# Calculating the "real" percentage of business you conduct in barter

Honestly I think this is probably the most important article I’ve written to date.  Please check it out and post questions/comments below.

When you are conducting business, it’s important to know how your money comes and goes.  One of the things I keep my eye on is what percentage of my total business I do in barter.  Exactly what the ideal percentage is will vary and could be a good topic for another article.  What I want to concentrate on right now is how to put together an accurate calculation.  What really matters is your percentage of profit that is cash vs. barter, not what your percentage of sales is.

Unfortunately I’ve been operating on incorrect figures in this area for years.  In order to figure out how much cash profit and how much barter profit I made, I looked at the percentage of sales in the two areas first.  For the purposes of this article let’s say I did 90% of my sales in cash and 10% in barter.  I would then take my total profit and apply those same percentages to see how much cash profit I made and how much barter profit I made.  There are two things that are very wrong with that calculation:

1. Your profit margin for cash and barter may be different.  Even when you are charging your clients the same either way (which is what you SHOULD ALWAYS DO) your margin could be different because (for example) it may be that you sell different products/services that have different profit margins to your cash and barter clients.
2. As a general rule your expenses for both cash and barter sales are in cash.  If you spent 100% barter to earn barter then your barter sales would not effect your cash profits, BUT BECAUSE YOU SPEND CASH to earn barter, for an accurate calculation of your cash and barter profits you need to adjust your cash profits down and your barter profits up.

That second item on my list here was difficult for me to wrap my brain around.  Here are some numbers to help take this concept from abstract to concrete:

Cash sales = \$900,000
Barter sales = \$100,000
Total sales = \$1,000,000

Just to keep this simple I’m going to keep the profit margin the same for cash and barter.

Total profit = \$200,000
Profit margin (cash and barter) = \$200,000/\$1,000,000 = 20%

Unadjusted cash profit = \$900,000 x 20% = \$180,000
Unadjusted barter profit = \$100,000 x 20% = \$20,000

Again, just to keep things simple, let’s say that all expenses for cash and barter sales were paid in cash.

Cash expense for barter sales = \$100,000 x 80% = \$80,000

Adjusted cash profit = \$180,000 – \$80,000 (cash expense for barter sales) = \$100,000
Adjusted barter profit = \$20,000 + \$80,000 (cash expense for barter sales) = \$100,000

Here’s the IMPORTANT PART…. although your sales were 90% cash and 10% barter your profits were 50% cash and 50% barter.

# It takes time to barter

An important cost of barter that many people (including myself) forget to factor in is the time that I spend on it.  It takes a lot of time to put a deal together.  If you are like me, you’ve usually got 20 deals going at the same time so it really ads up.  Some of the things that I spend time on include:

• Staying on top of what is available in my barter exchanges
• Calling on folks in my barter network to put together deals
• Posting to craigslist and following up on responses
• Work to recruit new members into my barter exchanges
• Work recruiting new direct barter partners
• Time spent looking for good ways for my barter partners to spend credit they have with me
• Extra book-keeping to keep the records straight
• Ongoing help/training I give to everyone I ever talk to about barter

When recruiting a new barter partner I think it’s a good move to point out to the prospect that you are talking to that barter is not as simple as cash transactions.  They need to know that they will need to invest some time into barter in order to reap the rewards.  All of that being said, it truly is a labor of love for me.  <grin>  I’m a barter addict and it rare for me to resent the time I spend on it.

# Best things to barter for

What is your favorite thing to barter for?  Personally my favorites are:

• Food (restaurants or groceries)
• Cleaning/Maintenance (house, yard, etc.)
• Activities for my kids (karate, music lessons, camp, etc.)
• Firearms

This important thing here isn’t actually what my particular favorites are, but WHY they are my favorites.  If we can figure that out we can hopefully help you to find new/better favorites for yourself.

Looking at this list there are a couple things that jump out at me:

1. The top three are necessities.  I have to eat.  I have to staff my business.  I have to clean my house and mow my yard.  Anything that you HAVE to do are great things to barter for.  It stands to reason that if you don’t barter for them you will either have to pay cash for them or….. (shutter) do them yourself.
2. Paying employees and contractors is a huge part of my businesses cash expenses.  Any time I can barter to have my bookwork done or have graphic design done for one of my client’s websites, it’s the same as putting cash in my pocket.  Please note that it’s perfectly legal to hire staff on barter.  You simply treat it like cash, doing withholding/taxes/workers-comp for employees and sending 1099’s to contractors.
3. The top four items on the list are reoccurring.  My thinking is that any deal that is good once is even better more than once.  As such, setting up any trade that can be ongoing should be a top priority.  Let’s face it.  It can be a good chunk of work to put together a trade so you might as well set up a single deal that will result in multiple transactions.
4. The last two items fall under an important category for me.  They are things that are not a necessity but are a lot of fun.  They are also notably things that I simply could not do if I was paying cash.  I think it’s important even when you are on a tight budget to find ways to have fun.  Barter enables me to do those fun things w/o blowing my cash budget.  Please note that it’s perfectly legal to barter for firearms.   You simply treat the transaction exactly the same way you would a cash transaction and follow all state/federal/local laws that are applicable.

# Printing on Barter

I have come to the conclusion that there are some print jobs that are good to do on barter and there are some that are not.  Because you can now order printing online so incredibly cheap I’ve decided that those “generic” print jobs that don’t really need any TLC, are best to do for cash with an online printer.  It’s so cheap to do it this way, there is no way a little local printer (one that is likely to barter with you) can compete with their prices.  With that in mind I recommend that letterhead, postcards, business cards, etc. be printed for cash with an online printer.  That is of course AFTER you hire a graphic designer on trade to put all the artwork together for you.

That being said, there is still a lot of room for barter in the printing world.  I would recommend you use barter to do more expensive, out of the ordinary jobs that require more service.  For example, I recently had 20,000 church bulletin shells printed by a printer on barter that needed a perforated tear-off section.  Not only did this mean that the printing was done locally, but it also meant it was a high service experience.  For example, when the printer had concerns that the glossy finish might give my church’s copy machine trouble, he drove over with some of the paper and did a test run to make sure everything would work before the print job was done.  It wasn’t necessary for this job, but bartering with a local printer would also allow you to do a press check at the time of printing.

Bottom line:  Pay cash for the easy print jobs online, and barter for the tough ones locally.  Also… I’m not necessarily recommending that you use vistaprint as your online printer.  I simply used their logo because they are one of the best known online printers.  Personally I have had good luck with www.americasprinter.com

# The blessings of being a barter fanatic

I’ve recently noticed that there is a double blessing in being a barter fanatic.  Of course the primary benefit is being able to trade with a bunch of folks for products/services that I probably couldn’t afford with cash.  The second benefit is that I can trade with them over a longer period of time because of my fanaticism.

As a barter fanatic I can’t help but talk to people about trade.  I talk to people I’ve just met about it and I talk to people I’ve know my whole life.  I talk to my wife.  I talk to my employees.  I’m sure there are a bunch of people who don’t figure I can even talk about anything else!  It also means that I talk to the people that I’m trading with about how great barter is.  It means I’m always talking to them about how to get the most out of barter.  I’m usually trying to give them ideas of how to use it to their best advantage.  I’m convinced that my enthusiasm and occasional wisdom have helped keep some of my trading partners bartering longer than they would have otherwise.  As we’ve discussed before, there is usually a limit to how much any company can barter.  Because of my fanaticism I have found that when I have a barter partner who needs to reduce their barter volume, I am usually the last person that they cut off from barter.

# Bartering for landscape maintenance or housekeeping

Housekeeping and landscape maintenance are oft sought after services that (at first blush) seem like they should be easy to barter for, but are often tough to find.  There are a couple reasons for this.

1)  Most folks that barter much are small business people who are busy and own a home.   Although many of them wouldn’t/couldn’t spend cash on the luxury of hiring someone to help with housework, it is a PRIME service to hire on barter.  It’s a gift to yourself that you couldn’t justify in the cash world but many people don’t give it a second thought if they can barter for it.  So…the first reason it can be hard to barter for is that it’s something that many people want.

2) I have a theory about these two service industries.  The theory goes like this:  Businesses that do housekeeping and landscape maintenance usually fall into one of two categories.  The first category are those that are good and professional at what they do.  Those people usually seem SLAMMED with business.  I mean they are usually just buried.  Unfortunately it is often hard for them to justify doing business on barter.  They can get new cash clients any time they want, so why should they barter?  The second group of businesses are the flakes.  By that I mean, they do a marginal or poor job when they bother to even show up at all.  You don’t want those folks even if the service was free so they are not of any value in the barter world either.