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BARTER
A STONE AGE IDEA THAT CAN PLAY AN IMPORTANT
ROLE IN TODAY'S HIGH TECH SOCIETY

By David Rogovin

Whether you are one of the last Neanderthals, head up a small company or work for a multi-national corporation, barter; a primarily cashless exchange of goods and services, can play a profitable role in your business life.

The trading of your products or billable hours for such items as advertising media, travel, sales incentive programs, office equipment... is quite attractive in these difficult economic times. Suppose that your company sells computer software and needs an advertising campaign to help build demand for your line. The exchange of some of your inventory for well-targeted and realistically valued advertising media may offer you three distinct advantages. First, your cash requirements for the program are vastly reduced. Secondly, when the barter organization takes title to your software inventory, you can book the transaction as an actual sale, thus improving your balance sheet. This is often very important to public companies. Thirdly, since in most cases, the barter company with whom you are trading must "Remarket" your software in order for them to make a profit, they are coincidentally introducing your product to new customers who, if satisfied, may at some point approach you directly for additional orders on a cash basis.

The barter concept has long been used in international transactions to get around the vagaries of currency restrictions and shortages. In the 70s when Pepsico began to trade with the Soviet Union, it exchanged U.S.-made soft drink syrups for, of all things, Stolichnaya Vodka, because the Russians did not have the necessary hard currency to purchase foreign products. Thanks to Pepsico's marketing prowess, this barter arrangement has also become quite a boon to Stolichnaya that today, is one of the premier vodkas sold in the U.S.

A word of caution, barter is not necessarily a panacea. A company interested in trading must make certain that the quality, availability and value of the bartered products and services it wants are realistic. It makes no sense to trade your current firstquality goods for someone's five-year old seconds! It is also very important for a company to clearly understand its real cash costs in the items it wishes to make available for barter. If you are trading seats in theatres that are usually five to ten percent empty, your incremental costs are low and your ability to leverage the tickets into most needed products and services is economically feasible. However, if you are thinking about trading on a one-to-one ratio, a product like an automobile that has a relatively high labor and raw materials cost, the gross margins may be too small for a barter program to be effective.

Having said all of this, for many small- and medium-sized companies the upside potential of barter exchange programs are going to far outweigh their risks. When approached intelligently, barter can be a good business expanding tool. However, like the caveman's flint stone ax, it can cut both ways!

 
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