Barter for anyone – small businesses use of bartering
Here’s How to Profit While You Save Money
For home-office professionals with more time than money on their hands, barter can be a powerful sales-and-marketing tool. Just ask Jeff and Mary Freeman, a young couple who used to run a PC mail-order company called Front Porch Computers out of their home in rural Chatsworth, Georgia (now they run it from a storefront two houses away). About a year ago, the Freemans entered into a barter arrangement with a supplier of laser-printer-toner cartridges that delivers advantages for both sides. The swap: The Freemans tell their customers about the toner company–BlackLightning, of West Topsham, Vermont–and in return, the company gives Front Porch customer referrals and a free ad in its 20,000-circulation newsletter.
By mid-August of this year, the barter deal had netted Front Porch 40 sales at an average order of $1,500, says 26-year-old Jeff Freeman. That’s far more cost-effective, he says, than laying out $100,000 for a display ad in one of the national computer magazines. And he projects a sales increase of 75 percent by the end of the year.
“The beauty of barter is that you supply something to somebody else that you don’t have to pay for,” Jeff says. However, keep in mind that although money might not change hands, the IRS still expects you to pay income tax on the value of the bartered goods.
THE GROWTH OF BARTER
The Freemans are not alone. With cash flow tight and bank loans hard to come by, barter is becoming increasingly popular with businesses of all sizes, particularly when it comes to stretching their marketing dollars. The International Reciprocal Trade Association (IRTA) in Great Falls, Virginia, a barter group, estimates that 220,000 United States companies conducted $5.9 billion worth of barter deals in 1991, compared with the 140,000 companies that exchanged $3.3 billion worth of goods and services in 1985.
Barter transactions typically involve companies with unsold goods on retail shelves, excess inventory in a warehouse, or production lines they need to keep busy–or home-based professionals with time on their hands–and media outlets or leisure-time companies with unbooked air time, hotel rooms, rental cars, or plane tickets. “We’re trading for everything in the yellow pages,” says Paul Supliero of IRTA. For instance, the giant James River Corporation of Richmond, Virginia, swapped excess Natural Touch baby wipes for media time in newspapers, on cable television, and on Spanish-language television. The Chicago White Sox once exchanged $10,000 worth of unsold season tickets for printing services and floral arrangements for opening day.
But you don’t have to be a ball club or a manufacturer to make barter deals. “A small business might not even have a budget for advertising, and barter may be a means to get it,” says Susan Groenwald, president of the Chicago Barter Corporation, a trade exchange that helps many small and homebased businesses swap goods and services.
HOW BARTER WORKS
Barter takes several forms. It can be as easy and straightforward as the deal the Freemans have struck with BlackLightning. But most of the time, Company A has no idea what Company B has to offer–and Company A doesn’t want to spend the time to find out. That’s why businesses seeking barter partners generally work through a commercial barter company or a barter exchange.
Barter companies, which often do business with huge, multinational corporations, will typically “buy” a company’s goods and services, issuing trade credits as payment. These credits are then used to buy items from the barter company. Barter exchanges, on the other hand, generally work with smaller businesses. The exchanges usually don’t own what they trade but rather facilitate transactions between member companies that have surplus goods and services.
Exchanges typically charge a commission equal to a percentage of the gross value of each deal, while barter companies make their money by remarketing the goods and services they acquire. Groenwald’s Chicago Barter Corporation, for example, charges a monthly membership fee of $15 cash and $15 in trade credits, plus a 12 percent sales commission, shared equally by the buyer and seller, for each barter transaction. She says the value of Chicago Barter’s average trade is about $1,000.
Through a barter exchange, Company A can sell goods or services to Company B and receive trade credits in return. Then Company A can take those credits and do a deal with Company C, which happens to have something that Company A desperately needs. Likewise, a company that sells its inventory to a barter company in exchange for trade credits has its pick of a wide range of goods and services.
Of course, barter, like any sales-and-marketing tool, has its drawbacks. One problem is selection. Unlike the cash market, barter companies and exchanges cannot guarantee an unlimited choice of goods and services. Radio time, for example, may be of little use to a company targeting early-to-bed baby boomers if it’s slotted for 2:00 a.m. And while good old greenbacks are a universally and immediately accepted form of payment, trade credits issued in a barter deal can take a long time to use up, especially if your business has few needs. Barter may also be unwise if you already have more customers than you can handle–although that’s rarely a problem for a growing company.
Finally, trade dollars issued by barter exchanges aren’t much good when it comes to paying for groceries, the light bill, or most of life’s other necessities.
“It would be wonderful if you could do it all with barter,” says Sharon Nelson, 48, a Chicago Barter member and owner of Color Confidence & You, a home-based color-consulting business in Aurora, Illinois. “But the local utility, they want real cash.”
And tax considerations must be kept in mind, too. Even though you might think you’re getting and giving goods and services for free, the IRS takes a different view. Every barter trade must be booked as a sale and assigned a value based on the number of trade dollars or credits you receive in return, says Groenwald. She sends each of her barter clients an IRS form 1099-B at the end of the year.
But barter can be beneficial, especially for a growing business without big bucks for an ad campaign. Nelson, who advises clients on clothing, makeup, and jewelry and markets private-label cosmetics and apparel, says she’s added about a dozen customers since joining Chicago Barter in 1989. Over the years, she’s traded her services for both business and personal needs, from computer consulting and printer-toner recharging to the services of a disk jockey and photographer for her daughter’s wedding.
Nelson says she likes barter because it allows her to expand her customer base while keeping advertising costs low. “With my business, I do very little advertising,” Nelson says. “I look at barter as another means to sell what I have.”
Sue Barter, 38, owner of Barter Design and Advertising, a home-based graphic-design firm in Valparaiso, Indiana, says she’s using barter to save up for a professional-quality copier. She started off making $85 in trade dollars by designing a logo for a Chicago restaurant, and ended up landing 10 more jobs that gave her enough trade dollars, about $900, to get the copier she wants. “I’m on the verge of buying one,” she says, “but I’m undecided about which brand.”
Barter says she didn’t mind the wait of several months. “I don’t spend as much time as I should on sales,” she admits. If not for barter, “I would have had to spend my own time to go out and get these clients, which I didn’t have time to do.”
FINDING A BARTER COMPANY
When choosing a barter company, be sure to check out the reputation. experience and financial stability of the company supplying the trade credits. After all, if a barter company goes down the tubes, it could take your trade dollars with it.
For more information, including a list of barter exchanges near you, send a SASE to: International Reciprocal Trade Association, 9513 Beach Mill Rd., Great Falls, VA 22066. Founded in 1979, the association has 122 members that include 30 percent of the approximately 400 barter companies nationwide. The association conducts research into accounting principles and contract, securities, and tax laws regarding barter transactions; maintains an information clearinghouse and ethics and public-relations programs; and represents its members before government agencies.
Florida-based journalist ROSALIND RESNICK wrote ” What’s in a Name? Your Livelihood!” in the August 1992 issue.
COPYRIGHT 1992 Freedom Technology Media Group
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