3 Ways to Increase Freight Broker Commission

Being a freight broker is a lucrative career. But whether you work for a brokerage or go out on your own, you need to know about freight broker commission and what determines how you get paid. 

It’s important to understand how the commission structure works in the brokerage industry. Some brokers are paid a base plus commission and others rely solely on commission. 

Here’s what you need to know about what pay potential, plus three actionable steps to increase your margins and commissions.

What is the average freight broker commission?

The average base salary for a freight broker is around $70,000 per year, plus 13 to 15 percent commission based on gross margins on loads. Starting salaries range based on location, experience, and freight brokerage and more experience freight brokers can feasibly make over six figures.

Pay is also determined by how a broker is employed. For example, brokers can be a W-2 employee or 1099 independent contractors. Typically, a 1099 independent contractor earns higher commission percentages because they aren’t paid company benefits or workers’ compensation insurance that usually comes with a W-2 employee.

How are freight broker commissions calculated?

Freight broker commission is calculated on the gross margin of a booked load. You can determine gross margin by subtracting the amount the shipper is charged from the amount you (the broker) pay the carrier. The margin left over directly impacts how much money a freight broker earns.

Here’s how to calculate commission using a basic margin equation.

1. Calculate the gross margin.

The gross margin formula is:

Gross margin = price charged to shipper – price paid to carrier

Gross revenue (the amount the broker charges the shipper) – shipping costs (what the broker pays the carrier) = gross margin (the profit margin on the load before deducting expenses).

2. Apply your commission percentage.

Once you calculate gross margin, you can figure broker commission by multiplying your commission percentage (12% for this example) per load. For example:

• Gross margin: $1,000
• Commission: 12%
• $1,000 x 12% = $120 broker commission.

Using this same example, if you broker 25 loads a month at $1,000 each (a $25,000 gross margin), you’d earn $3,000 monthly or $36,000 annually in commissions. Add a $50,000 base salary, and that puts your earnings at $86,000 a year.

Freight agent commission splits

While some brokerages employ freight brokers, others hire independent agents who don’t draw a base salary. Instead, these brokers are paid using a commission split method where the commission is shared by the independent broker and the freight brokerage that contracted them. The average commission rate can range from 25% to 70% of the gross margin. The average is from 50% to 65%. 

This can vary depending on the type of freight brokerage:

• Asset-based broker have their own certification with the FMCSA and own a fleet of trucks, equipment, and warehouses. Also called freight forwarders, they have their own drivers and don’t contract with other carriers. Broker commissions for this type of company are usually lower than non-asset-based companies.
• Non-asset-based broker are smaller-scale brokerage that don’t own their own trucks or equipment and work with carriers. They have a less predictable load volume but a higher commission rate with better long-term yields for the broker. Experienced brokers can potentially earn a much higher net commission by working independently rather than directly for a single company or brokerage.

Ways to keep commission consistent

Sales commission can be challenging since they can fluctuate. Here are some ways to keep business, and your commission, consistent. 

• Don’t become complacent. Having steady customers lowers the incentive to find new customers. Continue to make and build partnerships to avoid slow months or combat market fluctuations.
• Learn all aspects of the business. This can help you facilitate more opportunities and increase commission.
• Calculate commission accurately. Commissions can vary based on different freight types, from LTL to PTL, and special loads like reefer, oversized, or hazardous loads. Understand the various structures to best balance your business and your pay.

3 ways freight brokers can increase margins (and commissions)

For brokers, the best way to increase commission earnings is by:

• Increasing the commission percentages (largely controlled by the brokerage and the market).
• Increasing the gross margin by raising the rates the shipper pays (gross revenue).
• Reducing the cost of shipping (the amount you pay the carrier).

Here’s how to boost your margins:

1. Invest in a broker load board.

One of the simplest ways to find capacity consistently is with a load board. You can book loads with trusted carriers with the click of a button. You can also quickly compare rates and search lanes to find the best carrier for each load.

2. Benchmark rates in real-time.

Access to market data on spot rates helps you find the best rates faster and post loads with the best margins specific to each load.

Better margins mean higher broker commissions. Rate tools help brokers do this quickly with real-time data to adjust quickly and accurately.

3. Post loads for preferred carriers.

Spending time on manual tasks takes away from opportunities to make money. Increase your bandwidth to book more deals by using technology to automate tasks. This also reduces room for error, which could be costly.

Ready to get started? Sign up for the Truckstop Load Board for Brokers today. We’re here to help you be the best and most profitable freight broker you can be.