucks for transporting their products from one place to another.
FedEx routes are divided into two categories: (a) FedEx Ground Pickup and Delivery (P&D) routes that deliver to homes and businesses within a certain area, and (b) FedEx Ground Linehaul routes that provide long-distance transportation.
P&D is a localized route that is usually served by vans and box trucks. FedEx determines which territories are covered by these routes. Tractor-trailers service the linehaul route, which spans many miles.
This article concentrates on purchasing P&D routes because they are the most straightforward to purchase and operate.
If you’re interested in a FedEx linehaul route, be aware that it entails a higher level of risk, but it can also result in higher income.
You should also keep in mind that, depending on the sort of linehaul route you acquire, certain routes may be a little more unexpected and the dangers may be higher.
What Is the Profitability of the FedEx Route?
FedEx route has a lot of potential for profit. Profit margins range from ten percent to forty-five percent of gross revenue. If you run a FedEx P&D route, your profit margins will be lower, while if you run FedEx Linehaul routes, your profit margins will be much higher.
The following chart depicts predicted profit margins for several FedEx routes:
|Type of FedEx Route||Profitability|
|FedEx Ground P&D Route||10%-25% of gross revenue|
|FedEx Linehaul Route (solo runs)||20%-30% of gross revenue|
|FedEx Linehaul Route (team runs)||40%-45% of gross revenue|
For FedEx Linehaul routes, I have notations for “solo” and “team” runs in the chart above.
Shorter routes with a single driver are known as solo runs. Team runs are substantially longer routes that require the participation of numerous drivers. Let’s look at an example of prospective profitability based on these numbers.
You can anticipate making a profit of $100,000 to $250,000 per year if your total revenue is $1,000,000 and you own a FedEx Ground P&D route.
If you operate a FedEx Linehaul route with team runs, you can expect to make a profit of $400,000 to $450,000 per year with the same gross income.
Of course, these figures (like all of the figures in this article) are based on averages or estimations; your actual results may differ.
How Much Is a FedEx Route Worth?
A FedEx route is worth between 2.5 and 3 times the free cash flow it generates on average. The average annual profit per route is between $30,000 and $40,000, therefore multiplying that by the industry multiple yields a range of $75,000 to $120,000 per route.
As previously stated, the average cost of a FedEx route is $100,000, and my assessment closely matches that amount.
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How Much Money Can You Make as a FedEx Route Owner?
A FedEx route owner’s average revenue is $1.5 million, according to FedEx. This statistic indicates the total revenue for all routes controlled by a single business owner, although it excludes operating expenditures. You must subtract expenses from revenue to evaluate profitability.
According to Buyers Market Inc, the annual profit per route is between $30,000 and $40,000 based on available statistics, and the average cost of a FedEx route is around $100,000. This equates to a return on investment (ROI) of 30% to 40% on average.
There is no widely available information on the average number of FedEx independent contractor routes.
Five routes, on the other hand, is a manageable number for a single route owner, according to Routeadvisors. FedEx route owners must now possess a minimum of five routes and meet certain other standards, because of ISP changes introduced by FedEx in 2020.
How Many FedEx Routes Can I Own?
Although five routes may appear to be a manageable quantity, many route owners have far more than that. The number of FedEx routes you can own is unrestricted. Route owners’ only limitations are their financial resources and their desire to expand their business.
If you have the resources you can definitely own more FedEx routes because research tells that there are contractors who own more than 50 routes, but if you’re just starting off, 5 is a reasonable number.
Now, let’s look at some of the advantages and disadvantages of operating a FedEx route company.
Before you buy a FedEx route, you should weigh the advantages and disadvantages of owning one? Here are the points that summarize the benefits and drawbacks per topic.
Benefits of Owning a FedEx Route
- You’ve teamed up with FedEx.
- Profitable potential.
- Potential for passive income.
- FedEx routes have a strong resale market.
Drawbacks of Owning a FedEx Route
- Training and hiring of workers.
- Vehicle maintenance.
- Obeying FedEx Rules.
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Owning a FedEx route can be a great opportunity to make a lot of money while also getting out of the rat race. However, as you can see, it isn’t as simple as purchasing a route and waiting for the money to come in. You can lose your investment if you don’t do it right.
Here, I have shared some tips on how to avoid losing all of your invested money.
If you want to be a successful FedEx route owner, you’ll need to:
(a) buy the right route.
(b) hire, train, and retain a competent and reliable team.
(c) have effective contingency plans in place for when things get busy or your trucks break down.
(d) thoroughly understand and mitigate other key risks.