It is common for freight brokers to receive pay based on commission. To determine your take-home pay, it is helpful to how commission is calculated. If you are looking to grow in the freight industry, it is helpful to know how freight brokers can increase their margins and commission rates.
Here is everything you need to know about freight broker commissions and how to take the next step with a career in freight brokerage.
Average Freight Broker Commission
According to Indeed.com, the average national annual salary for a freight broker is $62,105, with an average additional commission total of $28,000. Starting salaries are much lower, and the highest earners bring in substantially more. Entry-level salaries begin around $35,853, and the highest earners bring in as much as $176,530 in salary alone.
Take-home pay varies by region, freight brokerage, and the way in which a freight broker is employed. Some states offer higher salaries than others. For example, the average freight broker salary in West Virginia is $37,750 per year, and in Kansas it is $75,686. It is important to note that the lower salary does not necessarily equate to lower take-home pay. Many freight brokers earn both salary and commission, or even just commission in some circumstances, so these numbers are likely only part of the equation.
In terms of employment status, freight brokerages typically employ freight brokers as either W-2 employees or 1099 independent contractors. In many cases, 1099 independent contractors may earn higher commissions because unlike W-2 employees they do not receive company benefits and workers’ compensation insurance.
How is the commission for freight brokers calculated?
The commission for freight brokers is calculated based on the gross margin, not based on the gross revenue. For each booked load, the gross margin is the total amount of money the shipper pays minus the amount paid to the carrier. The gross margin formula is as follows:
Total Amount the Shipper Pays – Shipping Costs Paid to Carrier = Gross Margin
Once the gross margin has been calculated, you can determine the final commission by multiplying the commission percentage per load times the gross margin amount. The commission formula is as follows:
Commission Rate x Gross Margin = Commission Pay
Let’s take a look at an example. If your gross margin is $1,000, and your commission per load is 13%, the equation is:
0.13 x 1000 = $130 Commission Pay
If you broker 25 loads per month with the same gross margin, you would earn $3,250 per month and $39,000 per year in commissions. If your base salary is $50,000, you total earnings for the year would be $89,000.
What happens if commission is split between the freight broker and the brokerage?
If you are hired as an independent contractor and paid using a commission split method, the commission rate will likely be between 50-65% of the gross margin. However, the commission rate varies depending on the type of brokerage. Non-asset-based brokers do not own their own fleets, typically have less predictable load volumes, and usually offer higher commission rates. Asset-based brokers have their own fleets and drivers, typically have more predictable load volumes, and usually offer lower commission rates.
How Freight Brokers Can Increase Margins and Commission
There are three ways freight brokers can increase their commission earnings.
- Increase the Commission Percentage
Increasing the commission percentage sounds easier than it really is because this figure is largely controlled by the brokerage and the market.
- Increase the Gross Margin
To increase the gross margin, freight brokers would need to increase the gross revenue. There is a limit to how much the gross revenue can be increased. Too high of a price will send shippers looking for logistics services elsewhere.
- Decrease the Cost of Shipping
To decrease the cost of shipping, a freight broker needs to reduce the amount of money paid to the carrier. While it may be possible to find lower-priced carriers, that may come at a cost. If you seek to decrease the cost of shipping, take care to ensure that quality is not compromised.
Each of these approaches requires astute market research and careful communication. The best way for freight brokers to accomplish these strategies is to utilize the expertise and resources of a trusted logistics provider.
First Star Logistics Freight Broker Opportunities
First Star Logistics is a unique, asset-based global logistics provider whose core business is the transportation of freight by arranging and securing space for shipments between states and countries via common carriers such as trucks, railroads, and ocean liners. First Star Logistics has an in-house freight brokerage department and is looking to expand by hiring enthusiastic individuals who want a fast-paced career in the logistics industry. To take the next step in your logistics career, connect with First Star today.
