Barter as Tool for Sales Promotion

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					       BARTER
AS A TOOL FOR SALES PROMOTION




            By Mitja Sadar and Davorin Sadar




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                                                         Table of Contents




Contents
Marketing ............................................................................................................................................. 3
Marketing Mix ..................................................................................................................................... 7
Marketing Channels ........................................................................................................................... 10
Theory of Marginal Costs .................................................................................................................. 14
Theory of Unused Capacity ............................................................................................................... 16
Barter as One of Your Marketing Channels....................................................................................... 19
Barter and Liquidity ........................................................................................................................... 24
How to Organize Barter in Your Organization .................................................................................. 26
Barter Exchanges ............................................................................................................................... 27
Dangers of bartering clubs ................................................................................................................. 34
Barter Brokers and Consultants ......................................................................................................... 36
How to organize barter in different types of companies .................................................................... 40
Barter Loans for Start-ups .................................................................................................................. 45




                                                                                                                                                       2
                        MARKETING

Activities involved in getting products and services from
producers to consumers are called with unifying name
marketing. Marketing concentrates primarily on the
consumers, seeking to isolate needs and desires, educating
them about the availability of products and services, about
important product or service features, developing strategies
to make them part with their money, and improve their
satisfaction with a purchase to make them return for more.
Marketing management includes planning, organizing,
directing, and controlling decision making regarding
product lines, pricing, promotion, distribution, and
servicing. Marketing is a part of all activities of a company.
In early years of industrial revolution and especially after
WWII marketing techniques followed production. Now
marketing either dictates or strongly influences all
managing decissions. It is useless to make the best product
extremely cheap if you can not sell it.

It's important to remember that the focus of marketing is
people. If you're concentrating your efforts on your product
or profit only, you'll miss the target - people with common
characteristics that set them apart as a group that uses your
product. You can group consumers using demographic
segmentation (age, sex, education...), psychographic
segmentation (lifestyle preferences like music lover, party
goer, sport fan), use-based segmentation (frequency of
usage like occasional gambler, regular smoker, frequent
flyer...), benefit segment (luxury, thriftiness...), or
                                                             3
geographic segmentation (location like home address,
business addresss,...). Be careful not to confuse a
geographic market segment with a place. The market is the
people who live in the inner London area, not the inner
London area. This is a common mistake made by business
owners that causes them to lose a marketing focus on their
customers. The reason we're concerned with identifying a
target market is because it makes strategies for designing,
pricing, distributing, promoting, positioning, and improving
your product, service, or idea easier, more effective, and
more cost-effective. For example, if research shows that a
sturdy recyclable package with blue lettering appeals to
your target market and if you're focused on that target
market, you should choose that type of packaging. If,
however, you're product or profit oriented - rather than
people oriented - you might simply make the package out
of plain Styrofoam because it protects the product (product
oriented) or because it's cheap (profit oriented).

Marketing is sometimes thought of as simply the process of
buying and selling. Its tasks are much more extensive than
this simple description. For a marketing system to be
operative and effective, exchange, physical, and facilitating
types of functions must be provided. Exchange functions
consist of buying, selling and pricing, physical functions of
assembling, transport and handling, storage, processing and
packaging, and grading and standardisation, while
facilitating functions are financing and risk-bearing, market
information, demand and supply creation, and market
research.
                                                            4
Exchange functions are what is commonly thought of as
marketing. They involve finding a buyer or a seller,
negotiating price and transferring ownership (but not
necessarily physical transfer). These functions take place at
the "market" - that is, the physical meeting point for buyers
and sellers at the point of production or via some other
means of communication. At this point, formal or informal
property rights are important to ensure the reliable transfer
of ownership and to guarantee legality (e.g. that animals on
sale were not stolen and will not be reclaimed).

Physical functions enable the actual flow of commodities
through space and time from producer to consumer and
their transformation to a form desirable to the consumer.
Assemblying or concentrating the product at convenient
points allows its economical transport (i.e. getting enough
animals together to transport cheaply). This is a valuable
function which is often overlooked in the public perception
of traders. Storage allows the commodity to be held until
peak season demand, thereby stabilising supply. Processing
transforms the commodity into the products desired by the
consumers. Grading and standardisation allow the
consumer to be more confident of the characteristics of the
good being purchased.

Financing and risk-bearing are two important facilitating
functions. The owner of goods at any marketing stage must
sacrifice the opportunity to use the working capital needed
to buy those goods elsewhere. Or the owner must borrow
that capital. In either case, capital must be provided by the
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trader or by some lending source. Regardless, cost is
involved. Further, there is an implicit cost in the risk of
losing all or part of that capital through theft, spoilage,
mortality or changing market conditions. Without the
willingness to provide the capital and to bear these costs, no
stage of the market chain could function. Other facilitating
functions enable producers to respond to consumer needs
and thus provide goods in the locations, quantity and form
desired.




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                      MARKETING MIX

As marketing mix we usualy understand factors that help
sales of a product or service. These factors are related to
four basic elements – getting the right product or service to
the market, pricing the product or service at optimal level,
positioning and promoting the product or service through
the best media and insuring that products and services reach
the market at consumers convenience.

The marketing mix is probably the most famous phrase in
marketing. The term was coined by Neil H. Borden in his
article 'The Concept of the Marketing Mix' in 1965. Also
known as the 'four Ps', the basic marketing mix elements
are price (what will it cost - list price, discounts, alowances,
financing, leasing options), place (where will you market -
channel members, channel motivation, market coverage,
locations, logistics, service levels), product (what are you
marketing - functionality, appearance, quality, packaging,
brand, warranty, service, support), and promotion (how will
you implement marketing program - advertising, personal
selling, public relations, message, media, budget). The
concept is simple. Think about another common mix - a
cake mix. All cakes contain eggs, milk, flour, and sugar.
However, you can alter the final cake by altering the
amounts of mix elements contained in it. So for a sweet
cake add more sugar! It is the same with the marketing mix.
The offer you make to you customer can be altered by
varying the mix elements. So for a high profile brand
increase the focus on promotion and decrease the weight
given to price.
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Another way to think about the marketing mix is to use the
TV screen image. The marketer mixes the prime lights (mix
elements) in different quantities to deliver a particular final
light to each point on the screen. Every screen image is
original in some way, as is every marketing mix.

Successful companies understand all the factors that
influence consumer decissions about each of their products
on all marketing channels they use and for all segments of
their consumers including encroaching by their competitors.
Understanding the factors that influence consumer
decissions in bartering marketing channels can help your
bottom line to swell. So getting the right product or service
to the market, in bartering terms mean that you have to
accept barter currency as payment for a product and/or
service that is of use to other members of barter exchange
or barter broker-s customer.

Pricing the product or service at optimal level, in bartering
terms mean that you sell your products and/or services at
prices that do not differ much from cash prices. Barter
currency can only buy limited number of products and/or
services, but it is much easier to obtain than cash, therefore
your competition as a seller will be much more lenient in
bartering than it is in regular market. In bartering we still
have sellers market while in normal cash sales for the last
fifty years we expirence buyers market.

Positioning and promoting the product or service through
the best media in bartering terms mean to let people with
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bartering potential know, that you can fulfill some of their
needs accepting barter currency instead of cash, to promote
trough barter brokers or, even better, organize bartering
department in your company using barter consultants
(paying them, of course, in barter currency or engaging
them on a commission basis). You should be able to pay in
barter currency for majority of your barter promotion needs.

Insuring that products and services reach the market at
consumers convenience in bartering terms mean that you
are prepared to exchange your products and/or services for
barter currency when your potential barter customers need
them and to deliver them to a location of their convenience.




                                                           9
                  MARKETING CHANNELS

Marketing channel is a path of getting products and services
from producers to consumers. Marketing channel (or
distribution channel) is a set of interdependent
organizations involved in the process of making a product
or service available for use or consumption by the
consumer or business user. Determining the most effective
and efficient channels to provide products to the consumer
is important - sometimes even critical. Several channels and
hybrids of marketing channels should be considered. Of
course, as in other stages of marketing, there is rarely a
single best choice, and oftentimes a successful business will
use various combinations of marketing channels.

To reach different markets, many companies distribute
through dealers, distributors and company-owned direct
sales forces channels. These channels regularly and
consistently compete against each other for the same
customers. The resultant channel conflict reduces customer
satisfaction and the company’s profitability. Restructuring
marketing channels without losing the best resellers is a
major marketing channel challenge. Smart producer will
avoid using conflicting channels. Regular way of selling
consumer products involves wholesellers and retailers but
sales can be organised through dealerships or franchised
units, direct sales, multi level marketing, electronic
marketing, consulting, servicing, referrals, members only
clubs and similar.

A company      should not depend on a single marketing
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channel but should build a non-conflicting marketing
channel mix, part of which being bartering. A successful
marketing channel program requires a specific definition of
the value of each member of the distribution chain (channel
partner), an understanding of channel partners’ operations
and factors which influence their businesses success, a
mutually profitable legal and commercial relationship with
channel partners, and a managerial philosophy disciplined
enough to make tough strategic decisions but flexible
enough to adopt marketing channel innovations. The
functions performed by channel members are composed of
numerous activities performed in a coordinated sequence at
various channel levels, e.g.; manufacturing, wholesaling,
and retailing.

Key channel functions are production or processing,
negotiation, exchange (buying and selling), physical
distribution, financing, and communication. Channel flows
refer to the functions performed by channel members in the
process of the conception, production, and delivery of the
product. Key channel flows are negotiations, ordering, title,
physical, financial, payment, information, and promotion.
Specialization of channel members in the performance of
channel functions and flows results in interdependence; i.e.,
channel members are dependent on each other to effectively
and efficiently reach the end user or final consumer.

No longer manufacturers compete with manufacturers,
wholesalers with wholesalers, and retailers with retailers.
The need for strategic channel planning and design arise
from the fact that in today's competitive environment,
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channels of distribution compete with alternate existing
channels and emerging or new channel formats. Channel
strategy must be comprehensive and equipped with a
complete set of implements of channel mission/vision,
goals, and objectives, environmental scanning, target
market segments, and competitive positioning.

A broker is normally described as an independent sales
force who performs the essential functions required to
facilitates sales between the buyer and seller. Brokers
normally provide their services to a number of different
producers. Brokers can use theit own discretion as to where
they market products.

An agent is a wholesaler who represents buyers or sellers
on a relatively permanent basis, performs only a few
functions, and does not take title to goods.

A dealer takes possession and title to the goods.
Conventional distribution channels of independent
producers, wholesellers and retailers are being replaced by
B2B, B2C, C2B and C2C that represent various trading
networks, exchanges (on- and off- line) and clubs
(including barter exchanges and bartering clubs) where B
means business and C means consumer.

Marketing channels are constantly changing. Consumers
are more and more in control, whether in business or retail,
when it comes to researching and validating information for
themselves. Amazon.com capitalized on this when it built
reviews, and reviews of the reviewers. Traditionally,
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available channels for communication have been TV, radio,
print, outdoor and direct mail. No more. Not only have at
least some consumers rejected these traditional channels,
communication channels that consumers use now are more
complex, more finely tuned, and in general off-limits to
mass marketers, such as blogs, vlogs, podcasts, and games.

The key to using these new social channels as your
marketing communication channels is to recognize that as a
marketer, you can't push your way in. Interruptive
marketing is checked at the door. You must create content
consumers will adopt and bring to their social networks. It
must legitimately address consumers' needs or you are out.




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               THEORY OF MARGINAL COSTS

If your company manufactures and sells products, pricing
them depends greatly on the quantity you are able to sell.
Let us assume a production of single product, like cement.
The company plans to manufacture and sell 1000 tons in a
year. All the costs a company plans to incure in a given
year are thus devided by 1000 to come to per ton
production costs of cement. Let us assume that this costs
come to 800.000 € and we are satisfied with 25% of added
value (expected profit). Half of the costs represent
amortisation of machinery and equipment, a quarter is
related to overhead and the rest to direct costs of
production.

Our selling price thus calculated comes to 1.000 € per ton
of cement, out of which fixed costs represent 600.000 € and
variable costs 200 € per ton and 200.000 € represent
expected profits. At 1.000 € per ton of cement we can only
sell 1000 tons, but we can get another order for 400 tons at
a price of 700 € per ton.

Would we sell it at 30% discount even if our calculated
costs are 800 € per ton?

The answer is yes, provided that this sale does not interfere
with our main marketing channel!


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Once we cover our fixed costs the difference between
variable costs and sale price is pure profit. So selling
additional 400 tones of cement at 30% discount would
bring in the same amount of profits as the original 1.000
tons of cement at full price, that is 200.000 €.

If you sold this additional cement trough your main
marketing channel you would not be able to command
original price any longer but would have to sell at lower
price from then on – you would kill the goose that lays
golden eggs. On the other hand, if you sold additional
quantity in another market segment, completely divorced
from your main market segment, you would still be able to
sell at original price on your main market segment and
make occasional killing elsewhere.




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              THEORY OF UNUSED CAPACITY

Let us assume that we are a magazine that sells advertising
space and that we plan to sell 60% of space dedicated to
advertising. We price this space so that it covers our costs
and expected profits. If we sell more advertising space we
command higher income at basically the same costs. So we
can give enermous discounts for all unsold space after we
we have sold planned 60%, provided that we do not give
discounts through our main marketing channel but sell it on
a different marketing segment.

It is similar with transportation capacity, hotel capacity,
radio or TV advertising time, billboard and big screen
advertising, airline, bus, and train passanger space,
professional services like consulting, accounting and
auditing, computer programming, web hosting, dental and
medical services, teather, opera, and other events tickets,
and so on.

If we sell more units we generally incure less costs per unit.

Just about any business with excess capacity or surplus or
slow moving inventory can benefit from bartering.

This is especially true if your inventory is perishable like
radio time, billboards, hotel rooms, airline tickets, and
empty tables at restaurants, event tickets or your time if you
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provide a service. A key consideration is that barter credits
have a storable value and your perishable inventory doesn't.
Consider how much is that unused hotel room worth, the
empty chair at your restauant. How much is a ticket to the
big event worth the next day. Nothing.

Looking from afar, some cash deals look better than
bartering. Because the cash economy is so competitive you
can always find someone who is willing to sell their
products and services at steep discounts or even at a loss. In
a barter exchange, members sell their products and services
at full retail value.

On the surface it would seem like you are better off paying
cash, however this is only half the story. Although on retail
for retail comparison the cash price may be lower on a
particular item, you have to take into account the cost of
your barter credits which is the wholesale cost of your
products and services. Since you are effectively buying at
your wholesale cost you may find you are actually better
off paying for the item with barter credits.

This is not true only when you run your business at full
capacity and you need to purchase new machinery to fulfill
additional demand, or where additional hiring would
excesively rise wages, or something similar. If you run your
business at full capacity and you do not want to enlarge it,
barter is not a good option.

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Let us say, for example, that you have a city hotel that
rarely has a spare room at full prices. Until this situation
changes (new hotel is built nearby, people stop visiting the
city....) you actually have nothing to barter with as only
bartering unused capacity equals additional sales through
another marketing channel.




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     BARTER AS ONE OF YOUR MARKETING CHANNELS

As we have seen in previous two chapters it is easy to make
additional profits with more competitive sales if we can
open new marketing channel that does not interfere with
our main one. Barter trough a bartering club or barter
exchange with or without barter brokers can be seen as new
marketing channel for your company, and barter
consultants can help you organize it the right way.

Bartering is a way of doing business without the use
currency. In essence, it is an "alternative" way of trading.
Bartering is the process of "trading" for a service, or for the
goods you want. In essence, bartering is simply buying or
paying for goods or services using some thing other than
legal tender.

Thus defined, bartering has been around much longer than
money as we know it today. Perhaps you have experienced
at one time or another in your life a friend saying, "Okay,
that's one you owe me..." Basically, that's bartering.
However, since not all direct trades are done of equal value
(not to mention the challenge of finding someone who has
what you need and wants what you have), modern day
barter has evolved considerably to become a proven method
of increasing sales, conserving cash, moving inventory, and
making use of excess production capacity for businesses
around the world.

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Barter puts idle resources to work.

Bartering channel differs from other marketing channels
also because it is closely tied to purchasing function of a
company, especially if a company engages in trading. Our
calculations for bartering marketing channel differ from
discount sale we introduced under the heading “Theory of
marginal costs”.

Let us assume the same basic characteristics as under
“Theory of marginal costs” with a difference, that we can
sell additional 400 tons of cement through barter exchange.
We do not have to discount the price to sell this additional
quantity, but we do not get cash but barter currency. Let us
assume that we can pay some of our fixed and some of our
variable costs using barter currency. We can also invest
surplus barter currency in tangible and intangible assets.
But we will also incure some additional costs because
closing a barter trade is a little more complicated than
closing cash one and the government will want its VAT on
additional barter sales in cash.

Hypothetically, as shown in table 1.1., with chart 1.2., if we
sell additional 400 tons of cement at 1.000 € per ton trough
barter we:
1. Use our barter currency to pay for a part of our fixed
  costs (17% of all fixed costs) 100.000 €
2. Use barter currency to pay for a part of our variable
  costs (65% of all variable costs)180.000 €
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3. We invest the rest of barter currency into tangible and
  intangble assets (120.000 €)
4. We incure about 10% cash commission on barter sales
  and purchases, that is about 40.000 € cash payouts
5. We pay about 64.000 € in additional VAT (at 20%
  rate), because our additional profits exceed by far our
  additional costs




As we can see out of this hypothetical calculation, we made
400.000 € additional income. We reduced our cash
outflows for 100.000 € in fixed costs and for 100.000 € in
                                                         21
variable costs without barter. We had to pay out additional
104.000 € as cash outflows and costs of bartering. But at
the end of the period our cash on hand exceeds comparable
position by almost fifty percent (96.000 €) and we also
invested about the same amount (120.000 €) in our future.
Our added value rose by 216.000 € or more than 200%!

Bartering smart brings cash in your pockets and smile on
your face!

If we explain it in less technical terms, this means that you
invested 400.000 € of barter currency in, for example:
 30.000 € of spare parts for grinding equipment (fixed

  cost)
 50.000 € for rubber belts for your transportation system,

  including instalation (fixed cost)
 20.000 € for sales promotion (fixed cost)


 10.000 € for packaging materials


 30.000 € for transportation costs


 60.000 € for oil and gasoline


 80.000 € for aditives that go into cement


 120.000 € for new controlling software that will replace

  10 people on a permanent basis

By paying a part of your regular purchases in barter € you
reduced your cash outflows by 200.000 €. Bartering you
incured 104.000 € of additional cash outflows.
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Your net cash position at the end of the period is 96.000 €
more money in the bank as you would have without
bartering plus a long term savings of 10 paychecks what
would in this particular case pay off in less than a year,
provided that average paycheck is more than 12.000 € per
year. We chose simple, one-product company to show
advantages of bartering but any barter consultant can
analyze the situation in your company and explain,
hypothetically, what the effects would be. This will, of
course, differ from the actual results you would acomplish
with your barter broker. Barter income is treated the same
as cash income. There are no tax advantages or
disadvantages to bartering. Cash purchases that are
normally tax deductible as business expenses are also tax
deductible when purchased on trade.




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                  BARTER AND LIQUIDITY

Liquidity is not a synonimus for profitability. Your
company may be highly profitable and at the same time not
able to pay its dues. That is because you can not pay your
dues with your receivables or your fixed assets – you can
only pay using money in your cash register and on your
checking account.

If you purchase fixed assets (machinery, cars, patents,
franchises, buildings, etc...) with cash on hand, chances are
that you will not get this cash out of fixed assets quick
enough to pay for your short term obligations on time. In
Profit & Loss Account you calculate amortization on yearly
bases. You transfer only yearly portion of amortization in
your costs.

If you purchased an asset that has 7 year amortization span
with cash this means that you paid your costs in advance for
seven years. Your profits will be high, but you might not
have the money you need today to pay your due bills and
might be forced into bankruptcy.

The other way is also possible. You may be producing at a
loss for same time, but not having any problems with
liquidity. If you do not invest amortization you calculate in
your P&L Account you will end up with cash surplus. This
is, of course, only a short term possibility as long term drain
is unsustainable and ends up in bankruptcy or liquidation.

                                                             24
The reason bartering enjoys renewed popularity in times of
tight money is simply that it is the "bottom-line" method of
survival with little or no cash. In times of high interest
rates, cash in anyone's pocket is indeed a very precious
commodity, and bartering is even more popular. Bartering
affords both the individual and the established business a
way to hold onto cash while continuing to get needed goods
and services.

Barter can be a great boost for your company's profits but
you will always have to watch your liquidity separately. No
one can barter 100% as there are things you can not
normaly and regularly pay in barter currency, like payroll,
taxes, energy, communication means and similar.

It is safe to assume that no serious demage to your liquidity
will be done if 30% of your yearly realization is done
trough bartering but to maximize your profits in bartering
marketing channel you should at some point of your barter
marketing channel development engage one or more
bartering consultants.You should, of course, try to pay
maximum of your regular fixed and variable costs using
barter currency. If you succeed you will make bigger profits
and end up with much bigger number on your bottom line.




                                                           25
   HOW TO ORGANIZE BARTER IN YOUR ORGANIZATION

Barter will conserve your cash, strengthen your cash
reserves, increase your buying power, increase your
customer base, move access or surplus inventory, finance
your business, motivate your employees, enhance your
lifestyle, and increase your cash customers. What would
you have to change in your organization if you sold 30%
more of your products and/or services? If you want to
seriously engage in bartering you have to organize it as a
part of marketing function of your company. Bartering
department (function) should be closely connected to sales
and purchasing departments (functions), because barterers
need to know what would help the company best. Barter
should be planned in advance and treated as one of equal
marketing channels.

First of all, some kind of information leaflet should
circulate around the company offering possible trade
purchases to different department heads. There should be a
form to initiate trade negotiations and a proper way of
informing accounting and planning departments (or
functions) of the company about what is going on in
bartering department (or function). Reports should include
effects of bartering on the overall performance of the
company and these effects should be discussed properly
troughout the management who should set general
guidelines for bartering for the next accounting (planning)
period.

                                                         26
                   BARTER EXCHANGES

If there is a working bartering club or exchange in your area
you can leave all the headaches of starting a business from
scratch behind and join it. A barter exchange eliminates the
restrictions of one-on-one trading where each business must
want what the other has to offer. Businesses which have
excess capacity, slow moving inventory or underutilized
assets would particularly benefit from joining a trade
exchange. Consider how much is that unused hotel room
worth, the empty chair at your restauant.

How much is a ticket to the big event worth the next day.
Nothing. A Trade Exchange eliminates the limitations of
one-on-one Barter where each business must want what the
other business has to offer. When you belong to an
exchange you are paid in trade euros, which you can then
spend with any other member. This way when you are the
seller you do not have to turn away any business because
you don't want what the other person is offering. Using
trade euros also helps when you want to make a purchase
and the other person doesn't want what you have to offer.

A Trade Exchange will save you the time and effort of
having to find compatible trading partners. A Trade
Exchange helps you market your products and services to
other members.

An Exchange acts as a third party record keeper, providing
monthly statements to clients, which reflect all trade
                                                           27
purchases, sales and a current trade euros balance. When
you are a member of a Trade Exchange you do not have
accounts receivable to collect or bad debts to write off. You
are paid at the time you provide your product or service.

If there is no barter exchange in your area, you can organize
it as a project and spin it off your main business as a
building block of new marketing channel for your products
and/or services.

To start and successfully operate a bartering club, you must
think in terms of a banker. After all, that's precisely the
reason for your business - to receive and keep track of
people's deposits while lending and bringing together other
people wanting or needing these deposits. Barter exchanges
create and extend credit just like banks do. So your first
task is to corral in depositors.

Name new project manager who will organize bartering
club or exchange (or even better, propose to few of your
local business partners to organize it together – there are no
prohibitively high costs of starting up involved), idealy one
that understands both, trading and banking. Let your
intentions out! Like: NEW BARTERING CLUB! Trade
your expertise and/or time for the merchandise or services
you need. We have the traders ready - merchandise,
specialized skills, buyers too! Call now and register. ABC
BARTERING 123) 456-7890

When respondents to this notice call, exchange broker
handles them just as a banker handles someone opening a
                                                            28
new checking account. Broker explains how barter club
works: Everyone pays a membership fee of let's say €100
to €300, and annual dues of approximately €50 to €100.
There should also be a per transaction commission.
The depositor tells you what she/he wants to deposit,
perhaps € 1.000 worth of printing services, and what
she/he's looking for in return - storage space for her/his boat
over a three month period. If you have a depositor with
garage space for rent and needing printing services, you
have a transaction. But let's say you have no "perfect
match" for this depositor.
On your list of depositors you have a dentist who's offering
$500 worth of dental work for someone to paint her/his
house. A woman with a garage to rent in exchange for
dental work for her children. An unemployed painter
willing to paint houses in exchange for a side of beef, and a
butcher who wants to trade a side of beef for advertising
circulars. Remember, when a new member joins your club,
she/he makes a deposit and states her/his wants or needs. In
the above example, you have a typical bartering club
situation.
Your service is to spend or line up those deposits to match
the wants or needs of the club members. Generally, when
your broker has a buyer for one of your depositors, she/he
notifies him/her right away with the fastest means available.
Broker simply tells her/him that club member A wants to
rent a garage. She tells him fine, but she doesn't want any
printing services. Broker simply tells her to hang on
because she/he is currently in the process of contacting the
                                                             29
dentist who will do the work on her kids' teeth. And so it
goes in the operation of a bartering club.
Some of the larger bartering clubs (with several thousand
members), simply list the deposits and wants or needs on a
computer, and then invite their members to come in and
check out the availabilities for themselves. Others maintain
merchandise stores where the members come in to first look
at the computer listing, and then to shop, using credit
against their deposits.

Smaller clubs usually publish a weekly "traders wanted"
sheet and let it go at that. These methods all work, but the
best working exchanges hire commission sales people to
solicit new members, specifically with deposits to match
the wants and needs of exchanges present members. These
sales people should get some of the membership fee from
each new member they sign, plus a percentage of the total
value of each trade they arrange and close. This percentage
to be paid in club credits, spendable on merchandise or
services offered by the club, or in cash if members agree to
pay commissions in cash or if the exchange is able to find
another way of turning services and merchandise into cash.

Although barter exchanges promote the use of barter, even
they need cash to survive. To earn their needed cash barter
exchanges charge their member fees. They call them
different names; charge them at different times and
amounts, but no matter what they call them they fall into 3
different categories:

                                                          30
sign-up, set-up or membership fee- usually a one time
(some exchanges have a renewal fee) fee to launch your
account. This pays for the initial paperwork, training,
commissions, and assures the commitment of the new
client.

Association fee is a set, monthly fee to the exchange
whether your company trades or not.

Usage fee is a set percentage (they vary from exchange to
exchange) charged for each transaction. Some exchanges
charge a fee when you buy and sell. Some charge only
when you buy. Either way the fees work out approximately
the same.

You'll need a club charter, membership contract, rules and
regulations, brokers or sales people, accounting for member
credits and dues, as well as a system of confirming and
closing of transactions (like credit cards or checks,
depending on organization of transactions).

There are many ways of attracting new members ranging
from local ads to seminars, from private parties to
commissioned professional recruiters and everything in
between. Ideally, you should have one broker for every
1000 or so businesses in your area. Assign each of your
people specific territories (but not on exclusive basis as this
is a breach of antitrust legislation), and insist that they call
on potential commercial accounts ranging from small kiosk
shops to magazine publishers and high volume
manufacturers or traders.
                                                              31
There's plenty of business available everywhere. Encourage
your sales people to be creative and imaginative when
calling on prospects. Then, be sure that you keep an open
mind and listen to their trading proposals (some "fantasy"
proposals have been known to become "fantasticaly"
successful deals)!


Schedule "open discussion" sales meetings every morning
before your brokers and salespeople start working if your
area is not too big or, alternatively, have an internet
discussion group going on every day at the same time
among all of your brokers.

Have each of them report on their selling efforts from the
day before, and according to the needs of the club plan a list
of prospects to call on. Set up sales motivation workshops
to be held at least once a month, and at least once a week
schedule a motivational speaker or play one of the widely
available success/inspirational tapes as a closing feature of
your morning sales meetings. Stock sales success books and
encourage your people to borrow them, take them home
and read them.

Your sales people will make you rich, but only if you turn
them on and keep them flying high with personal
motivation. The more “tools of the trade” they will use the
better they will serve you. If you honestly share added
value among everybody involved than you organize things
in the best possible way and you do not exploit anyone!
                                                            32
Should you or should you not accept installment payments
from new members? Yes, by all means! But only when
you've got their signature on a contract drawn up for your
benefit and deemed legally binding by your attorney. What
about bank cards? Yes indeed! In fact, you'll find that your
capability of handling bank cards will double or even triple
your sales.

Should you offer a guarantee of satisfaction? Only so long
as it makes money for you, and you can back it up. There's
not a person in business anywhere who enjoys refunding a
customer's money. But don't forget that the existence of
your business depends on service. The more you project an
image of a "people pleaser," the greater success you're
going to achieve. You've got to like people, enjoy helping
them, and want the inner satisfaction that comes from
selling new ideas.

This is definitely a growth business. The operation of a
bartering club is equally suited to women or men. Both do
equally well as salespeople. It's a business that fills a need,
and a kind of membership program people will stand in line
to be a part of, once they've been convinced about the
benefits. Reputation and success in matching offers to
wants will be just as important as presentation, so give it
your all. Don't give up; stand behind the implied, as well as
the real promises you make to your members.

We strongly advise the use of barter consultants in all
stages of organizing a bartering club or exchange from the
very beginning.
                                                             33
              DANGERS OF BARTERING CLUBS

The main danger of bartering club is inflation, or too easy
money. If the club management allows to much barter
currency looking for too little merchandise and services, the
prices will rise. Barter currency will be able to purchase
less and less and its value will fall.

Depending on commission the club charges, real value of
barter credits should be between 80% and 90% in cash.
This means that you are able to sell your barter credits for
cash with 20% discount i.e., for 100 € of barter currency
you get 80 € cash. But there are big exchanges with many
thousands of members where you can only get 20-30% i.e.,
where all you can get for 100 € of you barter currency is 20
to 30 € in cash.

In exchanges like that valuable merchandise goes into
hidding.
You can still get overpriced services but nothing of real
value stays on the market for long. Members do only
limited business with such an exchange and their
satisfaction runs low. Turnover of members is huge – while
new members still join due to professional presentation by
brokers a lot of experienced members switch to other
bartering clubs.
Another possible mistake in joining a club is
incompatibility. Each Barter Exchange works in its own
way. Some work through assigned brokers, some online
                                                           34
only, some with a combination of the above. Go with what
is comfortable for you. If you like personal attention, the
web is not for you. If you like to trade at midnight, the web
is right up your alley. The choice is yours - there is an
exchange for all types of business.

Another thing to consider when joining bartering club is
location. It isn’t important where the office of the exchange
is; it’s the location of the clients that count. No matter how
good a client list an exchange has, if all the goods and
services you need are 150 kilometers from you, what good
are they?




                                                            35
          BARTER BROKERS AND CONSULTANTS

Long before broadcast advertising came into being, hotels
would offer transferable documents claled "due bills," each
of which had the value of one day's stay per room, to
newpapers and magazines in return for advertising space.
The newspapers or magazines would then use the due bills
for their own personnel or sell them at a discount to anyone
desiring a reduced hotel rate. The cost of the advertising
space was figured on the basis of the net price of the due
bills. In other words, if the rate card for the advertising
space was $20 per column inch, and if the hotel rooms were
rented at $20 per day, but the due bills each sold for $10,
the barter arrangement would be at a rate of two-to-one, or
two due bills for each column inch of space.

In the early days of radio, cash was tight and studio needs
often exceeded budgets; thus, much advertising time was
sold through barter. This system continues today
throughout the broadcast industry, and barter has become a
highly competitive business.

There are companies called barter brokers, who handle
only barter business. There are also companies who have
become wholesalers of broadcast time by building
inventories of time accumulated through various barter
situations (called barter time). Technically they are barter
traders, as they will work also for their own account
arranging deals for profit instead of only matching
customers for commission.
                                                          36
A barter broker helps his/her customers promote as well as
find goods and services they can use. A good broker will
keep a list of what their clients are looking for and call
attention to opportunities as they come available on the
system. They get involved in helping people buy and sell
their stuff. A broker helps people save cash by using trade
euros or credits instead of cash. If you work with good
barter brokers you do not have to be a member of bartering
clubs. Brokers will be members there and they will arrange
you the stuff you need in exchange for your products and
services. If your products and/or services are in high
demand working trough a broker helps you control the
quantity you barter in relation to cash sales.

There are special situations in life of almost every company
that call for help of barter brokers. For example, company
A purchased 3 competitors in an industry consolidation
move. They realigned their product mix which resulted in
the discontinuation of 25 product lines and over € 6 million
of product inventory in various forms. Barter brokers
organized 30.000 m2 in a central warehouse as a
consolidation point for inventory received from 5
production and storage locations and 8 mass retailers. Over
260 truckloads of product were consolidated, sorted and
resold into a secondary marketplace. A barter transaction
was executed to allow the client to recover almost € 6
million in bottom line value and a savings of close to €
500,000 resulted from their ability to close 5 storage
locations.
                                                          37
As another example, sportsware company abandoned plans
to enter the collegiate marketplace after investing € 2.5
million in the product line. Barter brokers structured and
managed a transaction which allowed the client to exit a
market, recover their product cost in cash and realize a
profit in bartered value. Over 380,000 sports shirts were
sold into 15 accounts worldwide.

A product discontinuation, as yet another example, of a
latex foam sealant product in a hardware company resulted
in over 500,000 cans of product with only 3 months of shelf
life left. The disposal costs alone would have been close to
€ 450,000. Barter brokers worked with the client’s quality
control dept. Product was tested and found to be good for at
least additional year from indicated date. They consolidated
the inventory and relabeled 500,000 cans with an extended
date. Product value was now increased from a negative
value to a positive. Product was sold into pre-approved
accounts worldwide. Client recovery was close to
production cost.

Experienced barter traders may serve as barter consultants.
Barter consultants are familiar with the industry, all
possible ways, advantages and dangers of bartering as well
as actual bartering climate among various industries and
companies. Barter consultant should be able to help you
organize barter department in your company, including
contract   samples,     information   flow,     accounting
documentation and controls. You can ask about barter also
your management consultant – she or he should be familiar
                                                          38
with barter at least in general.




                                   39
    HOW TO ORGANIZE BARTER IN DIFFERENT TYPES OF
                         COMPANIES


In hospitality business like a hotel, first of all you have to
analyze the patterns of occupancy and isolate the busiest
time. You also have to isolate the periods of slow business.
You have to analyze your income statement and balance
sheet and find out what are your biggest costs besides
payroll. You can not really barter payroll what would
normally be your biggest single cost in hospitality business.
But you can most likely barter for stationery, cleaners,
equipment, rent, transportation, medical services, and the
like.

A person in charge of bartering function (or bartering
department) should be very much aware of purchasing
needs of your company. He or she should have yearly plan
of purchasing needs that can be obtained through bartering
and sell hotel capacity openly up to that needs, provided
that she/he sells capacity for the periods of slow business.
Periods when the hotel is busy (like ferragosto time near
Italy or Christmass time) should be blacked out, while other
periods should be booked in advance.

Should we openly advertise our willingness to barter trough
bartering club we also have to state our bartering policy and
blacked out dates in our standing offer. She or he should
also propose memberships in different bartering clubs. We
do not want to turn away cash customers just because we
                                                            40
have sold all our rooms for the period trough barter
exchange. Barter trader in our hotel should have free hands
to trade for profit over and above the hotel capacity to
barter, as long as it adds to hotel bottom line.

For example, when our barter trader in her/his circles finds
that somebody offers printing services and would accept
advertising space in exchange, and finds another company
that would barter advertising space for printing services,
she/he should match partners for a commission (about 10%
on each side) and thus earn some free advertising space and
printing services for the hotel. Experienced barter trader can
organize a deal among upwards of 5 businesses and earn
sweet profit for our hotel even if no services of our hotel
are involved in that particular closing.

In publishing business financial analysis will show very
different structure of income and expenses and this will also
direct different organization of bartering. While hotels can
not add capacity easy and cheap even if double the number
of people is asking for a bed, newspaper can easy and cheap
add four, sixteen or thirtytwo pages if required by
advertisers or publish a special number dedicated to market
segment or event on short notice.

If you can attract new audience you can barter in large
percentage, provided that your regular cash-paying
customers keep your income safely above your fixed costs
(which is majority of your overall costs in a newspaper).
                                                            41
Barter trader in a newspaper should be aware of overall
company policy on the percentage of advertising versus
editorials but should be given some advertising space in
every issue as well as in any special issues. She/he should
work closly with purchasing department, trying to get as
much as possible using barter currency.

Barter currency in a newspaper can be up to three times
easier to obtain (at approximatelly the same level of costs)
than cash. Even if they charge you more barter euros than
cash euros you are still better of bartering.

Medical services are usually not something you can barter
directly. Depending on the size of the company you have to
organize also your barter trading department. If your
services fall under regular medical insurance you do not
realy need a lot of trading but if regular insurance does not
apply to your services you will have a lot of people unable
(or unwilling) to use your services. If this be the case, barter
will bring in additional work and you will be able to spend
barter currency for supplies needed, advertising, consulting,
equipment, rent or similar things as you will in many cases
win over your competition that does not accept barter
currency. Bartering boosts any business just like accepting
credit cards does.

A consultant should barter larger percentages if we agree
that success based payments are a form of barter too. A
consultant of any kind should make money from the profits
                                                              42
she/he brings to the principals consulted either by enlarging
their income or lowering their expenses (taxes included) or
both. Even higher security or lowering risks can be
transleted into monetary terms.

A consultant sells knowledge. Direct costs of selling
knowledge are very low. The more you sell, the less it cost
you per unit. In a small consulting company owners may be
ready to barter for luxuries for their personal use as their
costs are low compared to their income. In bigger
consulting companies trading department should represent
strong marketing channel for selling services and making
money on its own.

Should a construction company barter? By all means, as
long as it runs below capacity. If you can get part of your
materials bartering you may take additional job to pay for
those materials. You take money for materials needed in
cash project and pay wages and needed materials in barter
project out of it. You will end up with cash surplus at the
end of the period just as shown in table 1.1.

Barter trader should be consulted in all stages of contracting
barter job. He/she should be aware of all the jobs and all
purchasing needs of the company. She/he should
thoroughly understand construction materials and have
good relationship to project managers, purchasing
department (if there is one) financial manager and top
management. She/he should also scan the market for any
                                                            43
bartering opportunities on the side of sales and purchases.
In every company there should be a regular way of
informing everybody involved in bartering opportunities.

There's a question of bartering in a grocery store or similar
shops. Usually, profit margin in such stores is too small to
allow bartering. If you can mark up your price only 20 to
30% above your purchase price there is no room for
bartering commissions and costs. But you are still able to
barter on irregular bases – excesive inventory, used
equipment, irregular items....Anything that you can turn
into something with higher profit margin.

If you own car dealership you need a lot of advertising and
usually you have to purchase old cars from your buyers.
What if you can exchange some of these old cars for
advertising space in your local newspapers, radio stations,
TV stations, billboards and the like?




                                                           44
              BARTER LOANS FOR START-UPS


Many barter exchanges will arrange for their client to take
out a "barter mortgage". This "barter mortgage" acts the
same way a standard mortgage does. It allows the
borrowing company to build now and pay later for
expensive improvements or real estate purchases. A barter
mortgage is paid back in a similar fashion to a standard
mortgage, except the principle and interest of the loan of
trade euros is paid back with your "excess" capacity. As in
all loans of this size, both financial and legal council should
be sought by the borrower (most trade exchanges also have
CPA's and Attorneys available on trade).

Other types of collateral than real property can be used to
secure a barter exchange loan from machinery and vehicles
to inventory, patent and franchise rights and right down to
due bills and IOU certficates. Start-up and financial
management consultants should be familiar with barter
financing so they are the ones to ask.

Injecting sufficient (but not excessive!) liquidity into its
trading system is one of barter exchanges main goals as it
works, as we mentioned before, as central bank for
maintaining its barter credits.




                                                             45

				
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