The Business of Horses – Costs, Overhead, Profit Margins

One of the questions I get is about how to arrive at a dollar amount to charge that will allow the horse business to survive over a period of time. There are three things that you must know in order to do this. Charging less than the competition is not one of them unless you truly have lower costs and overhead.

Overhead is a term we use to denote the amount of money needed each hour, day, week or month to keep the front doors open. It is the electricity, water, building rent or mortgage payment, taxes, insurance, etc. that we use whether we have customers or not. You need to know how much it costs each month for you to do this.

If you keep a set of books, you should have this information available to you. If not, you should gather up all the checks and receipts for the past year and write down how much you spend each month on each item. Only then will you know how much it costs to keep the doors open.

You will find that it differs month to month and season to season. But if you have the amounts for each month, you can average them over a period of time. You will have a rough idea how much it costs each month to run your business.

Costs are expenses that vary month to month and season to season. A person running a boarding stable or training barn will have bedding, feed, farrier, vet, outside labor that are necessary to the business. Let us look at how we can control these expenses.

Bedding will vary from horse to horse. Some are pigs in the stall and some are not. Whatever you use for bedding, you want it to last as long as possible and be as dust free as possible. You must realize that some stalls are going to be picked two or three times a day in order to get the best use of the bedding.

Everyone says that they feed a coffee can of grain and one to three flakes of hay, two to three times a day. Go down to your bakers supply house and get a scoop with a scale built in to it. Buy a hanging scale and put it where you can weigh each flake of hay. Buy a weight tape and tape each horse when it comes into the barn. Start thinking about pounds of feed per animal. It takes 1.5 to 2 pounds of feed per 100 pounds of animal weight to maintain that horse depending on what it is doing.

Horseshoeing and veterinary charges are the responsibility of the horse owner. If you have to hold the horse for the shoer or vet, the owner should be charged a reasonable fee. Otherwise, they should be there for the shoeing and veterinary calls.

Outside labor, whether independent contractor or employees, have to be used unless you have a large extended family involved in your horse enterprise. Why? No person wants or can work 24/7 without a break now and then. You will want to attend a horse function or just take a vacation away from the business and in order to do this; you must have someone to do the chores.

The problem is to find someone, who has an interest in horses, is dependable, responsible and will work on an as-needed basis. You can sometimes find a client who wants to do these things part-time in an exchange for a reduction of their bill. The down side is they may not have the experience and when you have to stop their participation, you lose both your help and a client. Only you can make that decision. I have found that it is easier to hire an independent contractor whose livelihood is taking care of animals for owners. If they don’t work out, I can terminate the contract and find someone else.

Costs are controllable. You need to shop around for the best price on feed each year. Prices will vary from supplier to supplier. Estimate how much grain and hay you will use over the next twelve months and contact each supplier to find his price to supply you.

The same applies to bedding. No matter what you use, if a supplier knows that you will use X amount of bedding over the next year, he will give you a better price than if you buy it one load at a time.

Profit margin is what we add on to our overhead and expenses to pay our salary and have something left over to cover unexpected emergencies or to grow our business. This is a sticky situation for most people. They want to meet or beat the competition but that may not be the answer if they want to maintain their business for an extended length of time.

If you want to have a 50% profit, you will add 100% to your overhead and costs. You can add more or less but that is your decision. Get out your old math books and look up the formulas. A 33% profit would require you to add 50% to your expenses.

If your business is boarding, you can add some extras that the competition may not do for a nominal fee or at cost as an incentive to your potential clients to board with you. If you are a trainer, you may do the boarding or hauling at a lower fee and raise your training fee to cover the difference. One should be inventive about these things. Wal-Mart does not sell everything at a lower cost than the competition. Some of their items have a profit margin of 90 % of more. The same thing will work for you. You can have low-price leaders but the rest of your product should be priced so you can have the profit you need to maintain your business.

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