Many freight brokers are paid on commission. To figure out your take-home pay, it’s important to understand how the freight broker commission structure works, and what determines how freight brokers get paid.
Freight broker commission is calculated on the gross margin (total charged to the shipper minus the amount the carrier is paid) 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 what a freight broker earns.
How do you increase your commissions as a freight broker? Here’s what you need to know, plus three actionable steps to increase your margins and commissions.
What is the average freight broker commission?
According to a freight brokerage compensation survey conducted by FreightWaves in 2019, the median entry-level salary for a freight broker is $40,000 per year with an average commission of 13% to 15% of gross margin on loads.
This salary might vary by region, brokerage, and how the freight broker is employed. For example, freight brokers can be W-2 employees or 1099 independent contractors. Typically, 1099 contractors earn higher commission percentages because they don’t get the company benefits or workers compensation insurance that usually come with being a W-2 employee.
Some brokers also work with a base salary plus commission rather than just straight commissions, so percentages might vary in that case as well.
How are freight broker commissions calculated?
So what does this look like in practice? Let’s calculate a sample commission using a basic margin equation.
1. Calculate the gross margin.
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 (13% for this example) per load. For example:
- Gross margin: $1,000
- Commission: 13%
$1,000 x 13% = $130 broker commission
Using this same example, if you broker 20 loads a month (a $20,000 gross margin) you’d earn $2,600 monthly or $31,200 annually in commissions. Add a $40,000 base salary, and that puts your earnings at $71,200 a year.
Freight agent commission splits
While some brokerages employ 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 brokerage that contracted them. Commissions can range from 25%-70% of the gross margin. The average is from 50-65% but this can vary due to several factors:
1. Asset-based broker: This is a freight broker (sometimes also called a freight forwarder) that owns its own fleet of trucks and sometimes warehouses, and has its own certification with the FMCSA. They have their own drivers and don’t need to contract with other carriers. Broker commissions for this type of company are usually lower than a non-asset-based company.
2. Non-asset-based broker: This is a smaller-scale brokerage that works with carriers instead of their own fleet and drivers. Usually, this means a less predictable load volume, but the commission rates are higher, and the long-term yields can be better 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.
Freight broker commissions are not always the best option.
Other than for independent brokers working with commission splits, sales commissions can be challenging for the long term. There are a variety of reasons for this from both an employer and employee perspective.
- Brokers can become complacent. Having steady customers lowers the incentive to find new customers.
- Straight commission doesn’t encourage senior brokers to take on additional roles or responsibilities like management or training. These take time away from selling, which can cut into earned commissions.
- The commission amounts are inconsistent. You have to calculate commissions differently for different freight types, from LTL to PTL, and special loads like reefer and oversized and sensitive loads.
As a result, brokerages often have different systems for compensating brokers. These systems might mix commission and salary with bonuses for getting new business or taking on new roles. Sometimes they offer brokers additional incentives to specialize in brokering certain types of freight or to take on training and additional responsibilities.
Three ways freight brokers can increase margins (and commissions).
For freight brokers, the only way to increase commission earnings is to either:
- Increase commission percentages (largely controlled by the brokerage and the market).
- Increase the gross margin by raising the rates the shipper pays (gross revenue).
- Or reduce the cost of shipping (the amount you pay the carrier).
Ultimately, the total revenue doesn’t matter much because broker commission is based on the gross margin. If a broker sells $50,000 of freight to a customer with a gross margin of 20% they earn the same as if they sell $100,000 to that same customer with a 10% margin. 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 the Truckstop.com Broker Load Board. You can book loads with trusted carriers with a button click. You can also quickly compare rates and search lanes to find the best carrier for each load.
2. Benchmark rates in real-time.
Find the best margins by using Truckstop.com Rate Analysis tools in real-time. Having access to data on spot rates helps you find the best rates faster and post loads with the best margins.
The bottom line is that better margins mean higher broker commissions. Rate analysis tools help brokers do this as quickly as possible.
3. Post loads for preferred carriers.
The Truckstop.com Book It Now feature integrates neatly into current workflows and allows brokers to control which carriers bid on and accept their loads. Not only does this make the booking process faster, but carriers can book your loads after business hours, so you don’t have to be available all the time.
As you grow your list of preferred carriers, this tool will add even more value for the carriers and shippers you work with regularly.
The fastest way to increase gross margins is to work more efficiently. Using load boards, analyzing rates, and posting loads for preferred carriers all increase the efficiency of that process. More efficient freight brokers earn more.
Ready to get started? Schedule a demo today! We’re here to help you be the best, and most profitable freight broker you can be.