The Ultimate Beginners Guide to Buying (or Avoiding) FedEx Routes.
Why would I want to buy a FedEx route business?
Most people are attracted to route ownership since it has the potential to allow for working less than in their current career as well sometimes making dramatically more income.
Before FedEx routes become more publicly sold, if you’re looking to escape the corporate grind most people only had 2 choices:
1) Start your own business.
2) Buy a franchise.
With a franchise, you typically have significant initial investments as well as having the long period prior to establishing any cash flow. With your own business, you typically have significant risk that you’d never have any cash flow.
FedEx allows a contractual relationship for the delivery of many of their parcels in the US and Canada, which the territories can be bought and sold.
Essentially you can buy a FedEx business that has an established system in it similar to a franchise, however, allows for the potential to generate cash flow the first week you’re in business.
FedEx has had a successful history of over 20 years working with contractors. It allows a balance between the freedom of owning your own business but with a very structured system already in place for you to follow.
However, while this business model has been very lucrative for many contractors coming from a variety of career backgrounds, the business is NOT always a good fit for everyone.
What is a FedEx route business?
FedEx Ground and Home Delivery routes are contracted out to independent business owners. When you buy a route, you’re essentially paying for the trucks that often come with the business, and to take over the contract with FedEx. Usually employees transfer over to new owners with no problem, and many businesses are turnkey since they have a manager in place.
Essentially though, you’re paying for trucks and the goodwill of the FedEx contract which stipulates the legally protected territory that you will own.
How do you buy a FedEx route?
When someone wants to sell their routes, they usually will contact one of several brokers out there to sell it for them. The brokers have 3 primary responsibilities: 1) To advertise the route on sites like BizQuest.com and others, 2) To answer basic questions from potential buyers, and 3) To assist in the transfer process.
Therefore, you’d go to a site like BizQuest.com, find a route listing you like, contact the broker associated with that listing, and the broker will provide additional information on that opportunity.
What do I get exactly when I buy a route?
Most of the time it’s just the contract and the trucks. Sometimes trucks do not come “free and clear” (eg. paid off) and you need to take over the monthly payments on the loan or lease.
Can anyone buy a FedEx route?
Approval rates for new contractors is very high for buyers with general business experience.
However, not everyone will be able to buy a route though, as FedEx must interview the potential new contractor. While many people are approved to work with FedEx, not everyone is. Most of the time people are rejected due to a very low amount of business experience, however, people from all different business backgrounds have come to work with FedEx and found tremendous success.
What do I have to do to manage a FedEx route?
This could differ from day to day, and is a critical question to ask with each individual route business. Some route bundles can be more “semi-absentee” than others.
Understand that all route bundles are NOT created equal, and whether a manager in place or not is not the only factor for semi-absentee operations.
For the most part, ownership takes both low and high level expertise for the overall management of the business, dealing with the trucks, FedEx stipulations, and HR components that are typical in many businesses.
Are the brokers, forums, and sellers a good source of information to learn?
Forums can be a very bad place to learn about routes as many uninformed people and disgruntled owners go there and don’t give the full truth of the situation. There’s many reasons why a forum can be a dangerous place to learn.
As for brokers, they’re paid by the seller and essentially are working for them – NOT you.
While some good brokers out there will give good information, some generalized brokers are not knowledgeable about FedEx routes specifically. At the end of the day, the information you’re receiving about a route from a broker is inherently highly biased – their job isn’t to train you on how to evaluate routes, their job is to sell a route and help with the transition process.
I don’t fault brokers for being marketers, nor do I fault them for relaying inaccurate information when they’re tricked by some unscrupulous sellers.
However, I feel it’s reasonable for anyone to be wary of “training” offered by someone that doesn’t get paid unless you buy something. If you didn’t know whether a Lexus or a Mercedes was better, would you ask a Mercedes salesman how to evaluate which car is better?
How can I tell the difference between a good and a bad route?
Most routes are “good,” but usually not quite AS good as claimed in the listing. Other times a good route might be a disaster for others. There are ways to determine whether a route is a good for you personally, which is why we have the route evaluation training available.
What are good profit margins on a route?
When you understand how FedEx routes actually get structured and paid via a route engineer, you’ll discover there’s no rule of thumb here. FedEx pays differently for different types of routes based on region, state, designation, negotiations, etc. If you try to look at a listing and presume that 30% (or some other arbitrary number) of the gross income should be the net income, it won’t work and that financial model will break as soon as you compare it to other routes.
There are many complex and proprietary reasons for this that are discussed in training. But consider that even on a simplistic level, if you look at one operation where the owner drives a route and maximizes his profitability, his percentage of net income percentage of his gross income will be much higher than a different contractor that has layers of management (and expenses) to make his business more semi-absentee. You can see why saying something ridiculous like “Well, this FedEx route makes only 15% margins in terms of it’s EBITA, so it must be bad. And this other one making 40% margin must have an owner that’s lying. I know the average is 20% from what I read online!”
Meanwhile, both of margins are accurate in each deal, and the 15% margin business might be a superior operation. This is just one of many reasons why you want to avoid trying to figure good margins are in a FedEx route deal.
So remember, you have to evaluate each route properly to determine what the actual net income is, and using off the cuff models like this will make it seem like some sellers are exaggerating their net income, which in reality, they’re truly hitting the profit levels claimed.
What should I look for when evaluating a route?
All routes are similar in that they’re all FedEx routes. However, the differences between those routes can tremendous. The reality is that to properly know what to look for takes several hours to analyze, as some routes are higher risk and/or higher difficulty than others.
The training course on how to evaluate FedEx routes will allow you to examine routes properly using proprietary FedEx specific knowledge and not simple general business concepts.
Are FedEx routes risky?
Relative to buying other businesses, FedEx routes can be lower risk. Also, when you know how to evaluate them properly, you’ll be able to better mitigate and evaluate your risk properly. For an untrained buyer, FedEx routes can be extremely risky and can lead to very large losses.
Most FedEx contractors are good people and you should trust but verify. That said, there are VERY few examples of routes I’ve evaluated where the seller wasn’t exaggerating profits to a degree (or made it seem less risky, or made it seem easier than it was to manage). Sellers doing this is exceedingly common, but the difference between sellers is the degree of the exaggeration do they want to try to get away with.
While business ownership is inherently risky, routes can be far lower risk than other businesses when evaluated properly.
How much money can I make with a FedEx route?
Most contractors can generate net incomes ranging from $100k to over $1M. However, most route owners will make about $200-$500k on average.
There are reasons you don’t see too many route owners making more than $500k though, as it has to do how routes are structured in relationship to FedEx corporate.
If you’re a hedge fund, private equity group, or anyone looking to scale the business beyond $500k net income, you should absolutely get evaluation training before acquiring routes and then learning about Scale Rules after it’s too late.
Are all routes profitable?
Most routes are profitable as no one would operate them otherwise, and FedEx needs contractors to be profitable to continue to work with them and keep their business alive. There are thousands of contractors in North America and are truly the backbone of FedEx’s US operations.
Some routes are not profitable due to a variety of factors, but these situations are highly unique.
Can I keep my day job and buy routes as passive income?
Passive income and absentee ownership is possible with all businesses.
The better question is, will a passively owned business be run into the ground due to neglect, and how long will it take before the business is destroyed? That is the question you should be asking.
The reality is that 100% absentee owned and passive income in routes is very atypical. However, some contractors do this, but the routes have to be structured in a way to allow for this as well as the owner must be well suited for this.
If I told you there was a business that required no skill, no stress, no effort, cranked out money every single day, had no risk and you’d make hundreds of thousands of dollars because the manager does everything, you’d say a business like that was too good to be true and a scam. But when those exact same attributes are restated and sugar coated with “absentee owned,” somehow it seems believable again.
While it’s clearly possible to be semi-absentee and successful, you need to know how to evaluate if a semi-absentee business is being run into the ground or it’s semi-absentee because it’s a well run organization.
There are ways to determine and identify well run operations from the negligent / failing operations. Many buyers trying to “save money” by forgoing proper due diligence training sadly find out they’ve bought a highly neglected operation only after they’ve purchased.
Are routes a good long term investment?
Routes have provided stable income for thousands of contractors for over 20 years. While there is always change looming in nearly every industry out there, the future of FedEx contractors seems very bright in the next several years even with many disruptions / adaptations that may be present in logistics.
Will autonomous driving, Amazon, drones, and robots destroy this business model?
These things could affect contractors certainly.
The reality is that I see no way that the industry will be disrupted so severely that FedEx contractors go out of business in the near future. These advancements to the logistics industry could allow for even more packages to be easily shipped at even cheaper rates than before and spur even more growth in the shipping industry.
As we shift to a 7 day standard delivery workweek in 2020, FedEx is embracing the fact that being adaptable and changing is required to stay competitive. Contractors duties may change significantly several years in the future, but people wanting packages shipped doesn’t seem to be going away and we need people to coordinate those efforts, however they may be.
Are FedEx routes the best franchise to buy?
Technically, FedEx routes aren’t franchises as you pay no royalties, franchise fees, etc. Route businesses are basically a contractual relationship between an independent business owner and FedEx.
As for them being the best business to buy, they can provide benefits beyond many other businesses that are for sale out there.
What do I have to do to get a route?
- Make sure you’re well suited for route ownership and this is something you want to do. Get assistance here.
- Make sure you have the money for this and/or have secured a reasonable financing connection. Get introduced to banks that can specifically finance FedEx routes here.
- Find a route for sale using a site like BizQuest.com.
- Reach out to the broker / seller and get more information.
- Evaluate the route.
- Place an accepted offer.
- Go through the application process at FedEx.
Is it true that you can get routes for free directly from FedEx?
Yes, but you’re not going to get them.
Those free routes are going to go to established contractors that FedEx knows, likes, and trusts as opposed to someone that doesn’t have any experience in FedEx routes. It’s possible for a route to be awarded to someone completely new to FedEx, but you get what you pay for – they’re likely the worst routes ever. So, even when you “win” a free route, you probably still lose.
What’s a linehaul route and is it as good as a Ground and Home Delivery route?
Most people starting out in logistics will gravitate towards Home Delivery and Ground more.
Linehaul routes are a totally different model than Home Delivery and Ground, and attract different buyers with different levels of income fluctuation tolerance, as well as different risk tolerance, and time available for operations management.
One is not “better” than the other, but usually one is more suitable for you.
What does the typical process look like when buying a route after an offer is accepted?
Each broker uniquely dictates how a lot of transfer process will go. Some brokers will want a LOI (Letter of Intent) to be signed early on prior to due diligence, while others find this to be a waste of time.
Many brokers will want deposits placed ranging from 5-10% of the purchase price, and sometimes those deposits may or may not be refundable.
A typical process might look something like the following. After your due diligence is over and you’ve placed an accepted offer. You then will:
- Place your deposit on the route,
- Fill out a contractor application,
- Interview with the terminal manager,
- Set up a corporation,
- Get your corporation audited by a CPA,
- Get your RFI created (the RFI is a “Request for Information,” which is also known simply as the business plan for your routes),
- Set up your eVerify account and get the state to issue letters of Good Standing,
- Jump through a number of other hoops FedEx will require,
- Determine a transfer date.
The broker helps with this process, but primarily is dictated and assisted by the terminal manager and the seller.
What’s the difference between a FedEx route and bread routes?
Bread routes are great for single route ownership that is typically low stress, flexibility of hours, very stable, requires high owner involvement, and generates a $50-$100k net income on average.
FedEx routes allow for a net income that is often significantly higher than bread routes. With higher income potential also comes more effort (either intellectually or physically), additional skillsets required, and a higher risk relative to a bread route.
Can I get my CPA or lawyer to help me evaluate a route?
CPAs look at tax returns, which are often can be exceedingly misleading. Lawyers understand business law and business concepts just like many people. Both of these professionals can be helpful, but CPAs are usually best suited to help you file your taxes and lawyers are best to draft up custom contracts for unique acquisitions.
Neither a lawyer, nor your CPA, has likely owned routes and knows the real hardships (and profitability) that comes with route ownership. They will not know what is likely coming in the next FedEx contract that will affect your pay rates, nor will they understand certain massive risk points of certain routes (eg. if that route won’t have its contract renewed and you’re buying a time bomb). As a very simple example, they don’t know what a scanner should cost, what it could cost, and more importantly, what it will cost moving forward.
Lawyers and CPAs are valuable assets to your acquisition – but using them primarily for due diligence purposes can be crippling for a company specific evaluation that required proprietary knowledge to evaluate properly such as FedEx.
I have lots of business experience; do I still need due diligence training?
Yes – Generally speaking, this is only person that should be considering FedEx routes and getting the training.
The training covered is not basic business concepts but instead concepts that are specific only to FedEx routes. No amount of business experience can tell you at what service metric FedEx will not renew a contract, or why certain well performing profitable routes will not have a contract renewed, how to determine the difficulty of a route to know how much certain employees in certain regions are typically paid, or knowing what is coming in future contracts that will affect your profitability massively, and so on.
Are all the good routes taken and not for sale?
No. The amount of failing and/or awful routes is a small percentage of the overall routes that exist.
However, routes that are distressed or having difficulty often are the ones for sale.
Many routes are fantastic operations, and there are many excellent routes for sale where people are selling just due to retirement, moving, burn out, and/or simply cashing out.
Are all the sellers out to trick me?
No, not ALL of them by any means – overall, this is not a “scammy” or unscrupulous industry.
The sellers for the most part, in my opinion, are good people just ready to move on. But like many people selling something, they will make things look significantly better than what they are, and they will presume that everyone is a great fit for buying their routes. Since not everyone is a good fit for routes, and routes can be significantly worse than what’s been claimed, is what leads some contractors to have felt “duped” or scammed.
The good news is that a proper due diligence process specific to FedEx routes allows for the mitigation of many of those risk points. The bad news is that this business seems overwhelmingly simplistic, so many experienced business owners believe that training won’t be valuable for them. This potentially results in their route endeavors failing terribly.
FedEx operations are relatively simple, but FedEx acquisitions are NOT simple.
This service is aimed to help brilliant business minded individuals regardless of their experience, and the typical client I have is usually highly experienced and very business savvy to realize that industry and/or company specific due diligence expertise is required for a successful business acquisition.
I have no business experience whatsoever; will due diligence training help me?
The first and most important part of due diligence is to assess if you’re well-suited for route ownership.
Many people have wisely bought FedEx routes as their first business, as the system in place by FedEx allows for a method that results in the majority of contractors remaining profitable. However, routes require general business knowledge and expertise that is beyond the scope of due diligence training.
You should already have a very solid understanding of business concepts, comfort with managing HR issues, and so on. Many people coming from management backgrounds in a variety of industries such as real estate, finance, and high tech have found success in the FedEx world.
Do I have to pay the full purchase price of a route or can I finance a FedEx route with an SBA loan?
Since 2019, financing has been very favorable.
Banks often go back and forth on whether they like to loan on routes, but currently, we’re in a time that loans are possible. You should have about 20% of a down payment usually to make sure you have a reasonable chance of being financed.
How much is a FedEx route worth and how do I figure out the value of what a FedEx route?
Valuation for the masses is a simple process. There are a number of things that go into valuation that clients learn during training, but the majority of buyers do not know of any method beyond looking at comps (eg. what other routes are selling for currently).
Finding how much you should pay for a FedEx route is not the same as determining the value of a FedEx route.
There is no “set” or “official” valuation, but since 2019, we have seen routes sell for as low as around 2.5 times the net income, up to around 4 times the net. I have watched the average valuation for routes steadily increase throughout the years and have looked at the listings regularly since 2009.
To properly figure the value of a route, you need to evaluate the route deeply beyond just the net income and obvious general characteristics such as the fleet condition.
Are FedEx routes the best business to buy?
I think for the right person, they’re one of, if not the, best business to buy.
My experience with a high number of non-route businesses for sale is that the sellers of non FedEx businesses:
- Are on their way out or having a downturn. I remember seeing Sears franchise owners selling their locations years ago.
- Aren’t making any money. There are many that are running a loss but want you to buy it and ‘turn it around.’
- Have extensive risk. This was the case when many vape shops were for sale years ago when there was significant legislation on whether vapes would continue to be legal or not.
- Have nearly impossible due diligence processes. Businesses that are cash heavy can easily have their books altered to look better and little ways to prove it.
- Are nightmares to operate. I’m thinking of the restaurant owner that’s successful enough that he’s working 70 hours a week, but not so successful that he can afford top tier management to take his spot.
- Are very reliant upon one thing or customer. Internet businesses reliant upon a Google search ranking, or an Amazon store that relies on Amazon not changing their policies. This is somewhat the case at FedEx as well, but we have 20 years of history to be able to predict their moves. Also, Google doesn’t need or care about 1 small business owner, as opposed to FedEx which relies on contractors to keep their current business running.
- Have excessively high valuations. An outdoor storage center might be a great business, but when they sell for 6x the net income, the ROI drops severely compared to other businesses.
- Are highly specialized. Businesses such as an HVAC or electrician contractors business requires deep knowledge of that trade prior to getting into a lot of times.
- Have no potential of being scalable or passive. Business loan consultant franchises, franchise consultants, etc.
As you can see, each of these “negatives” could be a positive for the right person. Someone with not a lot of time may happily opt for a high valuation business like a storage unit franchise. Someone with expertise in rebuilding a business may happily buy the non-cashflowing business. And someone that wants low stress and lower risk and doesn’t care about scalability may find success in a bread route.
So really, the better question becomes, what’s the best business for YOU to buy.
Let’s find out if routes are a good fit or not for you!