The other day I was telling my son about someone I was trying to recruit into my barter exchange. To my surprise he said he hoped they won’t join. When I asked him why he said that too many of the businesses that I barter with go out of business. I couldn’t help but laugh out load. He’s right! Too many do go out of business and I think I know why.
First, let’s be honest here; cash is better than barter. Yes, I said it…. and it’s true. So with that in mind, any business that already has all the cash business they can handle shouldn’t bother with barter. So the businesses that should be using barter are the folks who would like more business than they currently have. Many of the organizations in that category are great healthy businesses that simply have some excess inventory or service capacity that they want to take advantage of. These are folks with vision who can think outside of the box and are interested in new ways to expand their business. Those are generally the best people to barter with.
Another group of potential barter partners are the folks that have businesses in various stages of failure. These are folks who are using barter in desperation because their business is going so badly that they are willing to try anything to keep it afloat. As you may have guessed these are less than ideal people to barter with. Not only are relationships with these businesses often short-lived, but it is not unusual for people to be more …. morally flexible… as their financial situation goes downhill.
The solution is simple; Use barter as one of your many tools to keep your business profitable so you never fall onto hard times. Use it early. Use it often. Find a mentor who has experience with barter to help you get the most out of it. Businesses that I’ve bartered with don’t fail because they trade. They do however sometimes fail because barter was their last resort.
I keep track of barter transactions to the penny. OK I admit it. I can be a little uptight and “Type A.” Personally I blame my mother. I remember borrowing money from my parents when I was little. I little paper IOU was posted on the fridge and it was slowly reduced penny by penny until it was paid back in full. Not a single cent was ever forgiven. And I’m not complaining about that. It just helps explain who I am.
Anyway… personally my advice is to conduct your barter transactions in a very professional way. That means that both parties need to agree to the cash value of the trade, contracts are signed and both parties are assured to received the correct value for what they’ve traded. It’s very rare for me to run into a disagreement about a trade, but when it does happen, I’m always happy to have a written agreement and a set value for our trade. I also believe that good accounting helps avoid issues in the first place. It’s harder for someone to feel like they got the short end of a stick if they are looking at a statement that shows the details of each transaction.
Another reason that good bookkeeping is important for barter is to keep the IRS happy. Although I heartily encourage everyone to conduct tax planning and legally avoid as much tax as they can, barter is NOT a tax dodge. Remember to report all barter income on your 1040 exactly the same way you would your cash income.
I have found that keeping good records as an active trader is challenging. My two secret weapons in this area are: 1) A good book-keeper who understands barter (tough to find by the way) and 2) A barter exchange that will do a lot of the book-keeping for me.
Let me know if you have any questions on this topic and keep those pencils sharp!
You may have heard earlier this month of “Free Money Day” (freemoneyday.org). The organizers of this event were promoting a day where people world-wide were encouraged to give away money to complete strangers to promote something called a “sharing economy.” Although not directly related to barter, I’ve run into the concept of a “sharing economy” multiple times in my life and think it’s very interesting. The concept is to give away products/services with no expectation of receiving anything in return. For example, participants of Burning Man are encouraged to provide products/services to each other free of charge during the event. Not only is cash strongly discouraged, but barter is as well.** Before you dismiss this as a Utopian hippy-dippy idea, there are some practical applications of this approach in the real world.
In my life I participate in a sharing economy with people that I have the closest relationships with. For example, I will often do things for (or give things to) friends or family without expectation of reciprocation. I also partner in business with a consultant where we often do things for each other in business with little expectation of receiving something in return. There is something interesting going on here physiologically because it’s easier for me to give freely to people who are close to me that I feel will not take advantage of me. This really doesn’t add up because if you are truly giving without expectation of return then it’s impossible for anyone to take advantage of you.
I think also it’s important to differentiate between a true sharing economy and a loose barter arrangement. It is very common for people to barter with each other without tracking the details of who did what for whom. Because there is a general expectation that everything needs to “come out in the wash” in those situations, it really doesn’t qualify as giving w/o expectation of return.
You can learn more about the sharing economy in that most-dependable-of-all-resources, wikipedia: https://en.wikipedia.org/wiki/Sharing_economy
** I’ve been told the only things that are allowed to be sold at Burning Man are ice and coffee (the necessities of life there).
The longer I’ve been bartering as a business strategy, the more I come to a conclusion that I don’t like: There are people who don’t understand barter, and they probably never will. They just don’t get it. It doesn’t matter how many times you explain it, what analogies you use, or how advantageous a particular deal might be to these people. They are often fear-driven and cannot get past untrue preconceived notions. These are the folks that think that barter is a tax-dodge, or that it’s a slippery used car salesman technique. To these people barter is by definition unsavory, dishonest and even criminal.
Ug. These people drive me crazy!!!! I think the reason they bug me so much ISN’T because they have the wrong idea about barter. That’s actually not a big deal. Most people don’t have an in depth knowledge of barter. What makes me nuts is that I’m often unable to help them understand the reality of barter; how good, honest and profitable barter can be. It’s almost like there is a barter gene, and people either have it or they don’t.
So….what to do? You have a great trade lined up that’s a win-win for both parties, but it turns out that the person (or persons) you are dealing with just doesn’t “get barter.” I wish I had a magic answer for you. The way I see it you have two options, neither of which are particularly good:
1) Walk away. This is definitely the low-blood pressure approach that saves time and stress. Unfortunately it also means you are walking away from a mutually profitable deal. I’ll say it again: Ug.
2) Try to work with them anyway. You may be able to talk them into the deal. It is, after all a good deal for both parties so it seems reasonable that you should be able to show them the benefit of the transaction. Their are a bunch of downsides to this approach though. Firstly this kind of sale totally stresses me out. Life is short. Is it really worth it? Secondly, you could be unsuccessful in selling the deal which means a big waste of your time. Thirdly, you may actually make the transaction, only to find out later that they were only begrudgingly “sold” on the idea and still don’t really grasp why the deal was mutually beneficial. In that case you can forget ever trading with them again. Plus when that happens I personally want to stab my own eyes out.
When I read over the two options above it seems obvious to me that the “walk away” option is the wiser of the two, and yet I often find myself in the potion of trying to barter with people who are uncomfortable with the concept. Clearly I can’t take my own advice. The good news is that there are plenty of people who do understand barter and are happy to do it. I’m much happier when I stick with those folks.
I’d love to hear back with advice from my readers!
Let me start out by saying that this particular article is specifically for barter exchange members. If you don’t already belong to an exchange, I suggest you check it out. You can learn more about what barter exchanges are in my Barter Basics article. OK, with that bit of housekeeping out of the way, let’s proceed.
Are you aware that there is a significantly larger number of members in your barter exchange than is listed on their website? There are also more members than your broker can refer you to. Intrigued? Good. Here’s the deal; when an exchange member isn’t especially good at spending their credits (don’t get me started), they will sometimes go into “stealth mode.” What that means is that the exchange takes them off their “active” list which removes them from the exchange’s website and flags their account for brokers that they are not currently accepting barter credits as payment. The ARE STILL MEMBERS though. They usually have credits that they want to spend so they continue to maintain their membership.
How does this help you? Often even members that are in “stealth mode” will actually still accept credits if you contact them directly. This is especially true if you’ve traded with them in the past and have maintained a good relationship. With that in mind, I would encourage you to maintain good contacts with all of your barter partners. If they do need to reduce the amount of barter credits they are accepting, your relationship will make the difference when they are choosing which barter partners they keep. For example, if you are known to be a good tipper at a local restaurant that takes barter and the restaurant makes their account inactive, it’s very likely they might still accept barter credits from you. All you have to do is ask. The worst thing they can do is say “no.” AND…. do what you can to help council these folks on how to spend barter credits wisely. Usually the whole reason for going on hold is that they are not good at spending barter credits. I certainly wouldn’t mind if you send them to this blog! 🙂
I’m a big believer in optimism and giving your fellow man the benefit of the doubt. That being said, not everyone is a pillar of their community and I’ve learned that Caveat Emptor (buyer beware) is a good mindset to have when dealing with new barter partners. When you are making trades with folks you don’t know, watch for red flags that indicate that they might be trouble. I’ve found that folks that are interested in making illegal transactions (selling drugs or stolen goods) can be attracted to barter. Examples of red flags would be people who are selling items for significantly under market value, or people who have an unusually large amount of a particular product without cause.
Recently I posted on craigslist that I was looking for a local bakery that I would like to barter with. I was contacted by someone who said that they had access to thousands of dollars worth of gift cards at a local bakery. When I asked them if they were an owner they said “no” but said that they were “authorized” to have the cards. During the course of the next week or so, we traded multiple emails working out a deal, however I noticed that the person never gave their name and would not talk on the phone after multiple requests. When they did finally phone they missed me, wouldn’t leave a message and told my staff they they were calling from a friend’s cell phone. They called back later that day and would not tell me their name. At that point I told them I was not interested in a trade and called the manager at the bakery to give them a heads up that something suspicious was going on. Ultimately I suspect that it was actually the manager at the bakery who was trying to surreptitiously barter away the gift cards for personal gain but I have no proof of that.
Bottom line here folks: Be smart and watch for red flags; doubly so when you are dealing with someone you found on Craigslist. 🙂
Although I haven’t figured out a way to get my local utility company to accept payment in trade I’ve got the next best thing: Use barter to reduce your power bill.
1) Get more efficient! Last year I hired a plumber on barter to install a tankless water heater for me (that I obtained on barter). The new water heater is more efficient than my old heater with the added benefit of never running out of hot water.
2) Think outside of the box. Instead of heating my home with gas or electricity I use a wood stove most of the time. I love a warm fire and because I barter for the wood I can keep my house a lot warmer than I could otherwise. One of the down-sides of heating with wood is that you tend to have a toasty living room while your bedrooms remain icy. That is why I’ve got a heating contractor out at my house this week working on barter. He is installing a secondary ventilation system that pull warm air from above my wood-stove and blow it out vents in the bedrooms.
Because my home has an unusual roof I have not been able to put solar panels up there, but I think that’s a fantastic idea. Even if you couldn’t trade for the panels, you should be able to trade for installation Personally, if I had solar installed I would get an over-sized system and look at bartering for an electric vehicle as well. That’s like bartering for gasoline!
Bartering on craigslist may seem very simple to you, but I’m hoping that I might have a few pointers here for you that will improve your performance regardless of your experience.
1) Post in the barter section. It may seem counter-intuitive, but as it stands right now, Craigslist has a barter section, but it’s buried inside the “for sale by owner” area of the website.
2) Make it clear if you are buying or selling. The title of your post is the most important part of the post. Make sure you not only state the object/service of interest but also if you are trading for the item or trading it away.
3) Ask about location. It’s a big waste of time to work out a deal with folks that are further away than you are willing to drive. Ask where they are up front in your ad and save yourself some time.
4) Caveat emptor. Use your brains. Follow the same basic safety rules that you would with a cash transaction on Craigslist.
5) Post on Thurs. Craigslist gets to most visitors on Fri/Sat/Sun so posting Thursday night sets you up to have all those folks see your ad. Also, mark your calendar to repost all your unanswered ads every Thursday evening.
6) Be looking for something specific. I saved the best for last. This is really the most important thing I have to pass on to you here. I suggest that you never post something like: “I have a purple people eater. Email me back and let me know what you’ve got.” The problem is that you are inviting the entire world to waste your time offering you a bunch of worthless junk that you have no interest in. The best way to post on Craigslist is to create ads that state exactly what you are looking for . For example: “Wanted: dungeness crab on barter.” I would also suggest that you be vague about what you have to trade. I say something like, “Barter is my hobby and I have thousands of new or used items to trade. Please contact me so we can figure out what you’d like best.” Don’t forget that you have access to everything available in your barter exchange to trade on craigslist. The reason for being vague is that you never know what the person who is reading your ad may want. If you post specifics about what you have to trade, you could just as easily give the reader a reason NOT to contact you as you could give them a reason to call.
Please feel free to post your own craigslist advice in the comment area. Thanks!
“Bird-dogging” is an old salesman term that refers to paying a commission to your own customers when they refer business to you. I assume the term draws from the concept of a hunting dog pointing to a bird for you. I recently ran into a barter version of this that I thought was interesting. This vendor was being promoted within one of my barter exchanges saying that they would pay $100 in barter currency to any exchange members that refer clients to them that end up doing business. Here’s the best part; they are looking for BOTH barter clients as well as cash clients. If the promotion worked, they would be pay $100 in barter for new cash clients! How great would that be!!!
If you wanted to expand your bird dog program to your cash clients, what you would do is find a really good give-away that you could purchase on barter (like a restaurant gift certificate?) and then offer that to all your cash clients as an incentive for referring business.
I haven’t tried this technique myself yet but I can’t think of how you could lose in trying. I’ll let you know how it goes when I give it a try.
At the most basic level, barter is about making sure that two potential trade items/services are of relative equal value. You want to make sure you are comparing “apples to apples” and not “apples and oranges.” This not only means that both trade items should be the same price, but that they are both priced using the same methodology. Common pricing methodologies would be wholesale pricing, retail pricing and sale pricing. It would not work to trade your time at wholesale prices while trading for an item at retail prices.
Recently I had a gentleman unhappy with me because I was charging significantly more for an item on barter than I was for cash. As you know I’ve repeatedly warned against price gauging in barter and that was what this trade partner thought I was doing. There is (in my opinion) a very important exception to my general rule of barter/cash pricing being equivalent. That exception is when your cash price for an item is discounted, which was the case for this trade. Although I absolutely will stick to my guns that barter prices should never be above retail prices, we also need to agree that they really can’t go under them either. It simply isn’t equitable to sell your products/services at wholesale prices, and turn around and use that credit to buy products/services at retail prices.
But what is the retail price? That’s the rub isn’t it? Anybody can make up a price and say that it’s their retail price. In the case of the item that I was selling, it was easy because the manufacturer of the item has a lock on the market and everyone is selling the item for the same price (MSRP). Another good source of MSRP is the manufacturer’s website. Just as an aside, you cannot necessarily trust what Amazon.com says the retail price is for an item. I recently found that often 3rd party Amazon sellers will make up higher-than-reality retail prices to offer fake discounts.
Bottom-line is that you should expect to always pay full price when you barter. Conversely you should always charge full price when you barter. That keeps everything fair for the buyer and seller. If you want a discount go to Costco, pull out your wallet and pay cash.