The total cost of becoming a freight broker varies depending on the type of freight broker you wish to become and the size of business you want to start. Below, we look at the most common expenses and how much each costs for a new freight broker. The factors we will be looking at are the following: business registration, licensing, bonding, insurance, office and equipment, software, and training expenses.
Running Total: $300
To operate a freight broker business in your chosen state, you must first register with the Secretary of State. Registering your business requires you to do the following:
While obtaining a federal EIN is free, all other requirements cost money. Here’s how much each cost:
Generally, business registration costs $100 to $300, but those numbers may vary depending on what state you are registered in and if you’re going to DIY your incorporation documents vs. hire a lawyer. It also depends on the type of business you wish to register. For sole proprietorship and partnerships, the process and be straightforward; however, registering as a corporation may be more involved and costly. As a sole proprietor, you may also use your legal name as your business name to save on DBA registration and Fictitious Name Statement costs. Generally speaking, business start up costs for a freight broker is around $300.
Running Total: $600
All freight brokers must get the federal Federal Motor Carrier Safety Administration (FMCSA) freight broker license to operate legally.
There are two types of licenses that a freight broker can get: broker of property or broker of household goods. Both involve a $300 application fee. Assuming you only need one of them, your licensing cost will be $300.
So far we’re up to $600 with licensing and business registration.
Running Total: $2,850
The next step to becoming a freight broker is to get a freight broker bond. The amount for this bond is $75,000, but the good news is you only need to pay for a tiny fraction of the bond amount. You can obtain this bond through any specialized surety agency or insurance company. The cost of purchasing the bond is usually 1% to 5% of the bond amount, but that percentage is based on the following factors:
Your bond cost will be lower if you have a good credit score, a favorable financial history, and no prior claims. This is because individuals with good credit backgrounds generally have a lower risk of defaulting or causing claims. For a $75,000 surety bond, you can be expected to pay between $750 to $3750. For purposes of tallying, let’s take the mid point and say that the cost of your bond is $2,250.
Something to note here is that getting a freight broker bond isn’t your only option. An alternative to getting a freight broker bond is setting up a BMC-85 trust fund agreement. Instead of getting a bond from a third party, the freight broker could put $75,000 directly into a trust agreement and name the FMCSA as the beneficiary of the trust. We generally don’t recommend this option to our clients because of the large amount of capital required up front. Most people generally don’t have $75,000 lying around to be put into a trust fund.
Running Total: $4,350
The FMCSA does not require insurance for freight brokers. Still, it is highly encouraged for you to obtain these insurance policies. Insurance can protect your business from claims and ensure you do not have to pay for damages out of pocket. It also grants you more legitimacy and a better reputation in front of customers because it provides a safety net and guarantees that damages will be paid for. Typically, freight insurance policies cost around $1,500 per year.
Additionally, if your business has employees, then you are required to obtain workers compensation insurance. Workers’ compensation insurance pays for your employees’ medical expenses, lost wages, or rehabilitation costs if they become injured or ill on the job. This insurance costs about $50 per month.
Assuming you have no workers, and that you purchased 1 year of freight insurance up front, your total costs of insurance would be $1,500.
Running Total: $5,350
Most frieght brokers only need a business phone and computer to get started, since their main job is coordinating deliveries between shippers and carriers.
Generally speaking, $1,500 would be a reasonable budget for a freight broker starting out, since a business computer can be acquired for about $1000 and phone can be had for $500.
While $1,500 seems like a low baseline, if a freight broker wants to acquire their own office space, this number will increase very quickly. Renting a working space could range from thousands to tens of thousands of dollars depending on the size and location of the space you’re looking to rent out.
Running Total: $7,750
Freight brokers also generally need two different types of software: a freight broker transportation management system (commonly known as TMS) and access to a load board. While a TMS and load board are not necessary for freight brokers, they make your life much easier.
The general cost you can expect to pay a year would be $200/user per month for freight broker software. Assuming it’s just a single founder of the business, your freight software subscription costs would be $2,400 per year. Read on if you want to see how we came to this number.
A freight broker TMS helps freight brokers manage and optimize their transportation and logistics. A good TMS should help digitize all business records and offer the following features:
In terms of costs, TMS software companies usually charge differently depending on how you set things up. There are two standard setups: cloud-based TMS or on-premise TMS.
Cloud-based TMS is when the software is deployed to the cloud by the TMS company. The freight broker would be provided with an account that allows them to log in from any location and access the data without being at an office site. Cloud-based TMS solutions typically charge per user, with each user generally costing between $50-$100.
On the other hand, an on-premise TMS setup is where the TMS software is deployed on a server owned by the freight broker, usually at the broker’s office. The benefit to this solution is that the freight broker has full control over the software and it’s deployment. This can be critical for larger organizations who don’t want their business to be dependent on the reliability of a third party vendor. On-premise TMS is typically an expensive endeavor that can cost up to tens of thousands of dollars, as it involves getting the physical infrastructure for running the TMS software, setting it up at your office and maintaining the software/hardware over time.
Generally speaking, we recommend the new freight brokers start with a cloud-based CMS and see how things go. These days, cloud TMS are very stable and an on-premise setup is not worth the headache. We only see clients go with an on-premise solution only when it’s to satisfy compliance requirements, for example, if they operate globally and are subject to European GDPR privacy laws.
A load board is an online service that connects shippers to carriers. Load boards are websites where shippers can post their available freight loads that need to be transported from one location to another, and carriers (truck drivers or trucking companies) can search for and book these loads for transport.
It’s not possible to have an on-premise load board since unlike a TMS, the freight broker does not own the underlying data. Like TMS software, cloud-based load boards typically charge a fee per user. Generally, you can expect to pay $100/user/month for access to a load board with a decent network of shippers and carriers.
To wrap it up, a TMS costs $100/user per month and a load board also costs $100/user per month. So total software costs for a freight broker would be $200 per month, $2,400 a year.
Running Total: $8,650
Going through a freight broker training course is not required to become a licensed broker; however there are certain benefits and we think it’s helpful if you’re completely new. A training course would run through the basics of freight brokerage for new business owners and offer tips and tricks on how to run a successful freight broker business. The schools typically also offer networking opportunities to their alumnus to meet other carrier and shippers affiliated with the school.
Costs for freight broker training course can vary widely depending on the quality of their instruction and the amount of additional perks offered outside of coursework. Generally speaking, the most expensive courses can cost as much as $1,500 and the cheapest courses start around $300. Again, we’ll go with the average cost here of $900.
There you have it. Based on our assumptions, it would take someone $8,650 to start a freight broker business. Here’s the breakdown:
Of the $8,650, only $2,600 is mandatory. So in theory, it’s possible to become a freight broker with just $2,600. Still a hefty amount, but a lot less than $8,650. However, the optional costs are often also important. Amongst them, having proper insurance and access to a good load board is almost a must for any freight broker. Good luck on your freight broker journey!
