FedEx Routes For Passive Income: A Beginner’s Guide

Want to earn passive income with a great ROI and partner with one of the most well-known and respected brands in the world?  

You may want to consider buying a FedEx route.  

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 will consist of three parts: 

Part 1: Introductory questions about FedEx routes

Part 2: Buying FedEx routes

Part 3: Pros and cons of owning FedEx routes   

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.

Table of Contents

What Is a FedEx Route?

A FedEx route is a FedEx Ground 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 to homes and businesses within the designated area; and (ii) a FedEx Ground Linehaul route which provides long-distance transport. 

The P&D route is localized and usually serviced by vans and box trucks. These routes cover dedicated territories that are determined by FedEx. The linehaul route spans many miles and is serviced using tractor trailers.

Source: FedEx

This article focuses on buying P&D routes, as they are the simpler to buy and manage.  If you are interested in a FedEx linehaul route, they will entail a bit more risk, but also can provide stronger profits (more on that later).  You should also bear in mind that these routes may be a bit more unpredictable and the risks may be greater, depending on the type of linehaul route you purchase.  

How Profitable Are FedEx Routes?

FedEx routes have outstanding profit potential. Profit margins run between 10%-45% of gross revenue. Profit margins will be lowest if you operate a FedEx P&D route and will increase if you operate FedEx Linehaul routes.

Here is a chart showing expected profit margins for various types of FedEx Routes:

Type of FedEx Route

Profitability

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 $1,000,000 and you own a FedEx Ground P&D route, you can expect to make a profit of $100,000 to $250,000 per year. With the same gross revenue, you can expect to make a profit of $400,000 to $450,000 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.  There are 3,233 route owners that generate revenue of $1 million or more and the top route owner has $17 million in revenue.  

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.  

According to Buyermarketinc , the annual profit per route is between $30,000-$40,000 and the average cost per route is $100,000.  

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.

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 $100,000so 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:

General Requirement

Description

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:

·      Employer-related expenses

·      Payroll deductions

·      Training personnel

·      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

·      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

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. 

Source: Buyersmarketinc

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 in the financing section of this article.

Due Diligence

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.

If you prefer to operate online, you may want to check out Fundera.  They are affiliated with Nerdwallet and offer small business financing options from a variety of potential lenders.  You fill out one application and they provide you with a list of lenders suited for your situation. 

 

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. 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.

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.

The pros and cons of owning a FedEx route are as follows:

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

Truck maintenance

Robust resale market for FedEx routes

Must follow FedEx rules

Independence

 

Pros of Owning a FedEx Route

You Are Partnering With FedEx

FedEx is a massive company with incredible brand recognition. They have established processes and procedures that have been tested and proved. This means that all of the infrastructure is in place, except for your little piece, which is a very targeted operational one.  

You do not need to build a business from scratch. You do not have to worry about marketing, acquiring customers, or competition. You simply need to focus on making the promised deliveries on time.  

That is a tremendous business advantage. By partnering with FedEx you become part of a multi-billion dollar enterprise that is not likely to go away.

Strong Profit Potential

We have covered the profit potential of FedEx routes in detail already, so I won’t go into it again. 

Bottom line: You have the potential to generate exceptional profits from running FedEx routes.

Passive Income Potential

As we discussed earlier, FedEx routes can be mostly passive once 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, there are likely one or more managers overseeing the various routes.  If you buy one that has managers in place, you will be well positioned to enjoy largely passive income through your business.

If the existing routes do not have a manager and you want to run your business passively, you should either hire one or begin to groom one of your most promising drivers for the role.  Many owners who successfully operate their FedEx routes passively have a 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 falls ill 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.

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. 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 a more passive business 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 source of mostly passive income.

Robust Resale Market For FedEx Routes

FedEx routes have undeniable market value (as we discussed before) and that means that you can sell your routes when you are ready to move on. 

The fact that you have the FedEx name behind you only helps. Buyers will find it easier to trust a business model that is tied to the FedEx brand.  This will make your FedEx route business far easier to sell than an unknown business with comparable earnings. 

Independence

This is an obvious point, but can't be ignored.  If you are the owner of your own business, you do not need to answer to anyone.  Hard to put a price on that.

Cons of Owning a FedEx Route

A FedEx Route Business Is Expensive

A FedEx route business is expensive to start. Between the down payment to purchase the FedEx routes and the cash reserves needed as working capital, the cost of starting a FedEx business can be painfully high.

Even buying a small FedEx route business can cost you well over $100,000. If you want to buy an average-sized FedEx route business, you should be prepared to pay much more.  

According to Route Consultant an average priced FedEx ground route will require a down payment of around $150,000-$200,000, plus $75,000 in working capital.

That’s a lot of money any way you look at it.

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 going to require dealing with drivers (and managers if you use them). 

Whenever you need to manage employees, there is always risk. Your drivers may quit right before the winter holidays when you are getting crushed with package volume. Your manager may move on to bigger and better opportunities. All sorts of problems can arise when dealing with people.  

And finding qualified and reliable drivers is not a walk in the park. In addition to meeting FedEx’s requirements for drivers, you will need someone who can figure out the routes, interact with recipients, and most importantly, show up on time and do the job reliably.  

You will also need to make sure they are trained, which can take some time. Your manager can be a huge help here, but as the owner, you need to make sure it gets done.

Note:  That's just for a normal P&D route.  If you are operating a linehaul route, the task of finding qualified and reliable drivers is much harder.

Truck Maintenance

This is an incredibly obvious point, but your delivery business depends on a working fleet of trucks. If a truck breaks down, you will need to fix it asap. Or you will need another truck to pick up the slack. And trucks will break down given how much they are used.

Of course, these repairs and maintenance issues will impact your bottom line. So it is important to find a good mechanic that will take care of your repairs promptly and at a fair price.

Note:  Again, this is for normal P&D routes.  If you are operating a linehaul route, the costs of maintenance are going to be much higher.

Must Follow FedEx Rules

As we discussed, there are many advantages to partnering with FedEx. But there are some significant drawbacks as well.

Most notably, you must follow FedEx’s pay schedules and other rules outlined in your agreement with them. They call the shots.

And rules relating to FedEx Ground can evolve over time. A perfect example is 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 significant changes and caused a lot of disruption for FedEx route owners, with many combining routes with other owners to meet the new requirements or selling their routes altogether to avoid having to comply.

Source: KR Capital

Bottom line is that you don’t call all the shots when you are a FedEx route owner. It’s a real risk and something you should carefully consider.

Conclusion

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.

Young M.

Young M.

Young is a lawyer working in the financial services industry and writes about real estate investing, personal finance, passive income, and starting businesses. He owns and manages 9 rental properties, has started several businesses, and enjoys learning about financial matters, especially anything off the beaten path.

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