According to Dave Wagenvoord and Ali Pervez:
“It usually takes me time to explain how barter trade works, and even after that, some people get it and some people do not. But, I am usually able to get people to give it a try, and when they do, they are blown away with the results, as you will see here.”
Two things need to happen for a barter exchange to work effectively:
- You need to have something to barter
- You must honor your portion of the credit when they come to redeem their portion.
Trade operates in the opposite way as cash.
- In cash transactions, the longer you take to pay, the more you end up paying in both interest charges and fees.
- In barter or trade, the longer you take to pay, the less you end up paying, because all of your credits are not likely to be used up immediately, and some may not be used at all due to breakage.
Barter is not only the oldest way of doing business, but it is actually a lot more effective, efficient and profitable than cash if done correctly.
You can get what you want without:
- Asking for a line of credit from your bank
- Showing your balance sheet
- Offering any personal guarantees
- Borrowing from your friends and family
- Waiting! Which is critical if your business is on the verge of a financial crisis
Reason for being skeptical: You have been trained and conditioned to conduct all your daily commerce and transactions with cash.
A small company can issue “soft dollars,” “funny money” or a “scrip” and trade out its profit, which is one of the easiest barter transactions that you can do. And easily save 25-50% on its expenditures.
Recycled Advertising: Paying in vouchers (scrip), that can only be redeemed in your place of business. Trade these for advertising and you get 100% return on your advertising. Better than PPC (paying for a lead) because you are paying for the sale.
Why barter:
- Improves your margins
- Optimizes your resources
- Allows you to build new sales channels
- Saves you cash that stays in your pocket
- Allows you to set up a bank in a matter of seconds
- Is the best loyalty program you can have, hands down
- Can create buying and purchasing power for you at will
- Give you higher multiples of buying power of at least three to five times
- Allows you to pay at steep discounts, with no interest
- Explodes your response rate for direct mailings
- Allows you to conserve cash, as you do not use it
- Allows you to create your own currency or scrip
- Works the opposite as cash; you actually get rewarded the longer you take to pay
You get what you want right now, you end up buying at a steep discount, and you pay for it at some time in the future at a zero-percent interest rate.
Would you rather write a check or use something that you already have in your possession and have paid for?
Barter takes time, it takes education, but the payoff is big.
Myths:
- Only poor people barter or trade.
- Trade can give you immense leverage very quickly.
- Why trade, when it is just as easy to sell?
- Conserve cash while leveraging your buying speed. For old, unused products/services, excess time or capacity you can monetize at full market value, rather than liquidate in a closeout sale. Barter eliminates the need for discounting.
- Nobody will trade with me.
- Hogwash.
- Nobody barters these days.
- Barter is basically haggling.
- Barter is illegal, or a tax-evasion strategy.
- Not true. Barter is simply a very smart business strategy that gives you immense leverage. It predates money. Money is convenient, universal and allows for instantaneous transactions. All barter “income” must be declared just like cash revenues. It only becomes illegal if you do not declare your trades. And if you do not make any money and income on a barter trade (i.e., it is used for a business expense), then there is no tax due. Basically, what you receive counts as income, and what you supply counts as an expense. Barter trade is the same as a cash transaction (you just do not pay in cash) and must be documented like a cash transaction.
- Barter products and services are sub-standard (and people who do barter trade are not trustworthy).
- It is estimated that nearly 75% of the Fortune 500 do barter trade. Barter is always done at full retail.
Barter trade is not a tax-evasion strategy. It is a leverage strategy to get more out of your current marketing expenditure. If you sell something for cash, you usually generate an invoice; in the same way, when you sell something for barter you should keep records of your barter invoices. If you buy something, you would get a sales receipt. In the case of barter, you simply mark the receipt as a barter-trade receipt. Clearly mark or file all barter income and expense documents as “Bartering,” and retain all original source documents pertaining to your barter transaction:
- Sales receipts and invoices
- Barter exchange statements and forms 1099-B
IRS Topic no. 420, Bartering income
Old saying: If the person is no good for cash, he is no good for trade.
The higher your margins, the more profitable the trade will become for you.
Mechanics:
Four pillars of barter trade: scrip, dating, float, breakage…
INSIDE SECRETS:
Life is about problem solving. Barter is a tool that allows you to solve problems without using any cash.
In barter, you can trade whatever you want, if you have the mindset that someone needs what you have.
The “linear thinkers” amongst you will try to find a catch in barter. There are none.
Barter, to me, is really about people helping people solve everyday problems, whereas conventional commerce is simply about profit.
We all make our livelihood daily by trading something. We just do not see the connection (a job is trading time for money.
We all barter all the time; it is the way we are programmed. It is part of our DNA. You just do not think about it.
The basic concept of barter trade is very simple: You have something that can benefit someone else, and you use this to get what you want rather than paying cash for it.
Both parties win in the process.
Recommended reading:
No Cash, No Problem
By Dave Wagenvoord and Ali Pervez