Bartering, a system of exchanging goods and services, has been around since ancient times. But is it a good method of exchange for a small business today? Here are some of the pros and cons to consider before saying yes to bartering services.
One benefit of bartering services is obvious. There’s no money changing hands. This is often appealing to start-up businesses and non-profits. It can work if BOTH parties receive something they actually want or need. There is a cost to bartering services, whether it be time or materials. So don’t barter for products or services you wouldn’t buy with cash or credit.
Like any sales transaction, barter arrangements are negotiable. If the product or service offered does not fill a current need – but something else would – ask for what you want as part of the arrangement or walk away.
Barter arrangements can also foster a business relationship. In working together, each party gains confidence in the other’s products or services, integrity and business conduct. This can be helpful when it comes to forging alliances that create referrals or other opportunities. If this is your purpose, make sure you set this expectation upfront. If the other party is well-connected, it can be a win-win.
So What’s the Downside of Bartering?
Double Coincidence of Wants. Since both parties must want or need what the other is offering at about the same time, finding someone to barter with can be difficult. While you can overcome the ‘same-time’ issue by agreeing to a future exchange, be cautious. A lot can change in six months or a year.
Exchange of Value. Products and services are not created equal. So how do you ensure the exchange of value is fair to both parties? A definite challenge when exchanging services. Quality, service, convenience and performance all factor in. If either party feels that what they give is more valuable than what they receive in return, there is no goodwill, repeat business or referrals.
Cash is King. You need a steady flow of cash to keep your business healthy and growing. Since employees, vendors and the government (taxes) expect monetary payments, too much bartering can impact your cash flow.
Service Expectations. Business owners understand that customers are not created equal. And service levels provided to them will often vary based on size, lifetime value, payment history and more. It may not be intentional, but most businesses will make a paying customer a higher priority than a barter relationship. Something to keep in mind as your set your expectations.
Bartering can work in some situations. Just make sure you consider both the advantages and disadvantages before saying yes. Think win-win.
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