Freight broker margin: how to measure it and protect it

Spread, margin and markup

A brokered load has two prices. The sell rate is what the shipper pays the broker. The buy rate is what the broker pays the carrier. Everything else in margin work comes from those two numbers and the charges that get added to each side after the load moves.

The examples on this page use units rather than currency so the arithmetic is the point. Take a load sold at 100 units and bought at 82 units.

Margin and markup describe the same load but answer different questions. Margin tells you what share of revenue you keep. Markup tells you how much you added on top of the carrier's price. Confusion between the two causes real mistakes: a rep told to "add 20%" to a carrier quote produces a markup of 20%, which is a margin of about 16.7%, not 20%. Pick one convention for floors, reports and commissions, write it down, and make sure your system computes it the same way everywhere.

The spread is also what 49 CFR 371.3 calls, in most brokered loads, the broker's compensation. Item (a)(4) of the rule requires the record of each transaction to show the compensation the broker received and who paid it, and item (a)(6) the freight charges the broker collected and the date it paid the carrier. Margin is not only a management number; its inputs are part of the federal record for every load.

Margin across the book: weight it by revenue

Per-load margin is easy. Margin for a week, a customer, a lane or a rep is where reports go wrong, because there are two ways to roll it up and they give different answers.

The simple average of the two load percentages is 15%. The revenue-weighted margin, total spread divided by total sell, is 12.5%. The second number is the one that pays the bills. A simple average lets a handful of small loads at high percentages make a desk look healthier than it is, and it can reward a rep for chasing short loads that add little gross profit.

Three views are worth keeping side by side:

• Weighted margin percent for the period, by customer, lane, equipment type and rep.
• Total spread in the same cuts, because a lower percentage on much larger revenue can be the better business.
• Spread per load, which tells you whether each load covers the cost of the people and tools it takes to book, track and settle it.

If the brokerage is part of a company that also runs its own trucks, 49 CFR 371.13 requires the brokerage revenues and expenses to be kept segregated from the other business, with common expenses allocated on an equitable basis you can explain. That makes a clean brokered-load margin report a compliance matter as well as a management one.

Accessorials: pass them through or lose them

Linehaul is only part of a load's money. Detention, layover, lumper fees, extra stops, driver assist, tarping and fuel surcharge all appear as accessorial charges, on the carrier side, the shipper side or both. Each accessorial affects margin in one of three ways.

• Passed through at cost. You pay the carrier and bill the shipper the same amount. Spread is unchanged, but margin percent falls, because revenue grew and profit did not. A load at 100 sell and 82 buy that picks up 10 units of detention on both sides becomes 110 sell and 92 buy: still 18 units of spread, now about 16.4%.
• Passed through with a margin. You bill the shipper more than you pay. Spread grows. Whether that is allowed depends on the customer agreement, so the agreement's accessorial terms belong in the system, not in a rep's memory.
• Paid but not billed. You pay the carrier and never invoice the shipper. The whole amount comes out of spread. This is the most common margin leak and it is invisible on reports that only look at linehaul.

For this reason, report margin both on linehaul alone and on the full load including accessorials. The linehaul number tells you how well the load was priced and bought. The full number tells you what you actually kept.

A charge for something other than arranging transportation, such as a warehousing or handling service the brokerage sells separately, is what 49 CFR 371.2 calls non-brokerage service. Section 371.3(a)(5) requires it to be shown separately in the transaction record, with its compensation and payer, so keep it on its own line rather than folding it into the linehaul.

Margin floors and approvals

Margin is mostly decided before the load is tendered. Once a carrier has accepted at a buy rate, the only levers left are accessorials and disputes. That is why many brokerages set a margin floor that a tender is checked against before it goes out.

A single company-wide floor is a blunt tool. Margins that are normal on one lane are impossible on another, and a strategic customer may justify a thinner margin than a one-off shipper. Floors work better when they can be set by:

• Lane, for example origin state to destination state, so seasonal or competitive lanes carry their own expectations.
• Equipment, because reefer, flatbed and dry van loads price differently.
• Customer, so a contract account can carry a negotiated floor without lowering it for everyone.

Then decide what happens below the floor. Three responses cover most cases:

Whatever the response, keep the record: which rule applied, what the margin was, who approved it and when. When a customer's margin slides over a quarter, that history shows whether the cause was pricing, carrier cost or a string of approved exceptions.

Where margin leaks after the tender

A well-priced load can still end up thin. These are the usual places, and the control that catches each.

• Unbilled detention and layover. The carrier submits detention with the POD; the shipper invoice already went out. Control: hold the customer invoice until carrier accessorials are in, or reopen and rebill before the shipper's dispute window closes.
• Truck ordered not used (TONU). The shipper cancels after a truck was dispatched and the carrier bills a cancellation fee. Control: a TONU term in the customer agreement and a habit of billing it the same day.
• Rate changes after the tender. A carrier asks for more by phone after accepting, and the rep agrees. Control: any change to the buy rate goes through the same margin check as the original tender, and the rate confirmation is reissued so payables pays the agreed rate, not a remembered one.
• Payables that do not match the confirmation. The carrier invoices more than the rate confirmation. Control: match carrier invoices to the confirmed rate plus approved accessorials before payment.
• Claims. Damage or shortage that the brokerage absorbs to keep a customer. Control: track claims by carrier and by lane so the cost shows up where it belongs, not as a general expense.
• Re-covering a load. A carrier falls off and the replacement costs more. Control: record the original buy rate and the replacement so the cost of fall-offs is visible by carrier.

Every one of these is easier to catch if the load, the customer invoice, the carrier payable and the accessorials are in one system. When they live in separate tools, margin is only known at month end, when it is too late to bill.

Margin and the carrier's right to review

Under 49 CFR 371.3(c), each party to a brokered transaction has the right to review the record of that transaction, and the record includes the broker's compensation and the freight charges collected. In other words, a carrier on the load may ask to see what the shipper paid and what you kept. Brokers should run their margin on the assumption that it can be seen: rate confirmations that match payables, compensation that matches invoices, and no off-system adjustments that make the record and the bank statement disagree. The companion article on broker record keeping under 49 CFR 371.3 covers the full record.

Where TruckerPro fits

TruckerPro's brokerage tools keep the load, the customer invoice and the carrier payable together. Broker Basic covers rate agreements per customer, accessorials, invoicing, carrier payables and claims, and the brokerage dashboard shows gross margin percent. Broker Everything adds margin rules by lane, equipment or customer: every tender is checked against them, and a tender below a rule shows a warning, needs approval or is blocked. Carriers that also broker get the brokerage tools from the Mobile plan up. For how a broker TMS differs from a carrier TMS, see carrier TMS vs broker TMS.