Note from Phil: Bartering your way to success is a great way to do business and get things done in a corporate setting. As a manager pinching pennies in the current budget crunched system, you may be looking for new ways to get what you need to grow your team and your business. This article from Jay Abraham will show you 7 ways creative bartering could really pay off for your company and your team.

One of the most dynamic means of achieving a greater ROI is through bartering. I could talk about the beauty of bartering all day long. Bartering allows for that ever-elusive combination of positive elements where all parties walk away happy: You benefit, your partner benefits, and your client benefits, too. There’s really no loss to anyone involved. And with the way our economy is going, I am more convinced than ever that bartering is fundamentally important to the future of business. Remember the top travel magazine from Chapter 4 that revolutionized the way it did business by accepting barters for its ad space? Now you can experience the same degree of explosive success. Following are seven bartering strategies that you and your business could implement immediately.

1. Save cash on capital expenditures. Say you’re buying a computer. After you’ve negotiated the lowest price you can get, agree to it only if the seller will take a portion of that negotiated price in your product or service — ideally, 25 or 50 percent. What does that accomplish? It lowers the true cost to you of the computer by up to one-third, depending on what your margins are, and it buys you time on the bartered portion of the purchase because most people won’t use your products or services right away, even though they’re welcome to. You, on the other hand, get access to the computer right away, so you’ve actually deferred payment interest free at a discount for that period of time.

You can even trade a lesser dollar value of your more desirable goods, and for a higher markup. If you don’t think this is feasible, here’s a real-world example that may change your mind.

I’ve seen car dealers trade cars for two or three times their value in "soft dollar" services, which I explain below. Let’s say a service provider wants to do the window cleaning for them – or anything, really, because car dealers spend tens of millions of dollars on services and on products. Why shouldn’t they leverage that need to their advantage?

So let’s say you want to get in on this dynamic. If a car dealer is willing to trade you initially, you can get a car. Let’s say your product is marked up five times. The car dealer marks his up twice. You get the car for twice, and sell it for less than the car dealer would. You get a profit on your services, and you get access to the car dealer as a client when the trade runs out.

Alternatively, you can pay your operating expenditures, even payroll, by converting it to a variable or soft contract with "soft dollars." This means that you could be low on cash, or even out of cash, and still continue to operate and prosper, and continue to employ critically needed personnel or service providers using barter as your means of commerce.

I’ve gotten lots of stuff done for me in this way. For three or four years, all of my decorating, furniture-purchasing, and house-painting goals were accomplished through barter. I’d give somebody my services at $5,000 an hour, and he would give me his. My wife has a Porsche convertible. It cost me a day and a half of my time in trade, brand new.

2. Print your own currency or scrip, usable only at your place of business. Your imagination is the only limit to the advantages that having your own legal tender can provide to your business. Here’s just one thing to think about: Say there’s something your company really needs or wants to acquire, but you can’t afford it on a cash bank basis. Using your own currency, whereby the cost is based on the cost of supply in goods and services, and where you take delivery now but pay for it much, much later, you can afford to acquire all kinds of things.

There are times when you have to triangulate. You may not have something that is wanted by the business you’re trying to hook, but you may be able to trade your product or service to a third company or individual who’s got that hook; then you triangulate it. Here’s how it works.

Say you issue a $5,000 credit to a printer. She gives you $5,000 worth of printing and delivers it immediately. You pay with your barter scrip or credits, and you allow the printer one to two years to use those credits with you. Until the printer actually uses those credits, you haven’t paid out a thing, and because she probably will use only a portion of the credit with you at a time, its cost will easily be handled a little at a time incrementally. But a dollar paid in two years costs you a lot less than a dollar paid today.

3. Keep in mind that your bartering partner may never cash in. This point is not meant to be manipulative or unethical. It’s just a truism reflecting "breakage," which represents the barter certificates that are never used. A certain percentage of all barter credits issued, if they have an expiration date (which I recommend), will not be used. Here’s an example.

A major New Orleans hotel traded $125,000 worth of radio and TV time, and issued barter scrip in that amount, for use of the hotel’s services, with a one year expiration date. Right up front, the hotel got $125,000 in advertising at regular cash rates. This was advertising for which the hotel had been paying $125,000 in real cash in the past.

At the end of twelve months, an audit revealed that the TV and radio stations had redeemed only $35,000 worth of the barter scrip within the time limit. The hotel was ready to make good on its barter scrip — it was willing and able to. But the rest of the credits expired unused, so the cash cost of the hotel delivering $35,000 worth of rooms was only $5,000. The hotel had leveraged up $125,000 in advertising for $5,000 hard dollars.
Note that this calculation doesn’t take into consideration two other factors that, although often overlooked, are extremely significant:

• Statistically, $35,000 in room trade produced $17,500 in cash, food, beverage, and miscellaneous real sales, with gross profits in excess of $8,000 for the hotel. So the hotel actually got paid $3,000 net after all expenses were entered into the transaction.
• All $35,000 worth of rooms were not used at one time. The room reservations were spread out over twelve months, meaning that the hotel got to pay the $5,000 over twelve months totally interest free. In essence, the hotel received $125,000 worth of advertising up front, and got paid to use it.

In light of the evidence, I think we can safely say that this barter was one of the best decisions the hotel ever made.

4. Convert your bartered items into cash. Many barter items can be sold or converted to cash at a fee well above the cost of acquiring them. And this happens not only with small businesses but with Fortune 500 companies, too. Here’s just one example.

A few years back, a Spanish television network traded with Chrysler Corporation for 192 cars. The seven-station chain sold the cars to its employees at a 30 percent discount over what the cars normally stickered for. The employees were overjoyed because the most the dealer would have discounted them was 15 percent. The average value of each car was $10,000, and ultimately, the television’s network received from the sale more than $1,920,000 in real cash for unused airtime that cost it nothing. This was expiring time the stations weren’t using — time that probably would have gone unused and, thus, would have produced zero revenue unless it was traded.

But the deal gets even better: The radio station traded 45 of these Chrysler cars to a television transmitter manufacturer, in exchange for a half million dollars’ worth of transmitter equipment, which permitted the radio station to open up a new full-power UHF station in San Francisco without using any cash. The ability to trade for this equipment sped up the timetable to get the San Francisco station on the air by more than one full year; it also enabled the station to operate in the beginning without draining all its limited cash. That radio station became a runaway success before any other Spanish station ever penetrated San Francisco. And the station was subsequently sold for $400 million — really, $400 million — even though, by itself, it was probably worth only $50 million.

5. Create a barter profit center. Some salespeople who are not effective in cash selling are extremely successful in bartering. So you might have a sleeper salesperson working for you whose sales will skyrocket and give you huge bonus margins on the products or services once he or she starts bartering. You trade your products or services at full rate, then turn right around and sell the merchandise for services you acquire to the open market, at a discount, under the going rate for the merchandise. Here’s a cool example.

The Home Shopping Network, which is now a billion-dollar business, was actually conceived and started by the owner of a small-time radio station in Florida who was having difficulty making payroll. The owner traded 1,400 electric can openers (really!) with a hardware store and then cash-converted them over the air. Lo and behold, his company was saved. He basically held an auction, and then began trading and auctioning goods and services over the radio to the listening audience. Within sixty days, the small station was back in the black.

Then the owner bought some cable time. When this also proved successful, investors backed the concept into satellite link, then went national. The stock went up; it grew bigger than Xerox. The company sales now exceed $1 billion, and it all started with 1,400 can openers in trade.

6. Finance rapid growth without cash. You don’t necessarily have to wait years to amass enough capital to go into business. If you’re innovative, you can get started with virtually nothing, and the capital will come to you. Here’s what I mean:

Carnival Cruise started out as a Florida-based cruise line. It now has the largest cruise line in the world. But it started with only one ship and no real capital. It was totally uncapitalized. In the beginning, the lone ship the company had wasn’t even painted on one side. (I know this because I’m friends with Carnival’s marketing and advertising guy.) The company had to park it on the painted side so people wouldn’t know the other side was unpainted.

So what Carnival did was trade otherwise-empty cabins for radio, television, and newspaper advertising in 100 cities over a ten-year period. The cost of an empty cabin once the ship sails is minimal, plus the passengers would spend considerable cash in the bar, casino, and gift shop. When the advertiser or other recipients booked the cruise, Carnival would charge them a processing fee of about $90. That $90 paid for all the food plus the incremental cost of towels, toilet paper, and electricity. So Carnival was out nothing, and it got the advertising it needed.

The payoff for Carnival was pretty substantial: The company used this technique to become the largest cruise line in the world, continuously advertising in 100 cities for more than ten years without spending a penny of hard cash. A conservative estimate of the amount of sales generated numbers in the hundreds of millions of dollars. The owner became a billionaire and was on the top of the Forbes Richest Men list — all with this one bartering strategy.

7. Recycle dollars right back into your own pocket. Barter certificates can be used as a type of currency that circulates only within your business. What you pay out comes right back in:

Remember our discussion of the New Orleans hotel? It extended the barter scrip approach beyond that one $125,000 deal. Now it issues its own barter certificates to the tune of $7 million a year. The certificates over the years have become extremely popular. The hotel is able to trade for advertising on nearly any radio or TV station in the country because it’s so desirable. It saves an estimated $10 million a year in cash through this process because it gets incremental business and, in any case, honors the certificates only when they’re unsold. In short, this way of doing business costs the hotel almost nothing.

Here’s another example:

The City of Palm Springs orders advertising for its tourist bureau. In order for the media — the radio stations and the TV stations around the country — to be paid for the advertising they run, the tourist bureau requires that the media travel to Palm Springs and spend the vouchers in the city itself. In other words, the money gets recycled. Let’s say the tourist bureau execs spend $100,000 on TV in New York. They don’t pay it with cash. Instead, they pay it in vouchers good for any merchant of the tourist bureau in Palm Springs; but it’s got to be repaid there, so it all comes back.

One other thing I recommend that businesses do is to leverage stockholder benefits. Many companies issue employee or stockholder benefits, like bonuses, vacations, and so on, in barter. They do it all in barter, and it costs them almost nothing. An  it’s not just about accumulating perks to pass out to employees. It’s about creating revenue that flows direct to the bottom line.

This strategy isn’t just for companies working with limited capital. Here are a few of the companies that trade: During the oil shock of the 1970s, Chrysler, stuck with big gas guzzlers that suddenly no one wanted, traded 900 Imperials in six weeks for radio and TV advertising that helped the company stay alive. Yamaha traded 16,000 guitars for advertising. Mazda traded 350 cars for advertising credits. These companies, too, have successfully made use of bartering: Best Western, Sheraton, Outrigger, the former Beverly Wilshire Hotel, Carnival Cruise, Aero Mexico, KLM, Continental, RCA used to, Citizen’s Watch, Turner Broadcasting System, NBC, Budget Rent-a-Car, Avis, Hawaiian Tropic, Conrad Cruise, Mexicana Airlines, Air France, Curtis Publishing, TWA, Samsung, Carl’s Junior restaurants, Levitz Furniture, and Coty Perfume.

All of these companies have traded in the past. I project many more will barter in this crisis economy. One of those should probably be yours.
The above is an excerpt from the book The Sticking Point Solution: 9 Ways to Move Your Business From Stagnation to Stunning Growth In Tough Economic Times by Jay Abraham. The above excerpt is a digitally scanned reproduction of text from print. Although this excerpt has been proofread, occasional errors may appear due to the scanning process. Please refer to the finished book for accuracy.

Copyright © 2009 Jay Abraham, author of The Sticking Point Solution: 9 Ways to Move Your Business From Stagnation to Stunning Growth In Tough Economic Times

About the Author: Jay Abraham, author of The Sticking Point Solution: 9 Ways to Move Your Business From Stagnation to Stunning Growth In Tough Economic Times, is founder and CEO of Abraham Group, Inc., in Los Angeles, California and has spent the last twenty-five years solving problems and significantly increasing the bottom lines for over 10,000 clients in more than 400 industries worldwide. Jay has won high praise as a marketing genius in USA Today, the New York Times, the Los Angeles Times, Washington Post, San Francisco Chronicle, OTC Stock Journal, National Underwriter, Entrepreneur,Success, Inc., and many other publications. Jay’s clients range from business royalty to small business owners, many of whom acknowledge that his efforts and ideas have led to an increase in profits ranging into the millions of dollars. He lives in Los Angeles. You can learn more about Jay Abraham at www.abraham.com

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Better Business Barters: 7 Ways