Sins of Commissions

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Sales commissions are a notoriously sticky wicket in the horse business. Charging a client for your expertise and time to help buy or sell a horse is an accepted industry practice. Yet many stable owners are uncomfortable implementing a commission rate, and some avoid the issue entirely by never establishing one.

Clients respect your professional opinion and value your expertise to help them buy a suitable horse. “Helping a client buy or sell a horse is like bringing a trusted mechanic along to a car dealership when buying a car,” says George Peters, owner of Win$um Ranch in Schuylerville, N.Y. “The mechanic would see all the dimples or pimples you might miss, and you would take his advice into consideration when making the decision to buy. It’s the same with horses.”

When To Charge a Commission

Commission rates are usually charged when you are instrumental in the sale of a horse. “If you have a horse on training board, or an owner who is on ordinary board but is taking lessons, and you facilitate the sale of that horse [meaning you work, present, ride or otherwise engage significantly], the seller should pay you a commission,” says Raymond Whelihan, professor of equine studies in the agricultural business/animal science department at the State University of New York at Cobleskill. “You get paid nothing for nothing. If a horse simply just sells out of your barn without significant involvement from yourself, then you are owed no commission,” he adds.

In some instances, charging a finder’s fee may be more appropriate than a commission rate. “I have received a finder’s fee in some cases,” Peters says. “I call a fellow I know in Texas who has a lot of good horses. I’ll explain what type of horse the customer is looking for, and will arrange for them to fly to Texas and try the horse.” The client pays Peters a finder’s fee to compensate for his time and professional connections.

Whelihan recommends establishing a flat fee for service rather than taking a percentage of the sale price, as the latter encourages higher sales costs. “Some barns are high-pressure sales barns and it’s all about the turnover,” Peters notes. “Let the horse sell itself. It won’t, and shouldn’t, sell if it’s a poor fit for the rider.”

Fees

In other businesses, commission rates are based on many factors, such as the business’ overhead costs and the sales team’s travel expenses. In the horse industry, standard commission rates—10 percent for performance horses and five percent for Thoroughbred racehorses—are more the norm, subject to some variation.

“Many times, the market influences the commission rate,” says Chris Pine, a business consultant in Pocasset, Mass. Talking with other stable owners in the area will give you a sense of the going rate. Joanna Himes, owner of JH Performance Horses in Albany, Ga., agrees. “We researched other trainers who had similar credentials and facilities to ours and tried to stay in the same range or slightly below,” she recalls.

Setting a sales commission rate involves more than recouping the time and travel spent looking to buy or sell a horse. For one thing, the purchase can serve as the foundation for a future training, boarding, or lesson relationship. “If the person is going to be a training client who will be spending money with us every month, or if they have a horse that will improve our image, we will take that into consideration when determining our commission structure,” Himes says.

Commissions and Client Relationships

Earning a commission can imply a deeper relationship between you and the client. “If you accept a commission, then you are agreeing to stay with the purchase through consult/les-sons/training and to try your best to make it work for the client,” Whelihan notes. “That doesn’t mean you can’t charge your normal rates, but you wholeheartedly stay with your client and their new horse.”

Nurturing a solid relationship with the client will make them more likely to shop with you again down the road. “We try to spend a good amount of time on the sale, whether the customer is selling or looking to buy. That way, they feel assured that they are paying for our time and expertise,” says Himes. “You don’t want clients to think you are simply a middleman who’s costing them more.”

Communication is Key

Crystal-clear communication is essential to successful transactions. Before you do any work to help a client buy or sell a horse, talk about the commission. “The agreement should be in writing, but not necessarily a contract,” Whelihan says. “It could be a letter or an e-mail.” At some stables, agreements are still sealed with a handshake. “I have yet to actually sign anything when helping someone buy a horse,” Peters notes. “It’s mostly a handshake deal.”

Commission rates become a problem if kickbacks occur. A kickback is when the seller pays the buyer’s agent to select and facilitate the sale. Typically, “The buyer pays their agent for that service,” Whelihan explains.

But sometimes, the seller will send a sum of money to the buyer’s agent, without the buyer’s knowledge. The seller may simply wants the buyer’s agent to shop there again with his or her next client, Whelihan notes.

Whatever the reason, it’s a bad idea. Kickbacks are against the law and can be prosecuted. “This activity is fraudulent and lacks full disclosure,” Whelihan declares.

Still, “this is rampant in the performance horse industry,” he says, and to a lesser extent in the racehorse industry, “and is in no way a typical industry practice. I estimate that as much as 40 percent of a horse’s purchase price is kicked by the seller to the buyer’s agent and a middle man combined, all without the buyer’s knowledge. As the horse industry continues to shrink, this practice is crippling the business.”

For horsepeople, client relationships are the lifeblood of the business. Absolute integrity and full disclosure during horse transactions can help you build and retain a sustainable base of loyal and satisfied clients.