Welcome to another edition of a Cashflow playbook!
Buying a FedEx Route Business: Your next boring business idea is at your doorstep… literally
Intro: Benefit from the e-commerce boom with FedEx routes
Online shopping has exploded since 2020. So has the number of e-commerce business jockeys fighting for scraps. Who wants to compete with paid ad spends, big tech algos, and FBA wars?
Here’s an extra-boring pick-and-shovel e-commerce business idea that requires zero marketing and zero advertising... but can still scale to 7 figures. Want to profit off the e-commerce boom? Buy a FedEx route.
The shipping industry is growing fast, and FedEx is at the forefront. FedEx routes are 100% independently owned and operated, and it’s a low barrier to entry relative to other forms of business ownership. Plus, if you play your cards right, the potential profits and exits are more than enticing.
In this playbook, we'll cover everything you need to know about acquiring or running a FedEx route business, from evaluating the valuation to operations and procedures. We’re going to cover it all.
With operations typically selling at 4-5x EBITDA, owning a FedEx route business can be a great investment opportunity. So, buckle up your freight truck seatbelt, and get ready to learn about the world of FedEx route businesses.
According to a report from 2019, FedEx Ground's package volume was 2.28 billion, which increased to 2.54 billion in just one year.
Summary
This playbook outlines the steps for acquiring or running a FedEx route business. You’ll learn the structure and components of a FedEx route, how to find and evaluate a route, budget, search for available routes, and set up a corporation for your business. We’ll also cover FedEx's requirements for owning and operating a route.
Beyond the nuts and bolts, expect some advice on market growth potential, legal implications, hiring and staffing, marketing, how to scale quickly, and operations and procedures.
Playbook
Step 1: Understand the structure & main components of a FedEx route
A FedEx Route Business typically consists of a small business or corporation that operates multiple routes. As an Independent Service Provider (ISP) for FedEx Ground, route owners are responsible for managing their business operations, including their drivers, vehicles, and package delivery processes. They must be prepared to handle growth, even starting with just a few routes.
But that doesn’t mean you’re totally on your own.
What does FedEx provide ISPs?
FedEx provides ISPs essential support to the transportation segments, including sales, marketing, IT, communications, customer service, technical support, billing and collection services, e-commerce services, data management, networking expertise, solutions design, customer support, sales and marketing, and information technology.
High-performing operators can earn FedEx bonuses based on customer service and other factors.
What are ISPs responsible for?
ISPs are responsible for managing their business operations, including their drivers, vehicles, and package delivery processes.
Business management software like FedEx DRO, which stands for Dynamic Route Optimization, is the standard-issue route optimization software given to FedEx drivers. FedEx DRO can help ISPs save time and scale their business. ISPs can choose tech and software that works best for their business, and there are other software options, like Straightaway.
As an independent contractor for FedEx, a FedEx route owner has a degree of control over their business operations, but you must follow specific requirements and guidelines.
That includes delivery schedules, vehicle types, and branding guidelines. As a contractor, you ensure that your business operations meet these requirements.
Additionally, as a business owner, you have control over certain aspects of your business, such as hiring employees, managing schedules, and overseeing day-to-day operations. You are also responsible for maintaining and replacing vehicles, managing finances, and handling customer service issues.
Ultimately, FedEx has the last say.
It's important to note that while you have some control over your business operations, you are still subject to the terms and conditions of your contract with FedEx. If there are changes to FedEx's policies or requirements, you may need to adjust your business operations accordingly.
While you own your business, FedEx has specific requirements for owning and operating a route. These include setting up a corporation, meeting particular financial and operational standards, and complying with FedEx’s policies and procedures. Make sure you understand these requirements before you start looking for routes to buy.
To own a route with FedEx, you must sign a contract and become an independent contractor. You are not an employee of FedEx and will not receive health insurance, a retirement plan, or other benefits from FedEx.
Depending on the route you buy, you may have to hire or manage the existing employees if you don’t operate the route yourself (see Step 6: Focus on operations). That requires providing uniforms and potentially insurance or retirement plans. As a business owner, you are responsible for your taxes and other expenses, like fuel, buying or leasing your trucks and equipment, and maintaining them.
FedEx route drivers must meet specific licensing and traffic safety record requirements. You must have no more than three moving violations in the last three years and a maximum of one in the previous 12 months. They must also be able to pass a background check and a Department of Transportation physical and drug test.
We will reiterate -- this is NOT a franchise business, and you own 100% of your business and operate as an ISP.
What are some of the risks?
Like any venture with a relatively lower barrier to entry, there are risks (and indeed some criticisms) of buying and running a FedEx route. Covid caused a significant increase in demand for package delivery services. However, the surge in demand also highlighted the potential downsides of owning and operating a FedEx route business.
Here are a few key downsides to consider:
The following chart outlines the downward trend of US & Canada FedEx ground shipments, despite a relevant increase in US e-commerce. More online shopping doesn’t necessarily mean more people will use FedEx to receive packages.
- As an independent service provider, you bear the labor and vehicle costs.
- Changing variables: Critics accuse FedEx of making it difficult for ISPs to profit by increasing their workload, cutting their pay, and imposing new fees and penalties. These are variables that are out of the control of the ISP.
- Unpredictable revenue streams: Holiday seasons will be busy, whereas summer months might be a little slow. Prepare for unpredictable revenue streams.
- Limited flexibility: Some FedEx contractors have voiced concerns about the company's compensation structure and the need for more control over their business operations.
- Dependence on FedEx: As a FedEx contractor, your business relies on its continued success and growth. If FedEx were to experience financial difficulties or change its business model, it could impact your business.
- High initial investment: Purchasing a FedEx route can require a significant upfront investment, including the cost of vehicles, equipment, and other operational expenses. This can be a barrier to entry for some potential business owners.
- Labor-intensive: Running a FedEx route business requires a significant amount of physical labor, including loading and unloading packages, driving long distances, and maintaining vehicles. Fleet management is physically demanding and may require hiring additional employees.
- Risk of competition: Depending on the location of your route, you may face competition from other FedEx contractors or other delivery services, which can impact your business.
Yes, these challenges are genuine. But no boring business comes without its challenges. Operating a FedEx route business can still be profitable for entrepreneurs willing to invest the time, effort, and resources to succeed.
Alright. You heard the ups, the downs, and the in-betweens. Still reading? Cool.
If this seems like a venture worth pursuing, here are the steps you must take to make it happen. The meat and potatoes of the FedEx route sandwich, if you will.
Step 2: Find a FedEx route to buy
Before you start looking for FedEx routes to buy, you need to determine how much you can afford to invest and your business goals. Understanding your objectives as a business owner will help you narrow your search to routes that fit your budget and meet your objectives.
Let’s start searching! But hold on a sec. What kind of route do you want to buy? No two routes are the same, and there are several factors to consider when deciding what route is best for you.
Here are a few considerations:
Some markets are more popular than others. As you can see in the graphic, states with larger populations, like Texas, California, New York, and Florida, usually see higher demand for FedEx routes. That means the price will be more competitive and less affordable.
- Favorable geographic location: Consider the geographic location of the route, including the size of the delivery area and the demographics of the customer base. A route with a large, densely populated delivery area may be more profitable than one with a smaller population and more spread-out area. Texas, Florida, New York, Colorado, and California have a higher base of interested investors because of higher demand, so you’ll pay a premium to acquire a route business in those markets.
- Well-maintained vehicles and equipment: The condition of the cars and equipment used for the route is critical to its success. Look for a route with well-maintained vehicles and equipment to ensure that you can operate the route effectively and minimize expenses related to maintenance and repairs.
- Stable workforce: A route with a durable and experienced crew can make it easier to manage day-to-day operations and maintain consistency in service quality. Look for a route with low employee turnover and a strong culture of safety and customer service culture.
- Operations normally sell at 2-3.5x EBITDA. That number has doubled in the last 4 years. Your earnings will largely depend on the volume of packages your route manages, so focus on metrics like revenue per package and operational costs to estimate potential exit valuations. This graphic from Trefis shows an increase in total packages shipped while growth in revenue per FedEx package is starting to slow.
- The most significant percentage (60%) of FedEx routes for sale are under contract during the 3rd quarter of the year, leading up to Peak Season. You might get more reasonable offers in the off-season when fewer offers are available.
Considering these factors, determine what FedEx routes are suitable for you.
Here’s a list of marketplaces you can use to find a route for sale:
Once you know your budget and objectives and have learned about FedEx’s requirements, you can make an informed purchase. Use one of the brokers or marketplaces above to find routes for sale.
**To view the rest of the playbook and access your resources, click the button below!**
