Real talk. So you've bought routes based on the expectation of healthy profit margins and stable passive income, but instead you are losing money, sleep & sanity. What's going on?

In my (limited) experience running FedEx Ground routes in the Bay Area, CA, the profitability of your route is determined by three things - good unit economics, low overhead and having enough spare capacity to deal with emergencies. Here's what I mean. In this blog post, I'll be using the words "route" and "work area" interchangeably. They mean the same thing - the stops assigned to your drivers each day.

Good Unit Economics

The first thing you need to know is your monthly per vehicle cost needed to run every single work area. This includes insurance, maintenance, payroll, truck notes, overhead etc (email me at support@urbanlytics.com for real world numbers from California).  This number must be lower than the revenue you are generating for that work area. You can't improve what you can't measure and most contractors don't even know how their revenue compares to their costs on a month to month basis. 

The easiest way to get to make sure you are in the black is to keep track of your daily stop counts. Here are my numbers for last week (some work areas were removed to save space so the numbers won't add up, but the totals on the last row are real).

Unfortunately, expenses are something that are largely out of your control. Salaries and wages of your drivers and managers may take up to 50% or more of your revenue and the amount you need to pay depends on the cost of living of your service area. If you are delivering in San Francisco for example, your insurance, parking tickets and vehicle maintenance costs will be sky high and you will have to pay extra to attract and retain drivers, many of whom will likely have to commute a long way to get to work. One cost that you do have control over is fuel. By requiring your drivers to use a route optimization app (see below), you can ensure that they are always taking the shortest most optimized possible route to make their stops, while never missing pickup time windows.

Low Overhead

Unfortunately, expenses are something that are largely out of your control. Salaries and wages of your drivers and managers will likely take up 50% or more of your revenue and the amount you need to pay depends on the cost of living of your service area. If you are delivering to San Francisco for example, your insurance, parking and vehicle maintenance costs will be sky high and you will have to pay extra to attract and retain drivers, many of whom will likely have to commute a long way to get to work. One cost that you do have control over is fuel. By requiring your drivers to use a route optimization app (see below), you can ensure that they are always taking the shortest possible route to make their stops, while never missing pickup time windows.

Spare Capacity

Keeping your payroll expenses low is important, but you can go overboard with this. Shit happens - sometimes your drivers don't show up, get sick, quit. Vehicles break down, get into accidents etc. Lots of things can go wrong, so it's vital that you have enough spare manpower to deal with emergencies so that you never get into a situation where you are unable to ensure service and deal with volume spikes. I personally have a policy of keeping 25-30% more resources than I need to - this allows me to assign drivers to help out overloaded work areas, help with ICs or sub for drivers that don't show up. It's expensive, seriously affects margins and I'll be the first to admit that smaller (less than 10 route) contractors will not be able to afford it, but it has worked for me.

If you need help figuring all this out, reach out and I'll be happy to help you out any way I can.