Trading services, in-kind trade, in-kind services, trade-outs, countertrade, contra agreements…Whatever you choose to call it, bartering is the oldest form of doing business. When two companies trade products or services, both parties can come out ahead. If the terms are clear and each side benefits, especially in cases where time is swapped rather than materials, the arrangement is a win-win. Key West Video has been known to exchange services for spots in trade shows, radio ad time, and even team-building recreational fun.
There are absolutely benefits to bartering. Here are just a few:
- Saves money
- Forms lasting partnerships
- Leads to paid work in the future
- Allows small businesses to preserve capital
- Keeps employees engaged during slow periods
As long as we’re listing pros, it seems only prudent to list cons as well. Here are a few disadvantages associated with swapping services:
- No income or profit is generated
- A precedent could be set for “free” services
- Services could be devalued if others perceive them as something they can always barter for, but never pay for
- Bartered work may not get the same recognition in the marketplace
Compelling Reasons to Barter
There are a number of reasons a business may consider trading services.
- Engage employees who are otherwise unoccupied
- Purge excess inventory
- Take care of a service or product need when cash is tight
- Secure a service you are either unwilling or unable to pay for
- Conserve cash
- Generate new customers
- Charity work that can bring tax breaks and reflect positively on the company
Trading services can occur in a variety of ways. There are one-off trades where companies make a single deal to exchange services in a set situation. Term agreements are another form of trade out. In this case, two businesses may decide to trade services for an agreed-upon amount of time. Or they could engage in an ongoing agreement that becomes a kind of partnership. Another option would be to state the terms of the trade by giving a value to each service or product and working toward a zero-sum outcome when the trade would be considered complete.
Best Practices for Trading Services
Retail goods or products have a tangible cost as compared to services. Still, time is money. Especially when that time could be spent working for a paying customer. There are material costs and there are time costs. Here are some other factors to consider when trading services:
- Trade only on the retail value of your services, not their costs.
- Prioritize by trading for essential services. At the very least, trade for something that has proven value for your business. Otherwise, you may risk getting a reputation for undervaluing your services. That makes people less willing to pay in the future.
- Trade work only when you have extra time and resources. Prioritize paying customers. Perhaps you can arrange a looser timeline with a trading partner?
- Know your value. A good rule of thumb to use is to establish a limit on the value of services you’re willing to trade. Make sure the trade is even or of equal value.
- It’s a good idea to formalize your agreement. That way, both parties are covered. It’s just good business.
Trading Services 101
Identify the kind of ongoing needs your business has, rather than trading services in a desperate situation. Consider your needs and the company that could fulfill them. Then think of what service you offer that would be equally appealing and have a similar value.
Approach a business you already have a relationship with. That way, there’s already trust and an established connection. By the same token, make sure you can trust the business you engage with for a trade. Be sure of their ability to deliver and the quality of their work. As a rule of thumb, treat trading partners as you would any other client.
Be selective. You don’t want to become known as a bartering business or you’ll never make a profit. Try limiting the number of businesses with which you’ll trade or a total service value per quarter you’re willing to trade.
The Right Swap
When it comes to trading services, be realistic about what you’re trading. How long will that project take? What happens if it takes longer or your trade partner asks for extras? Finally, understand the tax implications of a trade-out. Under the right conditions, trading services can be a very satisfying business transaction. Just like trading that granola bar for a cookie when you were a kid, a good trade makes everyone happy.