Chris Arredondo, co-founder and vice president of customer success, Cargo Chief

The most common mistake made by freight brokers is to use markups for pricing loads with customers and carriers. This practice leaves money on the negotiating table. Pricing instead with margins will make it possible for freight brokers to add more to the bottom line every transaction as well as:

  • Win more freight opportunities
  • More accurately forecast profits
  • Scale and grow the business

Markups are simple to use when brokers are asked for a quote. All they need to do is add a fixed amount to the cost of the load based on what experience and historical lane data says the cost will be.

This practice is generally used more for short-haul or less-than-truckload shipments that have low risks of surprises with fast transit times, easy coverage and predictable costs.

If a customer asks for a quote for Houston to San Antonio, for example, a broker may know that its cost will be about $500. The broker could simply add a 25% markup ($125) and return a quote to the customer for $625.

When asked for a quote for a longer-length shipment from Houston to Birmingham, for example, the broker’s lane data may show the cost will be about $1400. It could add a $250 markup (17.8%) and return a quote for $1,650.

In both examples the broker leaves money on the table by not approaching the negotiation with a margin in mind. This is evident when comparing the markup percentage to margin percentage.

The markup percentage is calculated by dividing the markup by the cost of the load. In the first example, this equals 25% ($124/$500). The margin percentage is the price minus the cost divided by the price. For the first example this is ($625-$500)/$625 = 20%.

The broker will have 5% profit on the table by using a markup instead of a margin to negotiate with carriers. If the broker had a margin of 25% in mind, it could have approached carriers with a buy cost of $469 instead of $500 and increase its profit by $31 per load.

In the second example, from Houston to Birmingham, the broker’s markup percentage is 17.8% and the margin percentage is 15.1%. If the broker had negotiated with a 17.8% margin in mind it could add $44 more profit to each load.

The extra margin per load becomes very significant when multiplied across hundreds of transactions per month.

Besides increasing profits, brokers that use margins as their basis for negotiating with carriers will win more freight opportunities from being able to offer their customers more competitive pricing and protect themselves from being undercut. Margins also make it possible to set realistic forecasts for profits and have additional funds to invest in scaling and growing a business.

When negotiating rates with carriers, the margin goals of a broker determines its max buy rates for loads to make better quoting and buying decisions.

Cargo Chief offers the most advanced capacity procurement and pricing tool in the market that gives brokers access to 100s of thousands of carriers. The C4 tool has all of the workflow and reporting tools needed for brokers to optimize carrier relationships and gain confidence in their pricing and buying decisions.

C4 shows the max buy rate for each lane calculated by using the broker’s price, its margin goal, and the current market rate for the lane. To get the current market rate, C4 has an exclusive real-time rate database that is updated continually through a data sharing consortium of leading TMS providers loads booked by thousands of small and medium-sized brokers.

The practical, current and unique data of C4 is helping brokers make superior buying and selling decisions and grow their businesses. For more information visit, schedule a demo and sign up for a free 14-day trial.