Are FedEx routes still the best business to buy?
It’s been a decade since I discovered FedEx routes, fell in love with the concept, and made my first offer.
Finding a business that has the incredible attributes of FedEx routes is nearly impossible (if you know of one, please email me and let me know). I recently had a Clarity call with someone that wanted to hear an overview of what contractors actually need to do to operate a FedEx route business successfully. After I had described the business without the sugar coating brokers and sellers put on it, he wondered why anyone would ever buy a route. This person was under the common impression that buying a route business was some business with no downsides whatsoever.
Just because FedEx routes might be one of the best businesses to acquire, it doesn’t mean they’re flawless.
Negative aspects of this industry aside, the reality is that there’s probably more reasons to buy a FedEx route than any other business I know of.
An ironic thing is when you find a business that has a ton of great attributes, it lulls you into missing the things that can be wrong that you might not have even considered. However, I’ve maintained for a decade now that FedEx remains one of the best established businesses to buy, but it’s certainly not a good fit for everyone.
It’s easy to see why FedEx routes are one of the hottest businesses to buy when you consider it has just about every aspect of a fantastic business.
Take a look at the following 20 amazing attributes:
Stable revenue –
Some route’s revenue may be more seasonal than others, but most are stable throughout the year excluding the typical surges in revenue for holiday / peak season.
High liquidity –
FedEx remains one of the hottest businesses to buy in America, and many route owners that use brokers to sell their routes (make sure to use the right broker, otherwise a bad broker will actually HURT your ability to sell) are seeing their business sell in a matter of only months, as opposed to years like many other businesses trying to be sold.
High profitability per employee –
Many businesses (eg. Amazon Logistics routes, etc) may take 2-3x as many employees to generate the same amount of profitability per employee. Less employee management with higher profitability is the ultimate goal in many industries.
No inventory –
No products and no fear of being stuck with product that’s hard to sell. The only asset most contractors have is trucks, which their value often comprises a small portion of the overall business.
Historical growth easily proven –
FedEx is publicly traded company with historical financial info easily available.
High growth projected –
eCommerce continues to grow at astounding rates.
Mostly recession proof –
People buy more online when they need to save money because the economy is bad, and people buy more stuff in general when the economy is good. Either way, it spells out more growth and more revenue for contractors.
Low risk of acquisition relative to other businesses –
No cash transactions in the revenue streams. There’s only one easily identifiable source of revenue. Financial records of revenue are very hard to manipulate by the seller if the buyer is performing savvy due diligence. Although, if you don’t understand FedEx deeply, your risk of acquisition is still exceedingly high.
No accounts receivable or late paying customers –
FedEx pays every week, and on time via direct deposit.
Easy to scale up to a point –
Buying additional routes to scale the business is very easy in contrast to other industries where you get spread too far geographically (eg. If you have a successful Convenience Store, you can’t just open another across the street and do just as well – you’ll need to expand geographically). Note: While scaling to a certain degree can be easy, there are limitations to scaling that are somewhat convoluted, but it’s no coincidence that 90% or more of the FedEx routes being listed for sale have a net income less than $500k.
Simple to understand / operate –
Get some trucks, slap some FedEx logos on the side, hire some drivers and you’re good to go. No complex supplier relationships, lots of moving parts to try to understand, low intellectual difficulty of understanding the business. Note: There is a significant amount of complexity to understanding route operations, understanding efficient operations, and understanding FedEx well enough to perform due diligence.
No sales skills needed –
Usually FedEx grows whether you want it to or not. Note: Most people don’t know why you wouldn’t want growth, and it’s a counterintuitive concept specific to FedEx, but you’ll later discover why growth can be a nightmare.
All the processes for success are all in place –
FedEx has a very solid and methodical process laid out that contractors follow. For people willing to learn and follow directions, this is a great thing that you’re not having to stress out about creating a new advertising plan, or trying to negotiate shipping rates with a new client, or dealing with all the headaches of other businesses like establishing web sites, dealing with social media presence, handing online ads like Facebook Ads or Google Adwords and so on. Note: The people that have 100 ideas to turn things around and make a ton extra money are probably NOT a good fit for FedEx routes. This is about following a system to a certain degree but having a very narrow degree of freedom to utilize business skills to operate the routes on an efficient level.
Potential exists for low workload –
When you have a very solid organization in place, there’s not too many other businesses that allow SUSTAINABLE and SUCCESSFUL operations with working as few hours as you’ll need to in the FedEx world. Contrast this to restaurants, liquor stores, convenience stores that without a brilliantly managed business will struggle to have low hours AND still be successful. It’s important to realize that just because the potential exists for a lower workload doesn’t mean that’s what it’ll be like for the routes you’re looking like, and even if it is true for today, it may require more work / effort in the future.
Extensive specialized knowledge isn’t a prerequisite –
While there’s a lot to understand in the FedEx world, it’s seldom ever intellectually challenging. You’re not dealing with never ending complex processes that may be present in other industries.
Legally protected territory –
If you’re doing well, you don’t have to worry about other contractors undercutting you or competing with you for the most part.
Increasing Valuation for the business itself –
The average valuation multiple that FedEx routes typically sell at has been increasing for FedEx route businesses for years now. It’s not a fad industry or an industry that could have a new competitor pop up easily that could decrease the valuation of the business. In contrast very profitable businesses such as a coffee shop have very low barriers to entry and many competitors can pull the valuations down when it comes time for you to sell. While Amazon looms on the horizon here in 2018, Amazon knows competing with FedEx will be a massive undertaking and actually may be something they’re not ever really interested in nearly as much as controlling their own logistics network just like many other retailers do themselves (eg. Walmart). The increasing valuation is a double edged sword, as people on the fence for years debating whether to get into FedEx will find themselves having to pay a higher premium to get in the door in the future (presuming valuations continue to rise as they have historically).
Friendly atmosphere since your fellow contractors aren’t competitors –
The environment inside the FedEx terminal is usually one of the best environments you’ll ever work in. The amount of cooperation, helpfulness, and comradery is fantastic in many of the terminals.
Revenue easily verifiable via FedEx corporate –
Being able to see FedEx settlements, the weekly paycheck details from FedEx, are easily obtained and able to be reviewed. This is excellent for even the majority of unsophisticated buyers of routes, as anyone can read the amount of revenue coming in. Note: Using only the settlement revenue to evaluate a route’s revenue is a recipe for disaster.
The APPEARANCE of a business the requires no skills / effort / stress –
All of the other attributes listed above are generally true, however, this attribute is thought to be true but is not. This is something that most people see when they look at FedEx routes, but it’s actually horrendously false. Most people think that since there’s a manager in place, they don’t have to understand the business and the money magically rolls in. This can seem true, even when you hear of many anecdotal stories confirming this to be the case. We can get into more details later, however, you can hopefully intuitively know that anyone that says you’re going to succeed in anything with no skills, no stress, no effort, is selling you something.
Too good to be true? Nope. And that’s what the problem is.
That’s so much good news about FedEx routes, people jump in and buy them without really considering what negative things have been drowned out by all this positive stuff.
The full reality is that some routes are complete time bombs and are disasters to own. Throughout the years I’ve often helped people either negotiate lower prices or simply dodge a bullet completely from clients either avoiding a route altogether, or avoiding the entire industry.
Here’s some of the things the seller “forgot” to mention about their routes:
Some are routes that will not have their contracts renewed,
Some are going to be nearly impossible to resell,
Some are nightmares to operate successfully,
Some are about to dramatically change due to upcoming contractual changes,
Some are not making anywhere near the amount of estimated net income,
Some are making the amount of net income claimed but will drop significantly after the transfer,
Some are about to be terminated altogether.
If all these things sound impossible or unlikely, you’re going to find out why they’re not only very possible, but also likely. That doesn’t mean that all route sellers are selling only bad routes, that’s certainly not the case.
I’ve seen some fantastic businesses for sale and am happy to have helped people identify them and snag them rapidly. But regardless, you need to go through an efficient evaluation process to find out as much as possible on the business to help better determine what’s going on with the business.
You’re going to find out and understand the truth to this business, with all the wonderful (and not so wonderful) aspects of it. You can tell yourself, “How hard could it be? I can figure this out on my own!” If you tell yourself that, you’ll find out the truth to things after you’ve bought the routes and you’re stuck.
Or you’ll find out those things prior by getting some training together. Point is, you’re going to find out what they didn’t want you to know about the routes, the only question is when…
Hopefully you decide to grab some training time together prior to getting the routes. You need to learn a systematic process utilizing numerous advanced methods to specifically evaluate routes fully so you can make a far better decision.