Fair Trade

The digital age brings the good ol' days of bartering to B2B transactions.
Magazine Contributor
5 min read

This story appears in the August 2001 issue of Entrepreneur. Subscribe »

Online retailers are turning to an old concept these days to get rid of excess inventory-they're rediscovering the art of bartering.

Although bartering itself isn't new, its popularity is. According to the most recent statistics from the International Reciprocal Trade Association (IRTA), $16 billion worth of products and services were bartered in the United States last year. Experts predict that figure will reach $26 billion this decade.

Some attribute the industry's growth in part to the slowing economy. Now that more people have less disposable income, there's more accumulation of unused inventory that needs to be moved. Plus, large numbers of netpreneurs rely on barter to get rid of excess inventory these days because they haven't yet mastered the subtler side of sales-including how to order goods customers want, calculate proper quantities and bring buyers to their sites. Too often, eager online merchants end up with mountains of unwanted, unsold wares.

leading Web sites field more than half of all Net traffic in the United States: AOL, Microsoft, Napster and Yahoo!.
SOURCE: Jupiter Media Metrix

Proponents insist bartering serves as an attractive solution for business owners because it enables them to get fair market value for excess inventory and underperforming assets. Bartering also offers an alternative to selling inventory at greatly reduced prices to liquidators, holding close-out sales or discounting excess inventory. In fact, on average, bartering companies pay businesses trade credits equal to three times what liquidators would pay for the same so-called distressed inventory.

"When you're liquidating something, you're getting pennies on the dollar," explains Bob Meyer, founder, publisher and editor of Barter News, a Mission Viejo, California, journal for the reciprocal trade industry. "When you're selling through a trade exchange, you get the full wholesale or retail rate. So you get top-dollar-the same [amount] you'd get when selling to your normal clients, only in trade dollars."

The arrangement works well, in part, because most barter companies give entrepreneurs tens of thousands of products and services to choose from-and there's no cash outlay. A sample of offerings might include: advertising time or space from broadcasters and media outlets; business travel deals for hotels, car rentals and airlines; office supplies and products; printing and packaging services; layout and design services; photography; carpeting and roofing services; and even telecommunications services and electricity.

Barter Smarter

These days, experts say entrepreneurs interested in bartering are gravitating toward online barter companies instead of traditional brick-and-mortar ones. The reasons are obvious: Online barter companies offer a wider universe of possible partners, faster matches between those partners and lower service fees. In fact, most online barter companies collect commission fees of just 3 to 10 percent on transactions. In contrast, offline exchanges usually charge 10 to 15 percent. Plus, almost all offline exchanges require pricey membership sign-up fees that run anywhere from $45 to $395. Additional monthly dues cost about $30.

Online bartering services also allow busy entrepreneurs to participate in exchanges and trades at any time of day or night. Offline exchanges, on the other hand, are only open during business hours, and they usually require that business owners deal with brokers.

There are a variety of online barter companies to choose from. Some popular options worth looking into include Bigvine.com, iSolve.com, Tradaq and Ubarter.com.

Perhaps the most popular online barter company is currently San Francisco-based Bigvine, whose parent company is Allbusiness.com. Bigvine collects a 4 percent commission from both buyers and sellers on transactions of less than 5,000 trade dollars, and a 3 percent commission on transactions of 5,000 trade dollars or more.

Moin Ghatala, 50, founder of A & M Computers Inc., a San Francisco, California-based six-person company that sells computers and software, began using BigVine's barter site last year and now swears by it. Ghatala says he uses the service regularly to trade his excess inventory for things such as restaurant meals he gives to his best customers.

"In the computer world, the moment a new model hits the market, the old model becomes obsolete," says Ghatala. "Oftentimes, we're left with excess inventory because of this. However, instead of sitting on the inventory in a warehouse, I can place them on BigVine, and there are still people out there looking for those items."

Before signing on with any bartering company, it's a good idea to do a little research. The IRTA suggests you ask for a referral list of clients, check their barter prices to see whether products and services are priced fairly and competitively, and check the geographic coverage of the exchange's customer base.

But whatever exchange you choose, don't forget that barter sales count as taxable income. In the United States, barter exchanges annually report the barter income of each client to the tax authorities. It's in your best interest not to do business with anyone who sells barter as a tax dodge.

Melissa Campanelli is a marketing and technology writer in Brooklyn, New York. E-mail her at mcampanelli@earthlink.net.

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