What to Expect In Expenses for FedEx Routes for Sale
One of the beauties of the FedEx Ground industry is that the revenue is provided to you by FedEx Ground in the form of package volume. There are very few industries where you don’t have to do your own marketing to generate revenue. Your success as a contractor is entirely dependent on how efficiently you deliver the available package volume and how well you manage your operational expenses.
The fundamental expenses for FedEx Ground routes are the same for any operation. In this blog, we will provide a brief overview of the main expense items you can expect to see on a contractor’s Profit and Loss and how to analyze the health of a business' expenses.
Expenses You’ll Find On a P&L Statement
Gross Driver Wages
In most cases, gross driver wages (payroll) will be the largest expense item for the entire business. In our experience, gross driver wages for a P&D operation should be between 37- 52% of total annual revenue. A healthy linehaul operation should be between 30-35% of total annual revenue. This value only represents the gross wages paid to the driver and does not include payroll taxes; that is a separate line item.
P&D businesses showing payroll costs above 50% can indicate serious efficiency problems. For potential buyers, this isn’t a dealbreaker and can actually present an opportunity to find better efficiency in the business. However, it’s important to recognize these flags that warrant additional questions for the seller.
Over time you can expect your business to grow and additional drivers will be needed to service the additional package volume. As you add new drivers to your payroll, the challenge is to maintain efficiency between how many routes you dispatch and what you spend on payroll to staff those routes.
Fuel
In our listings, we help P&D businesses calculate fuel factoring in a business’s average miles per day and total number of routes. We assume 255 working days per year and that fleet trucks average 10 miles per gallon.
We calculate fuel for linehaul operations using average miles per week. We assume 52 working weeks per year and that tractor-trailers average 6.25 miles per gallon.
When appropriate, we may add a cushion to account for rising fuel costs.
The vast majority of businesses will use a fuel card for this expense. If you need vendor recommendations, please reach out to our team. Fuel cards are one critical tool for reducing employee theft; additionally they make tracking and vetting average fuel expenses easier.
VEDR Technology
Installing technology in your fleets does come with a cost, especially when you add additional trucks to meet the volume demand your business is experiencing. Every vehicle in your fleet must have VEDR installed. Your exact expense can vary depending on vendor and your purchase strategy.
Scanners
Scanners are crucial to the success of your organization and the efficiency of your drivers. However, the more trucks and drivers you add to your company, the more scanners you will need to purchase.
The expenses mentioned above do not include all your total expenses. However, it does provide a brief idea of what areas your expenses will increase as volume continues to grow. With a rise in expenses, your profit margin can be impacted greatly.
If you need help assessing your expenses as you grow, we can assist you in determining which areas you can decrease expenses to gain profit, and help you review the areas that you’re spending too much.
Plates
In our experience, plates cost approximately $200 per P&D truck and $2,350 per linehaul tractor-trailer. We use these numbers to model expenses for our listings.
Payroll Taxes
Payroll tax rates are state-specific. To calculate payroll taxes, find the tax rate for the state where the business is located and multiply the tax rate by Total Salaries + Wages.
Insurance
Required insurance policies include Workers Compensation, Non-Trucking Liability Insurance (NTL) and Employment Practice Liability Insurace (EPLI). Physical Damage Insurance for your vehicles is an optional expense. Insurance is typically represented as a lump sum of all insurance expenses for the business.
Your total insurance costs for the business should range somewhere between 3-6% of total annual revenue. Where you fall on the cost spectrum can be dependent on the state you operate in.
The vast majority (as much as 80%) of your insurance expense will be from Workers Compensation. If you’d like to learn more about managing employee injuries and insurance claims, our team can teach you critical strategies to keep drivers safe and mitigate expenses.
Some key takeaways to remember about Workers Compensation:
Your Experience Modification Factor is a critical component in determining your insurance costs.
Shop around for insurance providers. You do not have to adopt the seller’s Mod Score if you prefer to start with a fresh score.
As the owner of the business, it is your responsibility to establish a strong cultural foundation of safety and accountability.
One of the best ways to invest in your employees is to provide them with things such as slip-resistant shoes, back braces, and safety features in the vehicles.
A return to work program is essential in successfully managing your workers’ compensation claims. It can be a positive game changer in your organization.
Other Admin Expenses
Physicals: This number may vary, but we see it typically hovers around $500 total.
Uniforms: Uniforms cost approximately $300 per employee annually.
Accounting and Legal: An average FedEx Ground route business can generally cover required accounting and legal costs for $2,000 per year.
Supplies: Most route businesses spend approximately $2,000 in supplies per year.
Travel and Entertainment: You should allocate roughly $1,000-$2,000 annually to cover employee appreciation or travel.
Equipment Maintenance and Rental
Typical P&D repair and maintenance costs are between 8-12% of Total Revenue. To better estimate this expense, we recommend evaluating the age of the fleet and the daily mileage per route.
The maintenance of your vehicles can impact your profits. If certain trucks have higher mileage, the maintenance costs will increase. However, rural or high mileage routes can be extremely profitable if the owner is intentional with their fleet strategy.
Do keep in mind that for linehaul, certain leasing companies will pay for the complete maintenance of your fleet during your leasing period, and it can reduce your maintenance costs long term.
For linehaul tractor-trailers, we find typical repair and maintenance costs are between 15-22% of Total Revenue.
Where Do We Go From Here?
Understanding a business’s Total Expenses will help you better understand its challenges and opportunities.
Furthermore, a close look at Total Expenses is an excellent sniff test for an attractive listing. Is the Profit Margin suspiciously high (> 30%)? Which expenses might not be accurately represented? Which expenses fall outside industry standards?
If you need help digging into a business’s expenses or modeling expenses, our team would love to help!
Want to Learn More?
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