Barter—Part 2: What Is the Benefit?

Question from a reader: One of the examples that you used [in Trade Exchanges] was that you had some “used plants” that you sold for half price on “trade.” However, why couldn’t you just sell them for half price, except get cash? It seems to me that cash is always better than “trade dollars,” because you can use cash anywhere, and it is not restricted to this very specific circle.

So is the benefit of a trade exchange simply a way to tap into a pre-existing pool of relationships in order to source new business (sort of like Facebook pre-internet)? Or is there something more?

Answer: The value of trade exchanges is that they bring new business that you wouldn’t ordinarily get. One of the rules of all trade exchanges I know of is that you cannot convert a cash customer into a trade customer—the point is to find new customers.

On occasion, I tried to sell used plants for cash. However, the time and costs involved in doing so made it far less profitable and far more work than selling them on trade. I had to store the plants until we had enough to have a sale. We did not maintain a retail operation—our business was strictly putting plants into commercial businesses and maintaining them for the clients. We had a relatively small greenhouse, large enough to store inventory to replace plants for our clients promptly but with no extra space to accumulate used plants. Then there was the labor involved in maintaining them, advertising costs to get customers to come out to buy, and staffing to work the sale. We were not set up to sell from our greenhouse—most of our staff worked out in the field caring for plants at client locations. Our office and greenhouse employees weren’t skilled at sales, and waiting on customers took them away from their primary duties.

Selling used plants for cash was not profitable for us, and until we started selling them on trade, we simply threw the plants away. The replacement cost was built into our pricing, and the plants had been already been expensed. However, we found that selling used plants to trade customers for trade dollars gave us additional income that was pure profit. We didn’t have to warehouse the plants for long periods of time—the trade customers understood we weren’t in the retail business and didn’t expect a large inventory of used plants. We kept a small section of the greenhouse for used plants, and our trade broker kept trade exchange members aware of the availability of these plants. Since we had customers buying used plants only occasionally and one at a time, our warehouse or office staff could handle the sales without significant interruption in their normal duties. If we ever had a significant number of used plants, our trade broker would notify trade exchange members, and we could get rid of them quickly. Selling used plants for cash involved more time, effort, and expense than we made; selling used plants for trade dollars gave us income from something that would otherwise have been thrown in the trash.

The trade exchange is a way to tap into a specific group, like your Facebook example. However, more than that, trade brokers are actively promoting trades. If I am looking for something in particular, they will try to make it available on trade, and they actively promote my products and services to other members. Just like my used plants, they help companies move specific merchandise—last year’s model when the new models come out or an item that is overstocked. Trade members always expect to pay full price—no sales or discounts, so it’s better to get the full price in trade dollars than a deeply discounted price in cash. (Selling used plants for half price does not contradict this because they were used and usually sold for less than half the price of a “new” plant.)

The ability to spend trade dollars only with members works to the advantage of members. Once members have accumulated some trade dollars, they want to spend them—building up a large balance in trade dollars is bad for cash flow. So sellers have a market that has money (trade dollars) to spend and an incentive to spend it (because they can’t pay their rent or utilities with that money and don’t want to build up a huge balance they can’t use).

The seller is always in complete control of what and how much they trade. In my plant business, for example, I offered plants and standard containers as well as maintenance service for full trade. Anything that I did not normally maintain in inventory (expensive brass containers, for example) required cash. Trade exchanges want their members to be successful so they continue as actively trading members so merchants set the terms of what they offer on trade. However, the trade exchange does want this spelled out so they can tell members what is and what isn’t available—no surprises for a customer expecting to buy on trade and being told they can’t.

Members can also go on standby and not accept any trade business. If a business makes a very large trade sale, they may go on standby for awhile until they spend down their trade balance. Maintaining a balance of trade and cash business is important. Trade business should never be too large a percentage of business or create cash flow problems. It should be an addition to business and help with cash flow.

Also, for big ticket items (the specific amount varies among exchanges), the seller can accept part trade and part cash.

The key to successful trading is to join an exchange that has members offering products and services that the individual or company wants or needs. Services are usually more readily available than products because a professional who has any open space in their calendar can generate income from time that would otherwise be lost as far as income is concerned while merchants have to spend cash for product inventory. My doctor, dentist, and CPA are trade exchange members, and I have used the doctor and CPA for more than twenty years—all on trade. However, my husband has a favorite mechanic and won’t let anyone else work on our cars, so we don’t use any of the mechanics available on trade.

Most trade exchanges have lots of advertising available because once the minute is gone, the radio station has lost its income potential. Once the newspaper is published with no advertising on a page, there will never be another opportunity to sell advertising in that issue. So advertisers are motivated to accept trade dollars for unused time/space (and they almost always have some time/space that is unused). Spending trade dollars on advertising to generate cash business is a wise investment.
Trade business can also lead to cash business in other ways. One of my current clients was referred by a trade exchange for book editing. I edited the first few chapters on trade, then he ran out of trade dollars. I have since done tens of thousands of dollars of business with him in cash. I have also had trade clients refer cash clients.

The contracts state that members should do their own due diligence, take bids if appropriate, and choose products and services on trade in the same way they would cash. However, on the rare occasions (maybe two or three in close to 30 years) when I have had a dispute with a supplier on trade, the trade exchange has mediated and resolved the problem.

Note added 8/25: Be sure to read the comments in this series—Rita shares how individuals as well as businesses can barter effectively as well as creative ideas for folks who think they don’t have anything to trade.

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