Question from a reader: What percentage of small business owners would you say uses a trade exchange? And what is the typical small business owner’s perception of the concept? I ask because at first, I really thought it was a stupid idea. I mean, who wants to go through the hassle of bartering (and pay real cash fees too!) when you can get hard cash! But now I see that the system is actually quite slick.
You have people who want to get some ancillary revenues out of their business, at relatively small cost and effort. And once you get the trade dollars, you really want to spend it quickly, because that enhances your cash flow. This dynamic actually greatly enhances the velocity of transactions in this little ecosystem, and creates liquidity!
Answer: I think a lot of businesspeople have the same reaction as you did until they learn more about barter. Although I don’t have any firm idea of the percentage of small businesses that engage in bartering through a trade exchange, my guess is that it is relatively small because most don’t understand its value.
However, I believe a large percentage of small businesses barter directly from time-to-time because they understand the value of trading goods and services rather than spending cash. The problem with this approach, however, it that two businesses needing each other’s goods/services in the exact same amount is rare so businesses who are willing to barter don’t often find a match for their needs. They may be reluctant to pay fees to a trade exchange because they don’t realize the trade exchange will bring them business—they think only in terms of how they’ve done direct trades and don’t understand that the trade exchange is a third party “matchmaker” and banker.
I know that once a company gets involved in bartering, they usually do far more than they originally expected. I belong to two trade exchanges, and there are many businesses that are members of both to get more trade business.
Of course, bartering is generally more advantageous to service businesses because they don’t have to spend money for products to sell (though their time and/or labor costs are certainly expenses). Barter is great for freelancers during those inevitable slow times—and often trade clients are willing to wait longer for a project. Businesses with very small markups usually don’t barter, because it’s not cost-effective for them to pay the trade exchange fees from their small profit margin. I think you will find a much higher percentage of service businesses belong to trade exchanges than the percentage of businesses in general.
And while small businesses certainly predominate in trade exchanges, some large companies, including major corporations, also barter. They may offer specific items—such as overstocked inventory or older models—rather than offering their complete line, but if the trade buyer is not determined to have the latest model, he can get a good deal.
You can learn more at the Web sites of the two trade exchanges I belong to: Alamo Barter Corporation and ITEX. You can also find a good definition of the barter industry in an article at Barter News; scroll down the left column to the article: Wallach Offers Definition Of Barter Industry.
You can also do an Internet search for “trade exchange,” “barter exchange,” “how barter works,” or similar terms and find lots of explanations at sites of various trade exchanges.
Be sure to read the comments on the posts in this series to find interesting and helpful information.