Managing freight shipping, logistics, and supply chain requires a well-honed set of skills. Freight brokers, agents, and employees navigate an intricate balance between booking shipments from shippers and placing them with carriers. It’s no surprise that the commission plans that reward their hard work are also incredibly intricate.
Models for commission distribution in shipping and logistics follow a slightly different structure than many other industries. Typically, brokers, agents, and commissionable employees earn based on the gross margin of loads sold. That differs from plans based on revenue as well as gross profit.
During our time implementing commissions for shipping and logistics companies, we’ve learned a thing or two. Let’s break down how commissions typically work in this industry.
Who Earns Commissions?
When it comes to shipping, logistics, and supply chain, the roles typically earning commission fall into three categories.
- Freight Brokerage Owner: An individual who owns a brokerage must be licensed by the Federal Motor Carrier Safety Administration (FMCSA). While an owner may deal in brokering freight and earn from that activity, they also deal with the basics of running their own business. That means they must invest in software, pay insurance premiums, and cover other recurring costs. In addition, they’re responsible for all of the administrative duties that come with managing a company, from paperwork and marketing to financial planning.
- Freight Agent: Generally an independent contractor, freight agents represent licensed freight brokers in day-to-day brokering activities. They focus solely on acquiring freight from shippers and placing it with carriers and nothing else. When it comes to administrative tasks, like billing, the agents rely on the brokerage, which is typically a mid-sized company, large enough to employ at least one agent but often more. Agents also typically work from their own workplace, not a centralized office.
- Brokerage Employee: Sometimes called W-2 brokers, these full-time employees work in an office setting, supporting a mid-size to large brokerage in freight brokering. As employees of the company, these individuals may fill a range of roles, from sales to administrative tasks and operations management.
How Are Commissions Earned?
Commission distribution in shipping and logistics follows a few different paths. Rates and earnings vary across the industry but a few common themes have emerged.
For instance, owners of a freight brokerage won’t earn on commission. Instead, they often take home 100 percent of the profit earned through freight brokering. That amounts to the difference between what they charged the shipper and what the carrier charged them. All of that goes to the owner. However, the owner spends a decent percentage of that on operational costs, insurance, and other expenses. If the brokerage is large enough to employ agents or full-time employees, a portion of the profit gets distributed as commissions as well.
Meanwhile, freight agents earn straight commission on every load they sell and place. On average, agents take home around 50 to 70 percent of the profit on every freight load they successfully broker. The brokerage they represent in each deal splits commission with them and takes home the remainder of that profit. Additional variables factor into that final amount but agents always see a higher cut of the profit than full-time employees.
In the case of full-time employees, W-2 brokers earn a far lower rate on the sales they support. However, these individuals also earn a base salary in addition to commission. The rate hovers around 13 percent or so on the overall profit made by the brokerage. Combined with a full-time salary, benefits, and a furnished office where they can collaborate with coworkers, the commission ends up being a decent incentive.
What Other Variables Factor into Commissions?
Additional variables impact commissions earned. We’ve outlined a few of the most common ones we’ve seen.
- Truckload (TL) vs. Less-Than-Truckload (LTL): The goal for any agent is to place a full truckload of freight from a shipper on a carrier. Placing less than a truckload could incur a fee on the broker (often passed onto the shipper). Additionally, the commission rate drops when an agent fails to meet a full truckload. The decrease depends on the employer and many other factors but it acts as a minimum floor for brokers.
- Bill of Lading (BoL): This document details everything about a shipment, from the contents to the type and the final destination. It often acts as a receipt from the carrier to the shipper upon delivery. This document also determines commission for an agent or an employee who brokered the sale. If the carrier’s price on the final receipt changes from the time of the original invoice, it could impact how much the agent or broker earns.
- Shipped/Invoiced vs. Received/Paid: Distribution of commissions depends on the status of the freight. Brokers and agents may earn a portion of their commission when the freight is initially booked, shipped, and invoiced. The rest of the commission arrives when the shipment is received and payment is made.
- Team-based Commission Plans: Broker employees working in teams often share commissions based on their overall performance. If the team as a whole reaches certain quotas, they unlock additional commissions and incentives.
Regardless of the structure or variables involved in your commissions, we fully automate the management process. Set up a time for a demo with us and we’ll walk you through the whole process. Simplify your commission cycle today!