Freight Brokerage Finance From Startup Costs To Profit | Episode 345

Freight brokerage is often called a sales game, but the brokers who last understand the finance behind every load. In this episode, we break down margins, startup costs, cash flow, hiring, compensation models, and the money decisions that help brokerages survive rate swings and grow profitably.

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Transcript

Why Finance Decides Who Wins

SPEAKER_01 0:00

Finance, it's the side of brokerage that people often don't think about. You know, Ben, we're we're not just people that help shippers find trucks or help truckers find shipments. Um, there's a money side to brokerage that can uh can really make or break uh the success of a of an industry or of someone in the industry. So we we went through a lot today. We, you know, we're we're breaking down on this episode um everything from um you know cost to get started, technology options and what they can cost. And we went really deep into like the you know compensation and how do you figure out how who to pay or how much to pay each person and how to break things up. But uh um what are your thoughts on this one?

SPEAKER_00 0:46

That was a great chat. It's something that we don't do as often as I think we probably should, like at least a year. I think we looked at it, it's like been a couple years since we dug this deep into it. But I think it's helpful whether you own a brokerage, are considering starting one, or you're looking for a job in one and you don't have one, or you have a job and you're looking for another job because like we kind of walk through the perspective from both employee, employer, how does the money work for both sides? How and what you should be looking for, what questions to ask if you're interviewing, and also which questions to ask if you're being interviewed to be able to get a position wherever it is in brokerage.

SPEAKER_01 1:21

Yep, absolutely. And we do break down the uh the current rising strong market rates out there early on. Um props to DAT and Dean Croak for sharing all his data with us. So um, all right, let's hop right into this episode. All right,

Sponsor Resources And Where To Learn

SPEAKER_01 1:38

another episode we're gonna get into today talking about uh finance. If you are brand new, make sure to check out all of our other content. We've got hundreds, hundreds of other episodes. There's probably thousands of total videos out there now between our shorts, our clips, our full-length stuff, our educational videos, um, wealth of knowledge. Check it out. Leave us a uh a comment or question on the YouTube um page if you want, or right on our website, freight360.net. You've also got the freight broker basics course. So if you're looking for a full deep dive educational option, that's been a very helpful thing for folks starting a new brokerage or hiring new folks. Um, and this episode is brought to you by Send TMS. So if you're looking for a new TMS for your brokerage, if you're just getting started or in growth mode, highly recommended for the SMB at your small medium size uh brokerages. So um check that out. You can get 90 days absolutely free. You do need to have a referral code. Good news is we have one, it's down in the description or show notes. So, Ben, how are we doing on this fine day? We took

Hot Weather Stories And Catching Up

SPEAKER_01 2:46

a week off of recording, but we're back.

SPEAKER_00 2:48

Yeah.

SPEAKER_01 2:50

Doing it. Got a nice Togo hat on.

SPEAKER_00 2:53

I know. Got uh Ed sent me this last week. It's definitely getting warmer down here, other than the fact that like that's pretty much.

SPEAKER_01 3:00

I can only imagine, man, it's been hot here. Like, you know what's funny is uh so last week I was out for the army and we went down to southern-ish Pennsylvania and Fort Indian Town Gap. If anyone listening has ever been there or heard there, but it's it's a gap, which is a geo geographical, like a you know, uh what's the word I'm mugging for topography term?

SPEAKER_00 3:23

It's like a type of like a like a hollow, like between your mountains.

SPEAKER_01 3:29

And it so it like holds a lot of heat. I left Rochester, New York in the morning. It was 46 degrees, and by the time I was down there and shooting on the range, it was like 90 degrees and humid. It was like a it was like a hot box, and then I can only imagine how Florida's feeling now that we're getting into the summer months.

SPEAKER_00 3:47

Speaking of hotbox, I did my roof tear off and repaired everything so it doesn't rain in my house. So that was a plus. However, I noticed as soon as my tiles came off my roof, the second floor of my house went up to about 86 degrees, and my office is attached to the same air handler that does the upstairs of my house. So I thought it was just like me yesterday at work and Monday. I'm like, boy, I'm like, I feel like it was like pretty warm in here at night. I didn't know, like, think to look because I have a thermostat in here. And then I walked upstairs, I'm like, it's 87 degrees, and my air conditioner set at like 75. I'm like, what is going on? And I realized I'm like, oh, like all of the insulation from the tiles is not there. So that's one way, and also the sun is just beating down on my roof, and my attic is probably 150 degrees.

SPEAKER_01 4:35

Oh yeah, oh yeah. Crazy.

Rates Surge And Customer Conversations

SPEAKER_01 4:39

Um, well, in the news, um, I was putting together our newsletter. So we do like a market update on it, goes out Tuesdays. Um, the data comes from Dean Croak at DAT. So if you guys haven't subscribed to that newsletter, you can do it for free. It's right on the website, Freight360.net. But we put out a really good um simplified version of like what's the market looking like? How is Van, Reefer, and Flatbed um you know, looking. And sometimes Dean will break out certain areas that are experiencing kind of anomalies or very uh regional, regionally specific changes, but literally across the board, all three major equipment types are seeing like near record high rates ever like Flatbed has never seen it this high. Um, I think he did take out like the COVID anomaly of like the two-month period there, but um without fuel, so fuel's expensive right now, as we know, but like without fuel, you got van at just under 240 a mile, reefer at just under 270 a mile, and flatbed at just under three bucks a mile, plus fuel. Like rates are it are insane right now. It's it's crazy. Um so I'm sure, you know, again, we're not counting for fuel there, but this is like for four years we were like waiting to see, you know, the the market do something, and and here we are. And it feels like a lot of it didn't necessarily come from a demand push, but more of a supply correction with you know all the capacity that's left the market due to enforcement and brokers cracking down on um safety, the the Supreme Court case. I think we're we're gonna see even more of this as brokers make corrections, but um, you know, this is what here's what's crazy too. We're gonna talk about finance today and like margins and all that. Within my own uh division at Pierce Worldwide, I see two I can see two different kinds of brokers. I see those who talk to their customers and the customers are aware of what's going on, and the customers still want quality service, and the customers pay more. And as a margin-based brokerage, uh the broker does well, the carrier does well, and the customer continues to receive quality service. And then I see other brokers that their margins thinned out, and I'm like, what's going on here? And they're like, Yeah, you know, rates are going up. And I was like, that's a good thing that rates are going up. Like you're margin-based. It's like, yeah, but you know, my customer, and I'm like, you don't like it's not your job to like take the hit for them. Like, I'm like, when rates go down, you don't charge them, you know, you don't keep paying them the same higher rate, like other brokers will come in cheaper. This is how you know supply and demand works.

SPEAKER_00 7:34

Um so yeah, it's two things wild. One is this like proverb or whatever, it's like your success in life is determined by your ability to have difficult conversations. Yeah. This is your ability and willingness, right? Because I see the same thing all the time. I mean, we've seen this for like over a decade. It's like you have this conversation, you're like, the way it should work is you see the market moving, you should be communicating that to your customer daily. Your customer's job is to try to negotiate the lowest rate. It's your job to provide a fair rate commensurate with the service they expect, right? Which will change. And like, because the other thing I could literally hear Jason Beck, my like manager at TQL, when I started saying this, like, oh, we're not like, it's not your job to control the market. It's your job to communicate the market. That is a broker's job. You can't influence the market. Like the whole company of TQL is not influencing any market. There's not one player in the entire industry that actually influences the market. We just communicate what's happening. Like, you wouldn't call your customer if you're a stockbroker and be like, well, I know Apple went up, but I'll discount my commission to buy you that stock trade today. You're just like, this is the price of Apple today, or this is the price of Microsoft, or this is the price of whatever. Like it's a market, it goes up and down. And also, like, not only should you be communicating this because it helps your customers make better decisions. Because when you are the one first to communicate this to your customers, I did a training on this yesterday. I'm like, the customers value you more. They're like, hey, I know we've been paying three on this lane. I'm gonna try to hold three. Everyone else is paying 3,500 today. Do you want me to hold your rate and see if I get a truck and maybe it loads tomorrow? You let me know. And usually the customer, like, well, let me know middle of the day. If rates come down, maybe we'll hold it, or maybe I'll pull the trigger this afternoon at a higher rate. Great. Call them back in the middle of the day. Hey, rates are still at 3,500. You want that truck to sit today? Or should the load to sit today to tomorrow? Or do you want to take a risk? No, I want to pay it today. Maybe we'll hold off tomorrow. You're helping guide their decisions with better information because all they see are different numbers coming at them from brokers. And most brokers, like like you said, actually aren't even taking the initiative to pick up the phone and have that conversation. They go, oh, the rate went up. I don't want my customer to take my load. I'll just keep skimming my margin until I'm break-even and hope it gets cheaper. Like that's not a business plan. That's like a dream or wish.

SPEAKER_01 10:06

But I mean, that's the that's the big news lately. I guess if you want to look at it that way, is uh rates are on the rise. Like I was talking with um one of the guys in our company yesterday, and he was like shocked. He was like, he's like, what happened like what's happening? Because he started he started in May of 2022. Like, so literally all he's ever seen until last handful of months is like just a flat, soft market. And I I told him, I was like, man, I kept telling you, like, you know, the market will change, the market will change. I'm like, I didn't think it was gonna take this long. I was like, this is one of the priciest markets that I've seen since COVID, though. Like it is um, yeah. It's kind of refreshing though. Like, you know, I ultimately what sucks is like you know when fuel's high and you know, trucking and transportation is expensive, ultimately the consumer's gonna pay more. Um, but if you look at inflation or five years, like trucking rates have not been commensurate with what inflation has been. So it's costing more money for people to live, and people in transportation haven't been making substantially more.

SPEAKER_00 11:15

So well, yeah, I'm overseeing like a trucking company now and a brokerage, and we're opening a warehouse with White Shark. And so we're like literally putting out listings for um drivers because we have two new trucks that were coming in. And I'm like looking at this, I'm like, oh, this is like pretty good news. Cause I'm like the math maths, like right. I'm like, when I look at the expenses and what you got to pay a guy to like actually live in Boston, if that's where we're gonna do regional work, like it's expensive. And also, like, if you just talk to folks up there, like I've only been up there once or twice, I'm like, the salaries up there are very different because the cost of living is very high in that state. So, like, you need to pay a driver more in that area. And I'm like, oh, wow, the rates on all of the lanes we kind of run, even regionally, I'm like, are enough to actually pay somebody a living wage for good work and good service. I'm like, so not as a broker, but as an employer, I'm looking at this. I'm like, oh, this is like very refreshing. Like, yeah, we can hire somebody and actually pay them enough money to like live on and do the job well. Yeah. Where we could not have done that a year ago.

SPEAKER_01 12:17

Yeah, I mean, you look at some of the I mean, look at where you live, southern, like South Florida, the more south you get, the more expensive basic stuff gets. Like housing, obviously being like one of your, you know, arguably the most expensive line item in anyone's, you know, monthly expenses, uh, whether you're renting or, you know, have a house. Um, Boston, yeah. You same thing when you deal with like Portland, Seattle, San Jose, like the Bay Area, LA, New York City, like DC. Man, whenever I go to DC and I hear what it costs to live there, I'm like, geez. And that's why I it's why I see I can understand why people drive over an hour each way to work.

SPEAKER_00 12:58

So funny, right? Both of my cousins lived in DC for like probably somewhere like 15 years after college. So, like, and we all went to college together. So, like, I lived in Pittsburgh and I remember going down to where they lived and lived here and going up there. And like my cousin's house um was very nice in northern Virginia, right outside of DC, and him and his wife both worked in DC. I want to say it was like a $900,000 house that in Pittsburgh, that house would have been like $250, right? Where I live, even in South Florida, it probably would have only been $550 or $600. And the funnier thing is he just moved to Austin, and his house is like legitimately three or four times the size for the same amount of money. When he sold his house and moved to Austin, he basically had like, you know, a nice three or four three-bedroom house or four-bedroom house with like a basement. And now he moved into this house in Austin, and it looks like an estate compared to it. And it was like the same price because he just moved out of DC.

SPEAKER_01 13:58

Yeah, that's funny. Wow. Well, let's uh let's get in. Speaking of you know, money and finance, what we're gonna talk about some of that today.

The One Third Finance Framework

SPEAKER_01 14:06

I do want to um give a shout-out throwback episode. We did episode 213 with Beth Carroll, if you remember that one. So she wrote the book. Um, man, I can't remember the name of a book, but it was all about like Taming the Compensation Monster.

SPEAKER_00 14:23

What is it? Taming the Compensation Monster. I sent it to somebody last week, actually.

SPEAKER_01 14:28

Yeah. So she was really good. That one came out um apparently it was October of 2023. So almost three years ago, two and a half to three years ago. But um, really good book. She has an audio version, which argued or admittedly, she said it sounds so weird to hear someone else reading her her words. Um, but that's the compensation package specifically. Uh, we're gonna talk through like the top to bottom money stuff. I was actually having a conversation with a guy a couple weeks ago that started a brokerage 20 some years ago, and we were talking through like, you know, the what they had, and again, that's just decades ago, but like what it had cost to get it off the ground, and like how long did it take to turn profitable, and like, you know, how do you balance out um who you're paying to do what and who wears what hats at what phase of the of the growth. So um we'll kind of uh we'll kind of get into it here. Uh I'll let you take lead because this was your idea, and then I've got a lot of good thoughts and discussion points.

SPEAKER_00 15:33

Well, this is just something I've been talking with more of like just a few different clients, some startups, some existing, some restructuring, some growing, and like I've always just kind of start with like round numbers that I've always used in the industry for like the W-2, um, which are like a third, a third, and a third, right? So, like for every dollar of gross profit, a third goes to the company, a third goes to all of your expenses, um, office, IT, software, physical computers, insurance, every expense other than payroll. And then the last one third is payroll. And payroll is salaries and bonuses and commissions all added together. And it's easier to look at that on like a yearly or monthly basis, right? Like a week, kind of, but it's easier to see a bigger picture, like a monthly or yearly, right? And then I looked at this again recently to just see if the industry changed a bit because inflation. Like I know some salaries went up, but I'm pretty sure some of the commission percentages haven't really changed much, at least from when I've talked to people. I haven't like called these companies to see if they've changed this. So I'm kind of assuming the commission percentages are kind of the same. I've heard some have gone down as salaries have gone up, but it kind of ends up working out at the same bucket. Um now that's for like a stable brokerage, meaning like they're not spending money on growth. Now, growth is the responsibility.

SPEAKER_01 16:55

I inject real quick because I want to give you a calculation here. So you're giving a generic one third, one third, one third, but we're why I think that's a very good starting point is because that's of gross profit, right? And if you let's say you're operating at a 15% margin, that ends up putting your bottom line at just under 5%. So every dollar that you cash flow turns a five cent net profit for the company. So which we've talked about that three to five percent net profit bottom line is kind of like where a lot of brokerages operate, and your one-third, one-third, one-third fits right in there, which I wanted to point out.

SPEAKER_00 17:31

That's funny because I was gonna ask you that too, and I didn't go all the way down the ladder yet, because just what I'm doing is like looking at staff and trying to figure out like, oh, this company's like a little overstaffed on support and not enough on growth. Cause like I start with that third and I'm like, oh, like the one company was like 40%. And I'm like, okay, but of the 40% of salary, I'm like, how much round numbers would we say are like people that are just doing sales, right? Or if you have people doing multiple jobs, how much of their time do you think is actually being spent on sales? Because it's really hard to like gauge that perfectly. But in some models you can, like the one client I have that's fairly large. I don't know, they're 25 million, and they've got like 25 people, 30 people, um, is that it's the Chicago motto. So they've got sales folks and they've got carrier sales and a track and trace that's attached to carrier sales. So you can just kind of add all those up and go like this is the support number. And then you add up all the sales folks and go like this is the business development. Then the next question we ask is how much of their time are they actually doing calls to new business versus still doing support that they're doing right at the same time. And realize like a lot of the calls weren't being made because they were actually doing more support, which was the first thing we addressed, helped fix and shore up support to free up their time. Now that they're only doing this, it's easier to kind of figure out the math because it's like, well, every time you hire a salesperson, like if they're not going to be learning the industry while they're covering loads and doing check calls and track and trace and document upload, and they're just like sitting there making cold calls so you get business, which I have another client that's doing that. I'm like, okay, like here's kind of an average. Probably six months, expect nothing. Just that money's out the door. So if you're paying five grand a month, $30,000 is what you're gambling. This person might make it. Round numbers, one out of 10 people make it. So if you hired 10 people at once, that's 10 times 30. That is a $300,000 investment in the growth of your brokerage. At the end of six to eight months, probably two or three people are there. Then at the end of a year, probably one person is still there. But if that one person is very good, they can make up all of that money in the next two years. That's the gamble that like the big brokerages make when they look at like the math. That's why they allocate so much to recruiting, hiring, and training, because they're constantly filling that bucket. That's their prospecting bucket to own a brokerage. If you are working at a brokerage, your prospecting bucket is calling shippers, right? It's kind of the same thing.

SPEAKER_01 20:08

Yeah, I mean, if I were to look at of all the years I've been doing this, usually like once or twice a year, we would bring we would have a like a home run broker, right? Like that was new that year. Yes. And you'd have a good amount, like arguably half that failed, right? If not more. Um, and then the rest were like still you they might not be there after a year or two, or they might be a mediocre, but yeah, that's uh that's a good point. So you have a you know, you've got a lot of expenses that you're gambling or betting or investing, whatever you want to call it, to find the one, right? Or to get the one who everything clicks and it's just a really good fit. Yeah.

SPEAKER_00 20:59

So for everyone that's like sitting in the seat as an employee goes, this company makes all the money, and I don't see any of it, like that company should be taking that third and hiring more people, of which most fail and they lose that money to get one out of five or one out of ten or one out of six or whatever that is every year. Could be one out of the three. And then they gotta wait two years till it pays off. Like that's the gamble the company keeps making. That's why you need a third over there to be able to make that bet. Otherwise, the brokerage doesn't grow, right? Now, the interesting thing I always found is people always go like, well, the agent model will make so much more money as owning a brokerage, or the W-2 model makes so much more. But like you just said, what do the numbers look like for an agency? Go from commission all the way to what it looks like from both. If I'm your agent, what does it look like to me? And what does it look like to you owning the agent model brokerage for like one broker?

SPEAKER_01 21:52

Yeah. The I mean, I I I still say we we operate in that same if you're doing it right, that same net profit. That three to five percent bottom line, I think what you find is you're paying more into that compensation bucket, but you're having less in that well, overhead. Maybe not because you're you're probably paying a little more in the compensation bucket because you're paying higher higher commissions, but what you're not paying for is the salaries of all the brokers that aren't going to make it, right? Yeah. And your overhead, I would argue, is much lower because you're not paying for the rent utilities and office overhead for the 1099s because they are self-employed, they work from home, or they might have their own office space. You can scale it a lot faster because um you typically bring someone in that's already experienced and has um has customers. Um it's just harder. Like I think it's harder to the recruiting side is a s is selling in and of itself. Whereas you can go out there and offer a salary and a training program to a hungry young kid out of college. The W-2 model is easier to fill seats, but you have to have the money to be able to get through that turnover until you start to develop the brokers that are going to help you succeed and really hit those home runs. Um I think your profit side of it though still needs, regardless of the model you have, whether you have agents, whether you have W-2s that are cradle to grave, whether you have Chicago model with sales versus ops, whether you have a hybrid, um, you still it's a company, right? You still need to have a a target net profit where at the end of the day, we operate, we'll call it on a 30-day cash flow cycle, meaning our average terms to customers is roughly 30 days, and our average terms to carriers is around, I'm way overgeneralizing 30 days, which means that for every dollar that comes through in a month, three to five cents return on investment, you you know put that out over a year. Now you're looking at anywhere from like 30 to 50 percent ROI um, you know, on the year. And it could be less than that because maybe your cash cycle is 45 days, right? And we talk about this in our TIA course about calculating cash flow, because there is a gap. Um, so let's say it's even like you know, 30% um average ROI on your money in the year. That's a good investment. That's paying 3x what the stock market pays, but it's a lot of work, right? It is a lot of work, it's a lot of sweat equity to build it up, um, but it can be done. And there's probably other businesses that um you know might have higher margins or you know, or they have lower margins, but there's gonna be a different level of difficulty to scale them and different levels of resiliency in market changes. I mean, brokerage has been around for 45, 46 years in its current um state, and we're still here, right? Like technology isn't improved, and AI has come in in the last few years, and regulations have changed, laws have changed, but our industry still at the core of it is really unchanged. So um I think we are a resilient industry when it comes to that, not to go down a rabbit hole, but yeah, the agent model, I think, compared to W-2 to answer your question, it's probably just a little bit more on the compensation side and less in the overhead side, if I had to simplify it. But you still gotta have that net profit, regardless of your business model.

Startup Costs Bonds And Tech Stack

SPEAKER_01 25:35

So you want to talk about startup costs? Yes, we get asked this a lot, and it has changed, right? We've probably there's probably a video from five years ago from us floating out floating around there on YouTube that's probably outdated. Um definitely outdated because well, carrier vetting in and of itself is has has uh definitely changed. Um so if you're using the unified registration system, or eventually, I believe it will be all MODIS, probably if you fast forward three to five years, right? The all the FMCSA's registration, because they're doing carriers right now through MODIS. I bet brokerages will uh will probably follow suit. Have you heard anything on that? Because the carrier one just rolled out in the last month.

SPEAKER_00 26:21

Yeah, I know that at least as a two or three days ago, zero carriers had gone through it. At least it was somewhere, like zero. I know that I've had to call the FMCSA for something in the past few days, and you can't get through at all. So they haven't even called back yet.

SPEAKER_01 26:41

Well, either way, you have to pay a registration fee when you apply for your authority and get your get your MC and or DOT number. All right. And as of today, that cost is 300 bucks. That has not changed. I don't know the last time that's changed. Right. But either way, very low barrier to entry, 300 bucks. Um you have to get a uh surety bond or broker trust and the value of $75,000, which just you know assures that you're going to be good for payments that you have due to motor carriers. So you can either put $75k into a trust that you can't touch, um, or you go buy a surety bond policy. Essentially, it's an insurance uh mechanism, and depends on your credit. I've seen, you know, we'll just round number average it a few grand a year, $2,500 maybe if you're new. Haven't shopped one anytime recently, so that number could be could be off, but you gives you a general idea. That's an annual cost. And um, and then you've got to have your process agents, your BOC3, which most people just do it as a service. You might pay $50 to $100 for the year. Somebody, you know, get you an agent in all 50 states.

SPEAKER_00 28:08

Um did that last week too. Super easy, takes 10 minutes, and it was like $25.

SPEAKER_01 28:12

$25. There you go.

SPEAKER_00 28:13

Yeah, and I picked the here's the one I picked. I used GPT to make sure, because like I'm like, there's definitely some fraudulent ones out there, I would guess. And I'm like, I want the fastest, most reputable one, not the cheapest, because they kept giving me like the cheapest. I'm like, nope, don't care about cost. I want trust and quickness. And the one I think I used the domain was like process agents. So it had to be like one of the first ones out there, but super hopeful did it in like 45 minutes. And that's it normally takes two to five days.

SPEAKER_01 28:43

I totally misspoke. That's the BOC3, is the pro the BMC 84 is the uh is the bond. Um so correction there. Um, but yeah, I mean, so all that to say, you're looking at like very, very, very low barrier to entry um just to get your company established. And you know, sure, there's business filing, so maybe you got to pay the couple hundred bucks in your state to get an LLC filed, get your tax ID number, uh, put together your articles of organization and uh all that stuff, right? But you have a business now that on paper at least. And then um, I think really where there's a wide range of cost is your technology because it is like I mean, you can do a send TMS, right? You could get, like we said earlier, 90 days for free, and you're not paying at all for your TMS, and then it's super reasonable to get started after you start paying monthly, and or on the other end of the spectrum, like we just we're we're finalizing a um a TMS upgrade to the tune of like over 200 grand a year plus implementation. So like it, but again, that's a business that's been around for a hot minute. So um, yeah, I mean, and then you get into all of your like your load boards and your carrier vetting. I mean, you could be spending um, you know, 500 bucks a month on the low end up to sky's the limit on technology.

SPEAKER_00 30:14

Yeah, because like I think now like table stakes kind of what you actually need is like you definitely need carrier vetting. I think like that is an absolute must. That's why like what I love about Ascend and why I send everyone there is they have that deal with highway. So for like pretty low, it's definitely a significant discount. You get Ascend with Highway and carrier vetting like in one bucket. It's easier and it's cheaper. Um, you definitely need those two tools. You're definitely gonna need DAT. So if you guys are signing up, there's a link in all of our show notes that I think is 10% off a year. I just bought a seat for somebody this morning, and I'm like, that's not cheap when you start adding a lot of the features that they need. And also, like, I'm kind of spoiled because you and I like we teach a lot of their courses, so like we have like corporate accounts where we have all the predictive stuff, everything, yeah. And I'm like so spoiled that when I go and log in with someone else and I look at it, I'm like, oh, you guys don't have forecast. I'm like, oh, you can't see this. I'm like, man. So much of the stuff I'm so used to using that is so helpful, but like it definitely adds up for sure.

SPEAKER_01 31:13

Yeah, so a lot of lot of technology uh that you could be paying for here. And there's we have an entire episode that we break down um costs to start a brokerage. We've got short short video content on all that. Um the one thing I always caution people when they're new is like there's so much out there, you don't need all of it. Like you were talking about DAT. Um, some of their stuff, like, yeah, we are kind of like fortunate to have like all the bells and whistles.

SPEAKER_00 31:42

Because I'm like, and all of them, like over the years, I'm like, I've had like on one screen trucker tools, I've got Descartes or MacroPoint, and I also have like three different carrier vetting software. I'm like, oh, I can see them all at one time, and I keep forgetting, like, oh, like everybody kind of has one.

SPEAKER_01 31:57

You don't need all of them, but like it is interesting because Nate and I have an interesting perspective of being able to you usually have access to more than one for either clients and you can spend like it's like over two grand a month for like this the version of data that you and I have. Um, but again, you like when you're new, you don't you don't need that per se.

SPEAKER_00 32:18

So uh it's not invaluable until you get some customers. Hey, you know

Commission Models From Agent To W2

SPEAKER_00 32:22

what I want to segue into before I forget to I want you I just want to pick your brain and not even ask leading questions on like what are different salary commission and bonus structures you've come across, and we're gonna do it from like three perspectives. One is sales only, one is account management, which is tasked with making sure it's done right and growing, and the third would be both hunt and manage existing book, yeah, cradle to grave.

SPEAKER_01 32:53

Here's the the reality is there is uh a very, very wide spectrum. Like, and when I say that, I mean there are, I mean, on one end you've got the agent, right? That like the highest commission level you're gonna get is as an agent. Um, but you're not getting any salary, you're not getting any benefits from the state.

SPEAKER_00 33:14

What is like the you get nothing else and you gotta pay for all your staff and you get line item for everything you do? Start at the top and then like let's work our way back for like listeners.

SPEAKER_01 33:25

You what you want to start at what side? The highest commission? Yeah, the highest commission and what that so I mean I've seen um, you know, I I think kind of like industry standard top end is usually like 70%. Um some companies will advertise like will do uh like up to asterisks, you know, 75 or 80, but they have like very strict requirements in there. Um usually if you're paying more than that, you've gotta you've gotta give somewhere else to be able to leave enough money in that bucket. Like you said, one third, one third, one third. If you're already at 70%, you've only got 30% left to work with there for overhead and profit. So you're already running a a tighter, thinner ship. Um, so I think that's your high end. And then as you go down, right, you'll start to get like, okay, I've seen um 60, 65, 70%. Um, they might have requirements on minimum margin per load. If you have uh less than, you know, for example, one company, if you if they have less than 15% margin on a specific shipment, um the agent can still move at a thinner margin, but the brokerage is going to retain a higher amount and not pay out, you know, that agreed upon split. Now, as you get, let's say you scale down to like, all right, maybe I'm still an agent, but I'm a sales agent, and I have a procurement or operations team that's handling all of my carrier selection, booking, track and trace. Um, Global Transit is a great example of a company that that has a model that that offers that. And I believe they're 40% is what the agent would make, but they're all they're doing is bringing in their customers, and they've got a whole truckload team that's going to find capacity and book it and all that stuff. Um, and then you start getting into like the W-2 world where they're heavily commission-based, maybe they're upwards of 30%, and they've got our either a smaller salary or no salary because it was on a draw, um, but they're still getting like benefits. They've got uh maybe a track and trace team, um, 24-hour support that's handling their loads while they're not at the office. And then you get down towards the I'm cradle to grave, I do get a salary. Maybe my salary is 40 or 50 grand a year, and I can get 20, maybe 25% commission if I hit a certain milestone, but I still get all my W-2 benefits, et cetera. Um and then you get to I would say, like when you when you start to get to the Chicago model, right? Meaning I'm just I've got a sales rep and then I've got a carrier sales rep. So one talks with the carriers primarily, one deals with the customers primarily. Now you're looking at like, all right, we've got to take that available commission and divvy it between both sides. So maybe, and I'm super generalizing here, you might be paying um 15 to 20% to the broker or sales rep, and then maybe five, seven, eight percent to a carrier sales rep. You've got to have certain metrics in there, obviously, to make sure there's profit numbers. And then let's say you go the three, I don't know who what I know Chicago's the two, sales and ops, but there's the the three bucket model that I don't have a name for, but that's your business development bringing a new business, right? We're not actually booking loads. I'm going out there prospecting, bringing in new accounts. Then you've got your account manager who handles day to day with that customer, and then again, your carrier sales rep. And then you've got to divvy those up. So maybe your your business development rep gets a, you know, that first year, a big, you know, chunk, maybe 10% of all business, and it might tear down to like seven and then five and then three, and eventually it might tail off. And your account manager who manages it but didn't bring them in. Um, maybe they're getting you know 10 or 15%, and um maybe the carrier sales rep gets you know five. I don't know, right? And then you get to like here's one that's interesting. And I talked with somebody recently that came from this model, which was um very high salary, very low commission. And it was like um they called her like the director of sales, but all she was a glorified that's a glorified title for like go out there and hunt business and bring it in, and we're gonna cover the freight for you. So um they paid her like a hundred grand salary, and the commission was like 10%, or it was I forget, but she so she brought it in and she handled the the transaction, but someone else was booking her trucks for her. Um, so that's someone who you know has a more comfortable salary, and those are can be ultimately way profitable for the company if they get the right person, um, or very detrimental to the company if they bring in the wrong person who never what was that example?

SPEAKER_00 38:20

You're saying they went out and brought business in and also like did account management?

SPEAKER_01 38:25

Yep. Yep. And they just so they're basically they're they're a broker, uh like you know, they're the sell side, but instead of being heavily on the commission, they wanted a big salary.

SPEAKER_00 38:36

So, like, hey There's no way that could have been 10%. You're saying they got 10% and 100 grand? That is like an enormous amount of commission with a salary of a hundred grand, too.

SPEAKER_01 38:47

Like, I'm like, Oh, but you but there's you know, you it it's 10% once you've hit, you know. I think hers was like her the the profit had to cover a portion of what her salary was before she got it. But um, you know, I always whenever I see ones like that, like I was saying, if that person knocks it out of the park, um paying them 10% commission and 100 grand is actually a steal for the brokerage if they're doing a million dollars a year in profit, right? Um, because then you paid out 200 grand, which is ultimately 20% versus uh an agent at 70%. Um, but if they come in and don't even cover their salary, you lost. Or if they do nothing for six months, you just lost fifty thousand dollars, um, or someone at a half the salary with commission tied to them, um, wouldn't have you know, wouldn't have hit it so hard. But I mean, there's a there's a wide spectrum, there's tons in there, and like Beth Carroll's book, you know, she's like, there's no right way to do things, like there's not a single right way. Like incentives can be based on like, hey, you get X amount once you hit this threshold, or hey, carrier rep, you get X amount, but you need to do over this amount on the load and total of this amount for the week or month, and your team might have a team incentive. Like, there's just there's so many ways. I'm usually the I'm a fan of like keep it simple until you know you can afford to like get complex with it and get creative with it. Because um, at the end of the day, like one person might be like, Yeah, I really just want a bigger salary because it's gonna make my you know, make my anxiety be at ease. And someone else might be like, I don't need a salary, like let me go out there and like strike out for myself, right? Um, and they just want the highest commission they can get.

SPEAKER_00 40:38

So what have you seen for like managing like house accounts? Like, hey, you're a good account manager, I'll give you the business.

SPEAKER_01 40:47

Yeah, um, much less like so what I have seen when someone comes in as a W-2 and they're assigned a house account, um, very low salary, and I've seen well, I shouldn't say very low. Like they might have like a um 45 or 50k, which is wild to think now that that's like a lower salary, but I mean the average salary is like what high high 60s or something now, but um and like 10%, like 10% is what they're gonna get because they're not I mean, they didn't develop that business. The real value is in like developing that relationship. So like we've got customers that we have contracted business with and we've done it for you know 10-15 years. You can plug a plug and play a rep in there, and really what they're doing is they're handling the the day-to-day issues and um minutia of you know the the business, right? They're not having to go out there and like you know sell this person on why you should give us your business. We're already, you know, we're contracted, they're stuffed EDI tenders over, like it's it's not rocket science. Um, but they you know, to maintain that relationship and to hopefully try and develop it a little bit and keep it there so we don't lose it, you're gonna give them a commission, and that way they're incentivized to do as best as they can um to make sure that we're not giving the freight away and um we're not pissing the customer off. So I've even seen, and this is what's this is what's crazy about being on the the agent side. Um I'll talk to someone who's W-2 and they're like, you guys pay commission? And I'm like, wait, I'm like, your last company wasn't paying you any commission? And they're like, no, like, but that was again, that was an account manager that was just a sign, like, hey, we're gonna pay you X amount. And they're like, yeah, they would do like nice things for us if we had a good quarter or a good year, like they might throw a bonus at us, but nothing was like contractually like a percentage of every single load or you know, for the month or pay period or whatever. Um, and then you get ones that were they their commission, but it's so small, and they're like, they're like 70%. Like, um, I had someone that started off um he was I think he was getting like three percent is what he was getting. He's like, Yeah, he's like, you know, um, he's like, technically I'm a carrier sales rep, so I like book all the trucks. He's like, but I'm also the one that talks to the customer, like there's not really an account rep assigned to them, and I'm like, the carriers are super loyal to me. And he ended up coming over to our company, uh, he's a buddy of mine, and like the customer um like business moved with him, the carrier, you know, relationships moved with him, and he went from making like what did I say it was three percent or whatever to 70% like overnight, like snap of the fingers. But he lost his salary, he lost his, you know, health insurance and his um, you know, place to like work. He had to, you know, obviously, like he's got to pay for a computer and phone and internet now, but like that's the lifestyle he wanted. He didn't want to be tied to a desk. So all that to say, there is a wide variety of you know what's being offered out there.

SPEAKER_00 44:00

as far as you know what you you know what you uh offer as far as like the benefits and work environment um and training for that matter because if I'm a fresh off the street green to logistics person I've got to have somebody show me how to do the job I gotta learn the industry I've got to then learn how to do my job specifically and then have somebody coach me along the way as I make mistakes um and with that's going to come a lower commission so which is also like a very different thing it's like to me it always just comes down to like the risk right like how much risk are you taking the business or you personally right and I think that's why like the takeaway is always for me like this should be a conversation. Unless

Negotiation Hiring Fit And Retention

SPEAKER_00 44:52

your company is so large and standardized I do all of these like bespoke like individualized and for two reasons because I'm doing this right now with a few people and like I always start with I'm like I want you to negotiate the most important thing in your working life because this is the thing you should care about a lot and you should be motivated to negotiate on your behalf and you should be informed when negotiating. And also I feel like I never got the opportunity and I feel like if the incentive plan matches the person and what they need and that also changes like they're gonna be a better employee and it's better for the company, which is the whole point of an incentive plan, right? Like the one size fits all to me doesn't make sense unless you're a very big company. And like to me it's like that's where I start I'm like okay like do you want a bigger salary or a bigger commission? Because just like in negotiating anywhere, you learn as you're doing it you tell me you want a bunch of salary and no commission, I'm like, well you're definitely risk averse. Maybe it's because you have a family but also maybe you don't believe in your own ability to actually go and get sales. I don't know which of that is but it's informative, right? Nonetheless if you want a whole bunch of commission and very little salary, at the very least I know you believe in your ability to do this. Whether or not you will or not it's still helpful for me to know how you feel about it. Because this is not an interview answer a question. This is you're telling me what you how you want to be paid so it is informing me how you look at this role and how you look at your own ability to do this. And to me like that's super helpful because also even for me like it changes over time. Like you're a single person in your 20s you can go all risk who cares you'll find a way to feed yourself. Once you have some kids and a family and a mortgage like you might still have the same skill ability and ambition. You might just not be willing to gamble with your family's ability to eat the same way you are with yourself. And like that's how these things change over time even for the same person and skill set. So like I do feel like it's just good advice for anybody because like we get this question so much what do I offer to get the best salespeople? Like I don't know it depends on the salesperson you're talking to like and I don't know what they're going to be doing and I don't know what they want. But like start there like give a range this is what you can make and then see what you find because like you got to put the time in just like if you're recruiting an agent or someone off the street or someone out of college like here's what I said to somebody just out of college yesterday in this I said I want you to go like go use any LLM instead of making phone calls. What you used to have to do is call all these companies and then ask questions. I'm like just ask it like what would somebody like me make in a job like this? What would it be across the country? What would it be in the city I live in? What would it be remote? What would I expect for base salary versus commission? What would my benchmarks be? What does this look like to the company hiring me? Right? Just get some perspective and then come back so you're better informed to have this discussion and negotiation instead of me just giving you a number. And also I'm like if you really want to be good at this job, this is the thing you have to get good at. And if you don't care enough to want to do this well for yourself, you're very unlikely to be able to go do this on behalf of any other company. Because like this is just all of business in one way or another. It's all some version of sales and finding the right fit. Whether it's internally whether you're selling another department head on a change or you're talking to the trucking company CEO or you're the CEO of two like everybody just does this all day long. Some with external companies some internal but it's all some version of this basically all day at work.

SPEAKER_01 48:37

I mean yeah I think a big part of um finding the right people to comes down to like um you're you like you got to sell yourself as like the leader. So like this this is big and like if you're if you're starting up and you're like well how who do I hire and how much do I pay them I think more importantly like you got to find someone that's gonna be a good fit for you and then you can find out what matters to them. And there's I think it's who's the guy from Shartank is it Robert Herjevik or whatever you know I'm talking about you're talking about being a businessman and there's like this quote of his he's like you know mediocre sales people sell features good sales people sell outcomes but great salespeople sell feelings like how you make somebody feel and I have had um you know we've probably all in our years have like gone to like interview at a job and you leave and you're like ew right or you have one where you're like I want to work for that guy right and I think that's where like how you can attract really good talent is like look in the mirror right because before you did you think about like well what do I have to pay them for salary and how much commission it's like you've got to get them to want to work for you especially when you're a new a new brokerage. I talked with a guy a few years ago that was you know in his first couple years but they were scaling and we talked through he's like well how much do I pay like a business development rep? How much do I pay the account account manager? How much do I pay the person covering the loads like salary commission? How do we break it up? And he went you know we went through all that and then like you know we'd meet and then like he'd have all this turnover and turnover and turnover and it came down to like it's the way that you are running your company and the way that you are treating them that you're not retaining these people like I'd have them call me afterward and they're like dude that guy was nuts. And so I think that's like a big part of you know I know we're talking talking like the money side and finance and all that but like that's because some people try to solve a non-money problem with compensation.

SPEAKER_00 50:44

It's like no quit being an asshole. Like this is not an incentive issue.

SPEAKER_01 50:48

Yep.

Margins Factoring And Cash Flow Traps

SPEAKER_01 50:51

What else we there's a couple other things I wanted to hit on too on the money side and this is like margin right I just want to like at least point this out that like and we've talked about all the time like you know there's bad customers right there's bad margins that can really hurt you. The example we used like you're one third one third one third right and we used yeah we if it's a 15% margin that puts you at just under five percent bottom line right imagine if you were at half of that right like if you're at seven and a half percent I do I've seen guys that come in and they're trying to run it like five percent like oh I'll just do a bunch of volume I'm like yeah when you're not paying the overhead like sure that might make sense to you but then if you're at five percent margin and that same example that we just used now you're at like one point something percent net uh profit like that is not a good rate of return for your money to run an entire business like you'd be better off throwing your money in a growth stock mutual fund and then go get a job like legitimately that would pay you better dividends than to run a thin thin margin business like that. Not to mention like if they're a slow paying customer and they negatively impact your cash flow um you know that's why you hear like you know carriers that like just bitch like brokers are stealing money they should have their margins capped and it's like this is a business. Like you don't see the big picture on like the cost to acquire an account so that we can keep your truck loaded like you know what I mean?

SPEAKER_00 52:25

Yeah there's so many and just again like we're not gonna go down the rabbit hole but like just factoring right yeah if you are a new broker and like you pretty much need to factor to get enough money saved but like if you have like I would say an expensive factoring deal like three percent okay just round numbers a thousand dollar invoice to customer 850 to the carrier 15% margins $150 right that 3% of a thousand dollars okay is thirty dollars what the business actually gets is 150 that's more of like actually the revenue for the brokerage because the rest is passed through but you just spent 30 dollars of your 150 in profit to just fund the transaction yeah which is 20 20 of your margin just went to just to have the money move yeah just to have the money moved. So we talked about a third a third and a third if you're factoring at three percent you only have a bucket of 80 cents of every dollar to start with instead of a hundred cents. Now that shrinks and to your example like that's where you see low margin freight IC just eat up margins in smaller brokerages. Like oh we'll just run it at 7%. And I'm like yeah but not only do you pay even in a good factoring deal where you're like 1.2% right they'll have a 5% holdback. I'm like you're not even you're paying a percent to fund it, which you need to, but you don't even get an advance on it because your margin is what the factoring company is holding until your customer pays the bill. So as soon as you drop below that number of like 10% all of a sudden you get no money until your customer pays the bill 35 days later. And they're like where'd all our money go? We had money to pay our bills every week I'm like what were your margins before 12%? What are they now? Well they're averaging eight I'm like there's where your money went I'm like it's all the factoring holdback. You'll get it in a month but like now you got to figure out how to make payroll. And then it's like you said the employees are like we're doing well. I'm like no you're not you just basically gave up your ability to get paid because you chopped your margin down below what the company needed to give you. Nobody tends to see how those things are connected but like to your point like that's why these things matter as either the owner or the employee and like you should know them no matter what your job is. It's pretty important to understand how your contribution works upstream with a bigger organization. Cause like the last thing I would say on like this whole topic is no matter what side of it you're on owner, manager, hiring or employee like you've got to contribute more value to the business than you take out to have a long-term job. Yeah. Because if you're not putting more value or money into the business than you take out of it, eventually you will not have a job. Yep. You can over negotiate your salary and that's great for a short amount of time but eventually there's not enough money to pay you to keep doing it if you don't contribute back to the business to cover the rest of the overhead. It's not like somebody's like screwing somebody here it's just like this is how all of this works. So like you should kind of have at least a base understanding of these things when you go into business.

SPEAKER_01 55:36

Yeah and that's where like just to put a bow on it like there's not a one size fits all approach to the finance of a brokerage. Like in it's big picture I mean like how much can I spend here? How do I break up salary versus commission and how do I look at the cost for insurance and the real estate that I operate in etc what there is not it's it's just so different right if you're when you're when you book a business and your company is developed and fairly stable and you've got a well-oiled machine where it's cash flow and good your margins are healthy well then you've got the ability then to play around and and kind of take some risks and try some new things out because one little mistake is not going to tank you. But when you're new and your book of business is volatile and you know your your margins are thin um you know you you've got to be very you've got to really scrutinize every little expense that goes into it right the you know from like the you could say like the speak of internet that you're using like I'm just a random example right do I have the gigabit or do I have the 200 whatever per second um same goes with like your software like yeah it'd be really nice to have that TMS that's got all the bells and whistles but we just can't afford it. Like it was just it's not in the budget, right? We've got to go for a more realistic option that's that we can that we can scale with over time but they have a more entry level option that's going to serve my needs. Same thing with like load boards like we mentioned DAT has like a wide spectrum like you don't need the we don't need the top tier when you get started.

SPEAKER_00 57:22

You've got to bootstrap it as as they say in the industry right I think no matter where you are like this is not even just like a business thing. Like you do this in your personal life all the time. It's like if you're still paying for something you don't use it you kind of stop paying for it right unless you forgot whether it's a gym membership or whether it's some streaming service streaming service is a really good example like oh like maybe I got this because apps oh those are like the three that went through my head like immediately like I just go back through but it's like but if you are using it sometimes you pay more like everybody's different businesses are all different. Like these are benchmarks to start with because like I was having this conversation I think it was with like Mike Fulham the one day we were talking about like books or apps. Maybe it was my cousin it was somebody I was talking to and they're like well how do you go through so many books a month like what do you pay I'm like well like I probably pay more but I get more value. Like I have premium Spotify. So I have like unlimited books on Spotify, which I used to pay like an extra 50 bucks a month on Audible and now it's cheaper. But I also have the premium Audible and there's like two or three books a month I get with the credits I have that I don't get over here. So I'm like, but I use way more than I pay. So like that's worth it to me. But like to your point, I canceled almost all the TV stuff I because I just don't watch TV anymore. And I'm like so like I'm probably spending the same amount it's just geared to what I use not what I think I'll use. And to me like you don't have to overcomplicate it. Like you do this all the time in your life like you wouldn't buy a bunch of food and then not eat it and throw it away and do the same thing next week. You'd be like well I just didn't like that. You wouldn't buy it again. Like some version of this you're doing all day long.

SPEAKER_01 58:59

Yep.

Key Takeaways And Listener Questions

SPEAKER_01 59:00

That's it man it's the uh it's the not so sexy side of brokerage that you know becomes a big part of it is the is finance. So we we really are a uh a bank in the industry with money moving through us through us. So good stuff man that was a a very well thought through conversation if you guys have any specific questions on the finance and money side of brokerage let us know. Leave a comment send us a question through the website or just email us info at freight360.net um we'll catch you guys on the next one Ben final thoughts whether you believe you can or believe you can't you're right and until next time go Bills