I want to share a really interesting business idea that I came across while hunting for passive income businesses. I wanted something that made well over $100,000 per year, but also allowed to operate it without my direct involvement.
As you can imagine, there aren’t that many – but a FedEx route neatly fits the bill.
We are are going to talk about how you can buy and operate one as an absentee owner.
This beginner’s guide will give you an overview of the FedEx route buying process, including (i) where you can buy these routes, (ii) how much they cost, (iii) how much you can expect to make, (iv) FedEx contracting requirements, (v) what you need to look out for when evaluating these routes, and (vi) how you can finance your purchase.
And of course, there is also a section below entitled “Passive Income Potential” that is devoted to how you can make a FedEx business as passive as possible, so you won’t want to miss that.
This article is going to cover three key topics (you can jump ahead to any of them):
Ok, let’s get into it!
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.
What Is a FedEx Route?
If you are new to this, you probably have no idea what a FedEx route is.
But I am sure you have seen FedEx delivery trucks in your neighborhood. Well, FedEx basically outsources their ground delivery to independent business owners. Each of these businesses is given a territory or route and FedEx supplies them with the packages to deliver within that territory or route.
There are essentially two type of FedEx routes. There is a FedEx Ground Pickup and Deliver (P&D) route, which covers package delivery to local homes and businesses within the territory. These deliveries are usually made with box trucks and cargo vans bearing the distinctive FedEx logo.
There is a also a FedEx Ground Linehaul route which delivers packages across much longer routes using semi-trucks (known as over the road trucking). These routes can span across multiple states depending on the hubs you must transport between.
I am going to talk mostly about buying FedEx P&D routes because they are much easier to buy and operate. You are not going to have to deal with many of the Department of Transportation and FMCSA rules and regulations governing heavy vehicles like huge semi trucks crossing state lines.
In most P&D routes, you can also hire drivers that don’t have a commercial driver’s license (CDL) and enjoy a wider pool of potential employees.
But if you are interested in a FedEx linehaul route, you can certainly pursue that. As mentioned, they are going to require some more administrative hassle and will come with more risk, but in general, they tend to be more profitable.
How Much Gross Revenue Can You Make Owning a FedEx Route?
Ok – let’s talk about top line numbers first.
I am talking gross revenue – the amount you make before expenses.
The best source for this is FedEx itself. According to FedEx, the average revenue for the owner of a FedEx route is a whopping $2.3 million!
Not only that, they claim that 4,105 route owners make $1 million or more and the top route owner makes $24 million in revenue.
Now as I mentioned earlier, these are top line figures only. They don’t reflect expenses for operating costs and the like (FedEx won’t have that because they don’t really know each individual business’ operating expenses).
To determine profitability as a business owner, you will need to deduct those costs.
How Profitable Are FedEx Routes?
Ok, we’ve covered the gross revenue part of the business – now let’s tackle profitability.
In general, FedEx routes can be highly profitable businesses. Profit margins can run from 10%-45% of gross revenue, depending on the type of route you operate. Below is a table providing estimated profits margins based on route types (e.g., P&D, solo line hauls, team linehauls, etc.)
Type of FedEx Ground Route
Profit Margin Range
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
You may be wondering what is the difference between the solo runs and team runs referenced in the table. As the name implies, solo runs are routes that require just a single driver. They tend to be shorter in length.
In contrast, team runs require a team of drivers because their routes are much longer.
Let’s run through an example of hypothetical numbers.
If you have P&D routes that provide gross revenue of $2.3 million (which as you may recall is the average gross revenue for a FedEx route owner), a reasonable range of take home profit is between $230,000 to $580,000 a year.
If you have a linehaul route with that same gross revenue, your profit potential jumps up to between $920,000 to $1,035,000 per year if you haul loads with a team.
That’s massive! Now, it is likely going to be expensive to buy a FedEx route that grosses $2.3 million, but there are plenty of routes that are cheaper too.
Note: All numbers referenced in this post are averages or estimates – obviously, your actual results may differ.
How Much Are FedEx Routes Worth?
In general, a FedEx route is worth between 2.5 times and 3 times the free cash flow that it generates. Based on multiple sources I have researched, 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 cost of around $75,000 and $120,000 per FedEx route.
According to buyersmarketinc.com, the average cost of one FedEx route is $100,000, so that figure falls squarely within the range we calculated above. Looking at the cost issue from multiple angles, it seems like we are coalescing around the 100k mark for a single route.
Of course, in reality, most owners own multiple routes and will sell them as a package, so be prepared for that.
What Are FedEx ISP Requirements?
Because you are partnering with FedEx, they are going to require you to sign and abide by their standard contract.
This is called an Independent Service Provider (ISP) agreement. It contains the key requirements you will need to follow in order to own a FedEx route.
Below is a table that summarizes some of the key provisions in the FedEx ISP Agreement:
|Must be a for-profit corporation under applicable state laws. Cannot be other type of business entity, including LLC, LLP, sole proprietorship, partnership or limited partnership.|
Must employ all personnel
Must have responsibility for the following:
· Employer-related expenses, including wages, salaries, benefits, unemployment insurance, workers’ comp insurance, etc.
· Payroll deductionsand compliance with applicable laws relating to payroll
· Training personnel
· Ensuring employees are legally allowed to work in US(or Canada, as applicable)
Must follow agreement terms
General contractual obligations include:
· Maintain a safety and compliance program
· Corporation in good standing
· Service reliability
· Vehicle maintenance
· 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
It’s a lot of consider, but you can hire consultants and lawyers to help. Plus, the seller of the route probably has a lot of this stuff implemented.
Now as I previously stated, when running a trucking business, you will need to abide by DOT and FMCSA rules and regulations, so make sure you look into those requirements too.
Buying a FedEx Route
Where Can I Buy FedEx Routes?
The answer is simple. Go online.
The first place to check is FedEx itself. They have their own routes for sale at buildagroundbiz.com.
Now there are other places you can go to as well. Here is a list of sites that you can check out.
How Much Does It Cost To Buy A FedEx Route?
As we already covered, you can expect to pay around $100k for a single FedEx route, but as I indicated, most route owners will sell a package of routes, which will drive up the cost to buy the business.
How many routes are typically included? I hate giving this type of answer, but it really depends. You may have smaller route packages that only contain around 5 routes to larger route packages that contain well over 15 routes.
As you can imagine, prices escalate in line with the number and profitability of the routes that are for sale.
I want to touch briefly on due diligence. This is the process of evaluating a business when you are considering buying it.
For FedEx routes, you will need to pay attention to all of the key factors driving the success of the business, including (i) the numbers (revenue and expenses, etc.), (ii) employees (pay special attention to turnover rates, length of employment, and other signs of stability), and (ii) age and condition of the vehicles in the fleet.
Be on the lookout for anything that seems wacky. If it looks to good to be true, well….you know the saying.
I really like this article by Route Consultant, which gives a summary of what the numbers should be based on industry averages.
It’s a big purchase, so if you still feel like you need help navigating all of this, you can hire a due diligence expert in this area to assist you. There are some specialized consultants who advise on FedEx routes.
How Do I Finance A FedEx Route?
Due to the generally high price tag associated with FedEx routes, most people will need to obtain some form of financing to buy them.
Thanks to the proven business model (and the fact that you are partnering with FedEx, who is one of the most recognized and stable companies in the world), financing may be a little more obtainable than compared to getting a loan to start an unproven start-up.
That doesn’t mean you will get automatically approved for an SBA or conventional bank loan (two of the most common forms of financing) off the bat. You (and the business) will still need to undergo the bank’s underwriting to get approved.
If you prefer to check out online options, look into Fundera. They are a lending platform affiliated with Nerdwallet and they offer financing options for small businesses from a suite of potential lenders. Click the banner below if you want to learn more.
Ok, now that we’ve covered off on lending options, let’s turn to down payments.
How much down payment do I need to buy a FedEx route?
In general, a 10%-25% down payment will be required to finance a FedEx route.
Source: Route Consultant
But the down payment is not going to cover everything you need. To weather any ups and downs, you will want a healthy cash reserve. Route Consultant recommends $75,000.
Bottom line: you will need a healthy amount of money to buy a FedEx route, even with favorable financing.
Pros and Cons of Owning FedEx Routes
Now that we have covered some of the key questions around the profitability of FedEx routes and how to buy one, we will shift gears to discuss the pros and cons of owning FedEx routes. It is important to know the benefits and disadvantages of this business so you can be fully prepared to run it successfully.
Here are some of the key pros and cons of owning a FedEx route:
Pros of Owning a FedEx Route
Cons of Owning a FedEx Route
You are partnering with FedEx
FedEx route business is expensive to start
Strong profit potential
Hiring, training and keeping employees
Passive income potential
Robust resale market for FedEx routes
Must follow FedEx rules
Pros of Owning a FedEx Route
You Are Partnering With FedEx
This one is pretty self-evident.
FedEx is a world-leading delivery company with a peerless brand identity. You get to enjoy all that this entails. That includes amazing infrastructure, a super reliable source of deliveries, a good probability that your business will be around for years to come and, if things go as planned, a fairly steady source of income.
You are riding on the shoulders of a giant and they take care of a lot for you. All you really need to worry about is making your promised deliveries on time.
Strong Profit Potential
We discussed profitability before, so I won’t rehash it. It’s good and you can make hundreds of thousands of dollars in profit doing this. That’s compelling.
Passive Income Potential
Ok – this is one of the most important parts of the article.
I recognize that doing thousands of potential deliveries each month doesn’t seem particularly passive.
But the reality is that owning a FedEx route can be mostly passive if you have a team of drivers and managers to handle the day to day stuff.
When you look through listings of FedEx routes, you will see that in many cases, the existing owners already have their team in place, which you can inherit when you buy the business.
The key to a passive FedEx route business is a capable manager that will make sure the daily deliveries get done by the driver’s each day.
You don’t want to be supervising that every morning. You want an experienced manager (who also was a driver and can substitute in if needed).
If the existing routes do not have a manager, you will want to think about hiring one (assuming the business makes enough to justify that hire).
Of course, even with an experienced and reliable manager, you can’t walk away from the business entirely.
Things are going to come up from time to time that will require your attention. Trucks will break down and need servicing. Drivers or manager may quit or be terminated. There may be unexpectedly high volume on a given day that you will need to accommodate.
To keep you as hands off as possible, you will need to have a contingency for when things don’t go as expected.
Here’s an example. Some bigger FedEx businesses who have extra trucks and employees standing by in case of an emergency. When the unexpected happens, they are ready and have a plan to address it.
The smarter you plan things in advance, the more seamless your operation will be when stressful times come. Of course, this also allows you step back more often and enjoy the fruits of your passive income business.
Robust Resale Market For FedEx Routes
There are tons of FedEx routes available for sale at any given time. Thanks to the trustworthiness that comes with the FedEx brand, there is a vibrant resale market.
If you ever want to sell (hopefully at a profit) or just realize this business is not for you, having a strong resale market is a huge benefit.
Most people get into their own business because they want independence. Working at a job means listening to the higher ups and not being able to control your destiny.
Having a FedEx route frees you from your job. I’d say that priceless.
Cons of Owning a FedEx Route
A FedEx Route Business Is Expensive
I think we covered how expensive it can be to buy a FedEx route business, so I won’t belabor the point.
The rewards can be high and that’s great, but you will need a decent chunk of change (and financing) to get into this business.
Related reading: Interested in a passive income business that is more affordable to start? You may want to check out my articles on these other passive income businesses that have a much lower cost of entry:
Or if you don’t want to spend any money to start earning passive income, here are 15 truly passive income ideas that require no money to start.
Hiring, Training, and Keeping Employees
Running a FedEx route business is labor intensive. There are a lot of deliveries that need to be made each day and you are therefore going to be dealing with drivers (and managers if you use them).
That means you have to deal with the hassles of managing these folks.
Your drivers may quit right before the winter holidays when you are getting crushed with deliveries. Your manager may move on to bigger and better opportunities.
Plus, it’s not easy to even find good people. You not only have to meet FedEx’s requirements for drivers, you will need someone who is capable of figure out the routes, dealing with the public (companies and residents), and most importantly, someone who is timely and reliable.
Training a good employee can also just take some time. A good manager can help, but as the owner, it’s your job to oversee everything because it’s your bottom line that will be impacted if you have a poorly trained driver.
Not much to say here. Trucks are machines and that means they will break down from time to time. You will also need to maintain them properly if you want them to last. All of this is going to cost money.
You will need to take that into account.
Must Follow FedEx Rules
Ok, we talked about the many benefits of partnering with FedEx. But there are some cons as well.
For example, you must follow FedEx’s pay schedules and other rules outlined in your ISP. There’s not much room for negotiation here – they call the shots.
Plus, the rules are not static. They can evolve over time (and sometimes not to your benefit).
Take the ISP requirement that FedEx implemented in May of 2020.
Under these rules, FedEx route owners must have at least 5 routes or 500 stops per day. They also must run both business and residential routes within their territory.
These were major changes and really caused a lot of upheaval for FedEx route owners. Many had to combine routes with other owners or simply sell their routes due to these changes.
Source: KR Capital
Owning a FedEx route can be a terrific way to earn passive income and get out of the rat race.
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 a FedEx route owner, you need to hire, train, and retain a competent and reliable team, have effective contingency plans when things gets busy or your trucks break down, and thoroughly understand and remediate other key risks involved in operating this business.