Looking for FedEx home delivery routes in the San Francisco Bay

[Socrates101]

It really shouldn't. There really aren't too many economies of scale in this business where margins improve significantly with higher revenues.

I bought my routes a year ago that are grossing more than a million and I paid 60%.

As noted above, I am in CA. I put an offer on a business that has gross about $700. My offer was close to $500 and I was laughed at. Asking price: $800k. My assumption is that routes in CA should be on the low end of the 60-70% because cost is higher. Gas and diesel are at least 10% higher vs the average in the US and drivers need to make at least $100-$300/week more vs. other parts of the country. Please feel free to tell me if I am off here. Thanks

 

[Socrates101]

Either got a pretty good deal or in a large supply area. Big routes here even to other contractors in the terminal sell for pretty much gross.

Should I assume then that this boils down to about 4x EBITDA and if you take into account truck replacement closer to 4.5 x Cash Flow. My assumption here is that a reasonable operating model is to end up between 20-25% EBITDA margin. ( 25% EBITDA x 4 =1 x Gross). I like the discussion and input so far. Please keep your comments coming

 

[dmac1]

I am in CA and the state has gone the ISP way last year. Thus, the transition has happened and given that the min size of an operation is 5 routes, most businesses on the market have gross between $700,000 and $900,000. The question is how much should these sell for. e.g. for a business grossing $700 what is a value range? What about at the $1m gross mark?

Gross means nothing. Net to owner is what matters. If you gross $1 million, but spend $950k, you are doing no better than a single route operator. And margins in this business don't improve much with 'economies of scale' in this business. Each route has some fixed costs no matter how many other routes you have. Sure, there is some efficiencies to be gained by having ground and HD routes in the same area.

One of my routes grossed a lot more than the others, but netted less due to expenses of a longer route and was a 12 hour a day route. One grossed less, was less costly to run, and was basically a nine hour route. Same thing is going to apply to comparing one ISP area to another. Gross is not the way to value the business. Maybe if you are selling widgets, use gross to determine value compared to another business selling the same widget.

Some of the economy of scale is lost when you suddenly need to expand but aren't netting the costs of expansion. At some point, you may need a full time mechanic, or a full time bookkeeper, that saves you $30k per year, but costs you $50k. It may take years to make the move worth it.

 

[bacha29]

Excellent points dmac. What 101 wants are hard, consistent numbers but they simply don't exist when contracting for X. One of the driving forces responsible for the creation of RPS/FXG was to push as much variable cost as possible on to the contractor

 

[Socrates101]

Gross means nothing. Net to owner is what matters. If you gross $1 million, but spend $950k, you are doing no better than a single route operator. And margins in this business don't improve much with 'economies of scale' in this business. Each route has some fixed costs no matter how many other routes you have. Sure, there is some efficiencies to be gained by having ground and HD routes in the same area.

One of my routes grossed a lot more than the others, but netted less due to expenses of a longer route and was a 12 hour a day route. One grossed less, was less costly to run, and was basically a nine hour route. Same thing is going to apply to comparing one ISP area to another. Gross is not the way to value the business. Maybe if you are selling widgets, use gross to determine value compared to another business selling the same widget.

Some of the economy of scale is lost when you suddenly need to expand but aren't netting the costs of expansion. At some point, you may need a full time mechanic, or a full time bookkeeper, that saves you $30k per year, but costs you $50k. It may take years to make the move worth it.

I noticed that home delivery routes have many more stops than ground. Ground stops increase by 15-30% during peak times creating the need for some extra drivers while home delivery stops double or triple during the holiday season. Thus the cost of going through the holiday rush is much higher in HD. Revenue per stop is higher for ground vs. hd. Shouldn't this imply that ground deserves a premium vs. HD? Thoughts?

 

[UpstateNYUPSer(Ret)]

I noticed that home delivery routes have many more stops than ground. Ground stops increase by 15-30% during peak times creating the need for some extra drivers while home delivery stops double or triple during the holiday season. Thus the cost of going through the holiday rush is much higher in HD. Revenue per stop is higher for ground vs. hd. Shouldn't this imply that ground deserves a premium vs. HD? Thoughts?

"Stop density" is where you will make your money.

 

[dmac1]

I noticed that home delivery routes have many more stops than ground. Ground stops increase by 15-30% during peak times creating the need for some extra drivers while home delivery stops double or triple during the holiday season. Thus the cost of going through the holiday rush is much higher in HD. Revenue per stop is higher for ground vs. hd. Shouldn't this imply that ground deserves a premium vs. HD? Thoughts?

Too many variables. You can hire a helper and if you have a suburban or city route, you can easily deliver twice as many stops since you are likely going past or within blocks of every address anyway. On a rural route- you might not even be able to deliver as many. I used to have deliveries 10-20 miles out of the way. 5 or 6 extra of those cuts into your time. Plus, Christmas always falls in the winter when days are shorter and weather is worse. PS- stop density isn't always where you make money. ON a rural route, I had one route with a $135 cz. I was content to go out with 30 stops, but even that could take all day. 40-50 stops was 7-9 hours of driving.

Ground already gets a premium in stop/package pay.