How Much Money Can You Make if You Buy FedEx Routes?

Common questions we get asked: Are FedEx routes a good investment? Are FedEx routes a good business? Do FedEx routes make money?

Our answer to all of those questions is: Yes!

If you are an investor or entrepreneur looking at FedEx Ground routes as an opportunity, the first thing you need to know is that FedEx Ground routes can be profitable and they have tremendous growth potential and value. However, it’s also important to understand how much money these businesses can reasonably make, and what the limitations are in terms of profitability in this space.

Understand FedEx Ground Route Profit Margins

First, let’s talk about profit margins. If the business isn’t making a profit then you can’t invest back into the business or pay yourself. Keep in mind that the more you plan to personally depend on the profits of the business for your income/lifestyle the more important a healthy profit margin becomes. Route Consultant can work with you to determine what your financial goals are and what your tolerance is based on the size of business you are looking for.

The industry standard when discussing profit margins is to use an EBITDA value of Net Operating Income. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. This means that the Net Operating Income (or profit margin) represents the profits of the business after accounting for operating expenses, but before you pay any debt service on loans, before you pay any taxes, before you account for depreciation, before you add or replace vehicles in your fleet, and before you pay yourself.

The above expenses are all personal and unique to every business owner. Not every owner takes the same salary, everyone’s debt structure is different, and the needs of each business is different as well. An EBITDA profit margin gives you a fair representation of the current efficiency of the business itself.

P&D Profit Margins

For a FedEx Ground P&D business, you can expect healthy operations to generate profit margins between 10-20% of annual revenue.

For example, if you purchase a FedEx Ground operation with approximately $800,000 in revenue per year, you should expect that business to pull in approximately $120,000 in profit (or 15%) on average.  

While there can and will be exceptions outside of this range, anything noticeably above or below this average range should raise a flag when evaluating a business for sale. Profit margins below this range could indicate efficiency problems in the business and may require additional investigation to understand why margins are lower. Profit margins above this range could indicate a highly efficient business or a misrepresentation of expenses by the seller or broker. Again, it should prompt you to ask questions and get a better understanding of the situation.

Note: FedEx Ground P&D businesses rarely generate profit margins at or above the 30% range. The financial model of this industry simply makes 30% margins tough to achieve. There are basic expenses every P&D business has to carry and even highly efficient companies have limits to how much they can lower these expenses. If you see FedEx Ground routes for sale with a profit margin of 30% or more, this should be a red flag and should be discussed at length with your Route Consultant expert.

We strongly encourage you to work with a respected, well-known industry consultant like Route Consultant to do a deep dive analysis of the financials before you purchase any business advertising eye-popping profit margins.

Linehaul Profit Margins

Linehaul runs have a higher profit potential compared to P&D routes. Linehaul can be extremely challenging to recruit and more costly to enter the space, but with this added risk comes a high reward when done correctly.

Healthy linehaul businesses typically demonstrate profit margins between 15-35% of revenue. This wide range depends on whether your linehaul runs are solo, team, or a combination of the two.

Linehaul portfolios with mostly or all solo runs will have profit margins closer to the 15-25% range. Operations with a heavy composition of team runs have the potential for higher profit margins: up near 30%-35%. Team linehaul runs have the highest profit margin potential of the FedEx Ground portfolio.

Beware of linehaul runs for sale that advertise very high-profit margins (above 35%). Additionally, do not expect linehaul businesses with solo runs to have profit margins up near 35%—listings advertising higher profit margins on solo runs are misleading.

Revenue Per Route

Beyond looking at profit margins, which are heavily influenced by your operational expenses, you can also think about a business in terms of its revenue. Top line revenue is easily predictable and is primarily controlled by the amount of volume your territory has. How you choose to spend that revenue through operational expenses will determine how efficient and profitable the business is.

P&D

Revenue per route is a metric that helps indicate how much revenue each route is bringing in on an annual basis, and it will help highlight any inefficiencies in the business. Like with many metrics in a dynamic industry, the expected revenue per route for a business can vary. For most operations, as of 2022, we would expect an average business to generate around $120,000 of revenue per route. This value can be below $100,000 if the business is distributing revenue (aka package volume) across too many routes, and it could be as high as $140,000 per route in the most efficient businesses in the network.

Linehaul

Linehaul revenue is entirely dependent on the miles traveled each day. Team runs travel farther distances compared to solo runs, therefore team runs will generate more revenue per run than solos will. On average, however, all linehaul runs generate more revenue than any P&D route can.

By adding a single linehaul run to your portfolio, you can add as much as $300,000 to $500,000 of revenue value to your operation. This wide range is dependent on the type of run you have and the total mileage of that run.

It’s no exaggeration that by bidding for and acquiring linehaul runs you can make millions in this space. The challenge is: can you effectively recruit and retain CDL drivers in a highly competitive market to win those runs?

Equity Appreciation

The last major concept you need to understand about making money in the FedEx Ground space is the concept of equity appreciation. As a FedEx Ground contractor, you have assets in a fleet of vehicles and contractual rights to a territory or a set of runs that holds value. As your volume grows on the P&D side, or as you add additional runs to your linehaul portfolio, your business grows in value. While monthly cash flow can be great, the real value and return on your investment happens when you create liquidity events to capitalize on your growth and the increasing value of your business.

As a specific example, let’s refer back to the linehaul revenue per route mentioned above: On average, most healthy linehaul runs sell for 100-110% of annual revenue. If you can effectively recruit and earn additional runs worth $300,000 to $500,000 each in revenue, that becomes immediate equity value added to your business that you can turn around and sell at potentially 100%+ of the revenue value. This is the power of equity appreciation and where you truly get a sizable return on your investment by growing your operation and selling off portions to generate capital.

This concept works on the P&D side as well. We have seen many success stories of contractors who entered the P&D space with 10 or 12 routes, grew the business through organic growth and initiatives from FedEx Ground, and in a few years (or less), were able to sell a portion of their business for more than what they initially paid for their entire business. After the sale, their operation is back to the size it was when they started, and they can begin the growth process all over again with substantial capital in their back pocket.

If you can learn how to effectively scale your operation, while making liquidity events along the way, you can maximize your Return On Investment (ROI) while maintaining a manageable operation.

Want To Learn More?

Every buyer is different and has different financial goals. If you are interested in determining with certainty if this investment path is right for you, join us for one of our New Investor Summits. These summits are comprised of two primary components: 1. A digital course designed so you may learn at your own pace. 2. In-person events held at our Nashville office. The New Investor Summit event is designed to give you the knowledge and confidence to determine whether this investment is worth pursuing. During this one-day event, you will meet with others exploring the opportunity of owning their own FedEx Ground Route, industry insiders, and Route Consultant experts.

If you are serious about pursuing FedEx Ground routes as an investment, learn about our Acquisition Strategy consulting service. Route Consultant is available to help you map out your investment strategy based on your personal needs. We will work with you to find the right business for you, and we will teach you how to operate your business successfully to maximize your returns.

Want to Learn More?

Dive into the world of logistics and delivery routes with our complimentary FedEx Ground Routes 101 E-Course. This course will teach you the fundamentals of delivery routes so that you can decide if this is an industry worth pursuing further. Whether you’re interested in FedEx Ground routes, Amazon routes, Bread routes, or other logistics operations, we are here to help. Enroll now for free and take the first step towards entrepreneurship in the e-commerce space.