What You Need To Know To Make Sense of Business Bartering
Bartering, trading one good for another, is becoming increasingly popular as the value of the dollar continues to plummet. There are several bartering systems available online (some better than others) and activity on these web sites has increased as the economy has gotten more and more troubled. However, when you move into cashless economies, it’s easy to get sucked in. Here are a few things you need to know to make it work for you.
1. Use an established bartering system.
Bartering on your own is often fraught with difficulties. Establishing “what’s fair” is rarely easy, especially if you’re the guy who charges $100/hour and you’re negotiating with someone who charges substantially less. One hour isn’t always equal to one hour, and that’s not always an easy concept to explain.
Instead, use established systems that operate with their own version of “dollars” and have structures in place to ensure that everyone follows through on their end of the bargain. The way these systems work is that you join the system and let people know what you have to offer. People use dollars they already have in the system pay you for your products or services. Then you use your system dollars to pay for products and services that you need.
2. Use bartering systems as a marketing tool.
Bartering systems can act as a solid marketing tool for your business, when used the right way. People already in bartering systems have dollars that have to be spent in the system. So you’re entering a marketplace of willing investors.
Plus, people tend to look at these dollars slightly differently from “real dollars” and are more willing to spend them. Bring the right product or service into the system, and you could introduce your product or service to a large group of willing buyers very quickly.
3. Avoid getting too heavily invested.
One thing you want to avoid is getting too heavily invested in any bartering community. If there’s something in the system that you really need and would have invested in anyway, this can be a good way to obtain it. However, you can’t guarantee the quality of the professionals in the system. Just because they’re in the system doesn’t mean they’re the best ones for the job.
And let’s face it…your mortgage company and the utility companies probably don’t accept bartering dollars. You need real dollars for the real world, and bartering dollars just don’t transfer.
4. Spend your bartering dollars right away.
There’s another truth about bartering dollars, and that’s that all of these bartering systems are businesses that are owned by someone. In this uncertain economy, companies go out of business in the blink of an eye. So make sure you don’t leave your bartering dollars in these systems for long. Spend your dollars quickly, just in case, so you don’t have thousands invested in this system that could drop off the face of existence without any warning.
5. Transition bartering relationships to cash relationships.
When clients ask me about entering into bartering systems, I advise them to keep their offerings to introductory services only. Figure out which services frequently act as a “point of entry” to your business and offer those as barters, then convert your bartering clients into cash-paying clients as quickly as possible to avoid getting too heavily invested in the long-term.
And, make sure you don’t get behind the eight-ball on any transaction — don’t offer to barter for something you yourself have to pay real dollars for.
6. Prepare for taxes.
Finally, don’t forget that the IRS views bartering dollars as exactly the same as real dollars. Earn a dollar in a bartering system, and you’ll still have to pay taxes on that money in real dollars later. Plan accordingly!
Bartering can be a great way to market your business and gain new clients and trade for services you need for your business. However, there are pitfalls. Plan ahead, avoid being too heavily invested, and transition barter clients into cash-paying ones, and you can benefit greatly from these systems.
WRITER'S BIOGRAPHY
Susan Baroncini-Moe
Susan Baroncini-Moe started her entrepreneurial adventures with a lemonade stand. Now, Susan is the CEO of Business in Blue Jeans, dedicated to helping you design a business you'll love or transform your business into optimized profitability. Learn more at BusinessInBlueJeans.com.Other links: Blue Jeans Web Sites and Susan's No Suits Allowed! E-zine.
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Comments
Arron Lock says on August 4th, 2009 at 10:30 am
Great article! I have been invited to a barter club numerous times but was kind of uncertain about it. I do my bartering based on a dollar 1:1 system. For every dollar I would charge I get in credit with the client. Bartering on your own can be great as long as you do it right and don’t forget the IRS
NeoTechie says on August 4th, 2009 at 10:45 am
Showing what’s in it for both parties help to seal the deal.
Dean says on August 4th, 2009 at 11:24 am
I think that the only way to have a real successful bartering system is for both parties to have semi-long term reciprocal services. For example, I have a client that is a personal trainer. I fix his computers and he trains me. There is really never a time when I do more for him, or he does more for me. So it works out very well. I think that this sort of parallel servicing is the optimal way to follow your #4 rule.
Karlil @ PDPro says on August 4th, 2009 at 1:18 pm
I never know the good old bartering system actually exist on the internet until i read this article! Such irony.
Marelisa says on August 4th, 2009 at 5:51 pm
Your point of offering entry-level services in the bartering system to attract clients who then continue to use your services outside of the bartering system is excellent.
van dealer says on August 5th, 2009 at 4:53 am
this is really useful :)
Leif @ BizX says on August 5th, 2009 at 1:38 pm
Great article! As an employee of a b2b barter exchange I wanted to respond to a couple of your points.
First, I should mention that barter exchanges have been around for many years, through good times and bad. If you have excess inventory or employee downtime bartering is always a smart move.
As to number 1, you are absolutely right. Bartering with an exchange is a much smarter way to go then trying to do it on your own. Also, while there are a bunch of internet-based barter exchanges with flashy websites popping up, what makes them work is a good variety of quality businesses participating. More traditional barter exchanges often have a strong base of established businesses trading within a particular geographical area. Online exchanges often attract freelancers and part time entrepreneurs. This is great if all you want to trade for is a massage, some work on a website or a new logo designed, but if you are looking for a large print job, plumbing work for your restaurant or to launch a big media campaign using barter you probably won’t find what you are looking for with an online only exchange.
2. Yes, this is a primary benefit of bartering.
3. Correct again. We only want to be 5-10% of our members’ revenue stream. Just a supplement to the cash business they are already doing.
4. Another advantage of using an established exchange instead of an internet startup is that you minimize the risk of the exchange going out of business. We have been around for 7 years, through good times and bad. One good way to test an exchange is to see if they are a member of the International Reciprocal Trade Association (www.irta.com) which is an industry group. Exchanges that become a part of IRTA must adhere to codes of conduct that minimize the risk of failure.
5. Most barter exchanges discourage this. We exist to help businesses increase their sales, expand their market share and improve their cash flow. Other companies are doing business with you because you accept barter dollars and they will probably not want to switch that relationship to cash.
6. This is another example where using an established exchange is smarter. Exchanges that have been around and are a part of IRTA have lots of experience working with the IRS to ensure that everything is accounted for properly (see http://www.bizx.com/how5_taxes.html). Some of the more recent startups might not be reporting properly (a tricky process involving magnetic tapes, if you can believe it) or at all.
Businesses operating in or around Seattle, WA or San Francisco, CA should look into BizXchange for bartering. Reputable exchanges in other parts of the country can be found at http://www.barternews.com/mappage/default.htm
Krishna Everson (aka HealthBizMentor) says on August 7th, 2009 at 7:28 am
The great thing about bartering is that it can lead to some seriously good referrals that are top income earners. You just need to choose who you barter with carefully. Thanks for the post!
Gunnar Andreassen says on August 8th, 2009 at 4:24 pm
I use barthering often in my business, mostly marketing efforts.
tax payroll company says on August 8th, 2009 at 9:37 pm
With the proper balance, bartering can prove to be very rewarding.