Costco Connection Magazine: BARTER 2.0

COSTCO member, Aaron Zarling, owner of King’s Mattress in Seattle, embraces an age-old strategy for making his idle inventory profitable. With the help of BizXchange, a business barter exchange, he gains new customers and offsets normal operating costs through bartering, trading mattresses for printing, advertising and employee incentives, all without spending cash.

“In this economy, cash business is harder to come by, which is why barter is an excellent tool for boosting profits,” says Zarling. “Barter helps us cover everyday business expenses and helped us expand our business by bartering half the costs of opening a new retail location. We even bartered mattresses for a Smart car we now use as our company vehicle.”

The cashless trading of goods and services is nothing new. During the current recession, businesses are not only revisiting the age-old practice as a means of keeping afloat, they are using barter to thrive by reinventing a practice as old as civilization itself.

According to the International Reciprocal Trade Association (IRTA), barter is indeed making a comeback. Last year, 400,000 IRTA member companies worldwide used barter to utilize their excess business capacities and underperforming assets, earning an estimated $10 billion in revenues. Moreover, barter is taking on new life via the Internet, and through local barter currencies.

One-to-one Trading

Direct, or one-to-one, trading is perhaps the most basic, straightforward manner of exchanging products and services. Quite simply, you find a person or business that has something you want, work a deal and then exchange value for value.

If you are a dentist, for example, and need track lighting installed in your office, you can reach for your checkbook—or you can tap your personal network, or even open the Yellow Pages, to locate an electrician willing to trade lighting for dental work.

“I’ve settled cash debts with trade, traded for medical/dental services and helped a friend build a house mostly on trade,” says Monte Cook, a barter consultant in Seattle. “I currently live rent-free in an oceanfront home because of bartering. I caretake the property in exchange for free rent. It doesn’t get much better than that!”

Costco member Bert Martinez, a professional public speaker and trainer in Houston, trades for everything from legal services to travel expenses. “I recently conducted a sales seminar for a large hotel chain in exchange for hotel certificates I could use for hotel rooms across the country,” says Martinez. “Bartering helps us extract value from otherwise wasted downtime, thereby boosting our profits and conserving cash.”

Increasingly, businesses are turning to the Internet to find trading partners through Web sites such as Craigslist, where, as of July 2008, an estimated 142,000 items were listed in barter sections across the U.S.  Hundreds of Web sites, including SwapThing.com and Barter Bucks Banc, help businesses connect online, facilitating bartering across the country, and the world, with the click of a mouse.

Successful one-to-one trading relies on putting together relationships with the same standards, expectations and contractual detail as for any cash client. It’s a good idea to put agreements in writing, outlining dollar amounts and specific expectations in case there’s a dispute.

As long as both parties believe they are getting their money’s worth, and each is providing the same value and workmanship as to a cash customer, one-on-one trading is fairly easy to orchestrate.

Barter Exchanges

A more formal approach to trading is through barter exchanges. Barter exchanges are “mini economies” comprising member businesses.  They provide a barter currency, or trade credits, and, for a small commission, promote commerce between their members and provide monthly statements of all transactions (see “Joining a barter exchange”).

Barter exchanges overcome the limitations of one-to-one trading. Barter credits can be used like cash with other exchange members, when, where and with whom you desire.

For example, a lawn-care professional needing a Web site could contact a Web developer in his barter exchange to utilize his earned trade credits.  The lawn-care professional may decide to eat out at a restaurant, hire an accountant, have his truck repaired or use barter as part of an employee benefits program.

Brooklyn, New York, Costco member Issamar Ginzberg, a member of Itex, an international barter company based in Bellevue, Washington, sees barter as a great way to cultivate ambassadors for his business. He says, “The best barter exchanges motivate their brokers to bring customers new business.  Their job is to make business happen, and they will go out there and really try to tell people about your services.”

The barter exchange industry has been growing since the onset of the current recession. “Barter is becoming more mainstream due to current economic realities,” says Chris Haddawy, chief operations officer and cofounder of BizXchange. “Our exchange is growing, and we see our members relying on trade to meet day-to-day business needs.”

Local Currencies

A relatively new twist on local bartering is the advent of Time Banks, which offer individuals and businesses a community-oriented, time-based currency where the unit of exchange is the man-hour. That hour goes into a Time Bank as a Time Dollar, which can be spent with other Time Bank members.

Membership is expanding in the more than 200 Time Banks around the country, which are often grafted onto nonprofits, churches or businesses. Hour Exchange Portland (HEP), in Maine, for example, allows members to swap computer help, legal services, meals, pet sitting and more. HEP has more than 700 members and provides more than 1,600 services.

Common Security Clubs are another new concept enabling individuals to form local economic support networks to deal with the economic crisis. Clubs can be launched by anyone and are based on a free curriculum that can be used by churches, neighborhood organizations, unions—anywhere 20 people can get together to support one another’s economic well-being.

In the end, the benefits of bartering are limited only by one’s creativity.  The barter industry appears to be poised for a period of rapid growth. As business becomes more competitive, and as more people start their own businesses, the concept of trading promises to become more popular.

Joining a Barter Exchange

If you join a barter exchange, expect to pay an initiation fee (typically $100 to $500), annual dues and a 10 to 15 percent commission on every trade. In return, the exchange will provide ongoing account maintenance, a monthly statement, checks or debit cards and a membership directory.

Before you join a barter exchange, review a listing of active member businesses to ensure the exchange can fill your needs. Determine that the exchange fosters a strong barter “economy” by adding new members on a regular basis. Finally, ask to be issued a line of credit so you can begin trading right away.

For a list of barter exchanges in your area, and to compare the service and fees of other exchanges in the community, contact the International Reciprocal Trade Association, or visit their Web site (www.irta.com) and type “member directory” in the search box.