What is the Standard Freight Broker Commission Rate?
Freight Broker Commission Rate
As compensation consultants who specialize in the transportation and logistics industry, one of the most common questions we are asked is “What is the standard freight broker commission rate?” While this question is posed with the best of intentions, it is unfortunately off the mark. The truth is that commission rates, like any form of incentive, should be a reflection of a company’s business strategy, freight profile, and organization structure. A better question to ask would be “What is the best commission rate for my organization, given our unique circumstances, strategy, and goals for the future?”
FREIGHT AGENT COMMISSIONS
To make matters more complicated, it turns out that commission-based incentives are only ideal for a segment of the freight brokerage industry. Although commissions have historically served as the most common kind of incentive paid to brokers, they are usually not the best incentive. The most obvious situation where a commission rate is a good motivator is for rewarding non-employee agents. For agents, the industry standard commission rate ranges from 50%-80% of Gross Margin, depending on the amount of back-office/support work done by the agent versus the company.
SALES COMMISSIONS DIFFICULT FOR THE LONG-TERM
For standard employees, commission-based incentives are only appropriate in certain situations because they make it hard to manage your sales people over time. The classic example is the sales rep who has built up a large base of steady customers. If paid on commission, it can be hard to motivate that sales rep to go out and score new business if they can earn a big payout just servicing existing accounts. Instead, a broader range of incentives, including those that pay according to the achievement of quarterly or annual goals, and those that specifically reward for attaining new business, can serve as a more effective management tools than the traditional commission rate.
WHAT IS THE BEST INCENTIVE FOR FREIGHT BROKERS
Other factors to consider when trying to determine the best form of incentive for regular employees include:
Target Total Compensation – based on the employee’s role and on external market factors
Pay Mix (Base Salary versus variable Incentive) – also based on role, as well as the organization’s size and stage of growth
Type of Freight – you cannot use the same compensation plan for LTL, Dry Van, and Over dimensional/Heavy Haul freight.
The bottom line is that effective incentive compensation design necessitates a careful, methodical approach that incorporates multiple aspects of the business strategy and competitive environment to develop an effective tool for managing and motivating employees to do the things you want them to do and to sell and cover the freight that will be best for your business.