Posted on March 11th, 2010
Originally posted by kamal
When people preach barter to businesses or individuals as a method to reduce their expenses people generally think “why”? I mean, why would they prefer to buy stuff using barter dollars than in cash? Why would somebody pay the expenses of running their business through barter dollars than the cash ones? I know because that is the first question that would come to my mind.
The answer to this question can be explained in a few points:
- Extra income: barter income is income generated over and above your existing cash sales (for which you are already making the necessary expenses). Also, these barter sales are generated with little or no additional costs. This means that, in order to take on a few extra barter deals, your main fixed expenses do not increase (i.e. rent, salaries of employees, etc). There may be a small increase in expense to service the new customer but given that your business should already be doing well enough to cover its existing cash expenses this new revenue comes at a higher profit margin.
- New customers: barter exchanges bring you new customers. The primary reason that these businesses deal with you is because they are a part of the barter network. These are not current cash customers, and are probably not customers you could easily attract in the cash market.
The reason for this is quite simple. In the cash marketplace the number of customers you have is limited by the amount of people who hear about your business in one way or another. In the barter marketplace a separate organisation is going out and sourcing new sales for you from businesses who already have existing cash suppliers but who would prefer to do deals on a barter basis in order to reduce their own overheads
- Income from unused resources: the barter dollars that you earn are income generated by optimum utilisation of your otherwise unused, or partially used, resources – e.g. unsold appointment slots, unoccupied space, free time of employees, unsold perishable and non perishable inventory etc. If these resources can be tapped to generate barter dollars which, in-turn, can be used to buy necessary equipment, services or advertising then you have turned an under-utilised asset into something of value.
- Barter commission, a small expense: barter organisations work on a cash commission - so every new sale they bring you costs a fee between 7% to 10%. Now compare this to the cost of generating a new sale in the cash market. Imagine spending large sums on additional advertising but having no guarantees that the advertising campaign will generate new sales. In comparison: the barter company only charges a commission after it brings you a new sale. In this instance there is no risky advertising, sales or marketing capital outlay to get new customers.
- Income will be used to replace cash: even though these sales generate barter dollars these barter dollars can be used wherever possible instead of cash. You will use these dollars to buy products and services that are necessary to run your business. Hence, you will reduce your cash expenses. In-turn, your cash profit will increase.
Barter is helpful offsetting the cost of advertising, materials and everything else associated with our business. It’s just that you need to learn how and where to use barter.