Want to invest in a business that generates a great ROI and partner with one of the most respected brands in the world?
By buying a FedEx route, you can do exactly that. And if you structure it properly, you can enjoy passive income as an “absentee owner” of that business. In simple terms, being an absentee owner means you are “absent” from the day-to-day operations of the business but can reap the benefits of the business without the hassles of actively managing it.
This article will focus on how you can buy a FedEx route as an absentee owner and structure it so that it will generate passive income for you.
This article will consist of three parts:
Part 1: Introduction to FedEx Routes
Part 3: Structuring Your FedEx Route For Absentee Ownership
We’ve got a lot to cover, so let’s dive into this!
The information contained in this post is for informational purposes only. It is not a recommendation to buy or invest, and it is not financial, investment, legal, or tax advice. You should seek the advice of a qualified professional before making any investment or other decisions relating to the topics covered by this article.
Introduction to FedEx Routes
What is a FedEx Route?
A FedEx route is a delivery route offered by FedEx to independent businesses. There are two types of FedEx routes: (i) a FedEx Ground Pickup and Delivery (P&D) route which delivers packages locally; and (ii) a FedEx Ground Linehaul route which provides long-distance transport.
The P&D route is usually serviced by vans and box trucks. The linehaul route spans many miles and is serviced using tractor trailers.
How Profitable Are FedEx Routes?
FedEx routes have profit margins that are between 10%-45% of gross revenue.
Here is a chart showing expected profit margins for various types of FedEx Routes:
Type of FedEx Route
FedEx Ground P&D Route
10%-25% of gross revenue
FedEx Linehaul Route (solo runs)
20%-30% of gross revenue
FedEx Linehaul Route (team runs)
40%-45% of gross revenue
Source: Route Consultant
In the chart above, I have notations for “solo” and “team” runs for FedEx Linehaul routes. Solo runs are shorter routes that involve a single driver. Team runs are much longer routes that involve multiple drivers.
Ok, so based on these figures, let’s go through an example of potential profitability.
If your gross revenue is $1,500,000 (which is the average revenue for a route owner) and you own a FedEx Ground P&D route, you can expect to make a profit of $150,000 to $375,000 per year. With the same gross revenue, you can expect to make a profit of $600,000 to $675,000 per year if you own a FedEx Linehaul route with team runs.
Note: As with all numbers used in this article, they are averages or estimates: your results may differ.
How Much Can You Make Owning a FedEx Route?
According to FedEx, the average revenue for a FedEx route owner is $1.5 million.
These revenue figures represent, for each business owner, the revenue coming from all routes owned by that business owner. They do not reflect deductions for operating costs.
To determine profitability, you will need to deduct expenses from revenue. Now, we already covered profitability of different types of routes in the prior section. But if you want to know how they profitable FedEx routes can be on a more generalized basis, the average FedEx route costs $100,000 and generates annual profit of between $30,000-$40,000. Source
How Many FedEx Routes Can You Own?
There is no set limit on how many FedEx routes you can own. A route owner is limited only by their resources and their level of determination to grow their business.
That being said, if you are only interested in buying routes in your local area, you will be constrained in how much you can grow through this business model. But if you are planning to be an absentee owner, this should not be an issue since you can own routes throughout the country (more on this later).
How Much Are FedEx Routes Worth?
On average, a FedEx route is worth between 2.5 times and 3 times the free cash flow that it generates. The annual profit per route is between $30,000 and $40,000 per year, so if you multiply that amount by the industry multiple, you get a range between $75,000 and $120,000 per route.
As we discussed earlier, the average cost of a FedEx route is $100,000, so our calculation lines up pretty well with that figure.
Of course, the actual worth of a route or package of routes will be determined by market demand, but these estimates should provide a useful barometer of what you can expect to pay when buying a FedEx route.
What Are FedEx ISP Requirements?
If you want to own a FedEx route business, you will need to sign their Independent Service Provider (ISP) agreement. That agreement has specific requirements around various aspects of the route delivery business that you need to evaluate and follow.
This chart shows key requirements under the FedEx ISP Agreement:
|Must be a non-profit corporation||No LLCs, LLPs, sole proprietorships, partnerships or limited partnerships allowed|
|Must employ all personnel||Must have responsibility for the following: |
-Ensuring employees are legally allowed to work in US
|Must follow agreement terms||General contractual obligations include: |
-Maintain a safety and compliance program
-Corporation in good standing
-Maintain image of FedEx
-Remain committed to FedEx business
|Must comply with route requirements||ISP Agreement requires: |
-Minimum ownership of 5 routes or 500 stops per day
-Cannot hold more than 15% of routes in a given termination (subject to certain exceptions)
-Must provide both business and home deliveries within territory
Sources: FedEx and KR Capital
Obviously, if you are serious about pursuing this, you will eventually need to set up a corporation that will sign the ISP agreement. A qualified lawyer should be able to help you do that.
You will also need to comply with all of the other requirements under the ISP, including maintaining a safety program and having all other employee-related processes in place.
Buying a FedEx Route
Where Can I Buy FedEx Routes?
The simplest way to find and buy a FedEx route is to go online and check out the various sites offering them for sale.
Let’s start with the most obvious place: FedEx itself. They have listings of routes available for sale on their website at buildagroundbiz.com.
There are third-party sites you can explore as well.
Here is a list of sites that offer FedEx routes for sale:
How Much Does It Cost to Buy a FedEx Route?
The average cost of a FedEx route is approximately $100,000.
But the actual cost of buying a FedEx route business will vary widely because most listings offer a package deal that includes more than one route.
We will cover how much money you will actually need to buy a FedEx business later on when we discuss down payments.
When buying a FedEx route business, you must conduct thorough due diligence.
This includes (i) evaluating the numbers, (ii) looking over the employee information (pay special attention to turnover rates, length of employment, and other signs of stability), and (ii) examining the age and condition of the vehicles in the fleet.
You also want to sanity-check the numbers that the seller is providing by seeing if they are in line with industry estimates.
Route Consultant offers a helpful summary of what the numbers should be based on industry averages.
If you want help understanding the numbers or any other aspect of the purchase, you can hire a due diligence expert in this area to assist you.
How Do I Finance a FedEx Route?
For most people, buying a FedEx business will require some form of financing. What types of financing are available? The usual suspects are SBA loans and conventional loans, but you may be able to secure seller financing if the seller is willing to offer it.
One of the key things you need to know when looking to buy a FedEx route business is how much money you will need. That is going to be governed by three things: (i) the cost of the purchase; (ii) the amount of down payment needed; and (iii) the amount of working capital needed.
How Much Down Payment Do I Need to Buy a FedEx Route?
You will need between a 10%-25% down payment to buy a FedEx route. The exact dollar amount will depend on how large of a FedEx route business you want to purchase. For smaller purchases, that translates to approximately $60,000-$100,000 for a down payment.
Source: Route Consultant
You also want to keep some cash reserves on hand for working capital. Route Consultant recommends $75,000.
So even for a relatively small purchase, the starting costs are significant. It’s certainly something to keep in mind as you evaluate this business.
Related Reading: If you are interested in less expensive ways to earn passive income, I have written articles of a host of other ways to do so that are more affordable. Check them out below:
- Vending Machines for Passive Income
- ATMs for Passive Income
- Bounce Houses For Passive Income
- Billboards for Passive Income
- Blogs for Passive Income
Structuring Your FedEx Route for Absentee Ownership
Now that we have answered introductory questions about FedEx routes and went into how you can buy one, let’s shift gears to how you can structure your FedEx route for absentee ownership.
Absentee Ownership Is Not Uncommon
Let me start by noting that you are not in uncharted territory.
Most owners have multiple FedEx routes and are not driving trucks and making deliveries every day. FedEx, of course, knows this. That being said, you do not want to give them the impression that you will be completely disconnected from the business.
You want to show them you will be an engaged owner and carefully overseeing your business – you just won’t be actively involved in the day-to-day operations.
Key to Successfully Operating FedEx Routes as an Absentee Owner
The key to running your FedEx route business as an absentee owner is making sure you have a reliable team of drivers and managers.
In most cases, when you buy a FedEx business, it will already come with one or more drivers on payroll. In some cases, the previous owner handled the employees and the daily oversight of deliveries. For larger businesses, one or more managers oversee the various routes. If you buy one that has managers in place, you will be well positioned to be an absentee owner of your business.
If the existing routes do not have a manager, getting one is a must if you want to make your FedEx route an absentee run business.
You should either hire one or begin to groom one of your most promising drivers for the role. Many absentee owners who successfully operate their FedEx routes have at least one manager and a lead driver who can manage most of the manager’s duties in a pinch.
Managers should be experienced drivers and able to take over a route when a driver gets sick or doesn’t show up. Above all, they need to be reliable, know how to manage routes, and be able to problem solve on the fly.
You Still Need to Oversee Your FedEx Route Business
Now just because a business has a team of drivers and a good manager does not mean you can sit back and never deal with the business again.
Your trucks will need servicing and may sometimes need repairs (on that note, you definitely need to find a reliable shop that can service your trucks). Your employees may not show up or may quit. There may be unexpectedly high volume on a given day that you will need to accommodate. In short, your operations need to be structured and maintained in such a way that the packages get delivered no matter what happens.
Contingency planning is critical.
There are some owners of larger FedEx businesses who have extra trucks and employees standing by in case there is extraordinary volume, a truck breaks down, or one or more scheduled drivers are unable to perform a route.
The better your planning, the smoother your operation will be when stressful times come. Of course, this directly translates to an easier and better absentee ownership experience for you.
I don’t want to create the impression that great planning can eliminate all work on your part. There will be times when owning the business will be stressful and will require your attention.
But if you have a reliable and competent team to do the actual deliveries for you and take care of the normal day-to-day route planning activities, your FedEx routes can be a great absentee run business that generates a handsome and (mostly) passive income for you.
Moreover, once you have figured out a good process for running your FedEx routes as an absentee owner, you can scale your business very quickly. You will no longer be confined to owning FedEx routes near you.
An absentee owner who knows what they are doing can own and operate routes anywhere and cherry pick the best ones for their portfolio.
Owning a FedEx route can be a terrific way to earn passive income as an absentee owner.
But as you can see by now, it’s not as simple as buying a route and waiting for the money to roll in.
If you want to succeed as an absentee FedEx route owner, you need to hire, train, and retain a competent and reliable team and have effective contingency plans when things gets busy or your trucks break down.
Want to learn about other great absentee owner businesses? Check out my article on businesses that run themselves. In that article, I cover some great businesses that can generate attractive levels of return without a lot of day to day involvement by the owner (obviously, FedEx routes are included in the list, but there are many more).