This morning I had a phone call from a polite and enthusiastic sales rep from Bartercard. Having been a member of Bartercard some years ago, I know a reasonable amount about how it works. However, every time a sales rep from Bartercard calls me, I’m always amazed by how little they understand the actual cost to the members. I thought it was time to put out a few warnings about the downside of Bartercard. Note: There have been a lot of comments added to this blog. Some are from customers both happy and unhappy. There are also comments from people who have worked inside Bartercard itself. Please feel free to add your own Bartercard Reviews!
For those of you who don’t know anything about Bartercard, it’s a system that a business can join to “trade” with other members of Bartercard. A business will normally be given a line of credit worth T$10k – that’s 10,000 Trade dollars. The business then goes and spends this line of credit, incurring fees. These fees are as follows;
- 5.5% transaction fee on any sale or purchase in cash (real money).
- 1% transaction fee on any sale or purchase in Trade dollars.
The business then accepts purchases in Trade dollars from other Bartercard members for their goods or services and so the cycle continues.
Something that is important to note is that nowhere on the Bartercard website are these fees listed as part of the information available to a prospective member. The only reference I found to them was a couple of obscure articles from 2009. You can verify this yourself by doing a search like this on Google: “site:nz.bartercard.com 5.5%” – or just click that link.
At this point, you might be thinking that the fees don’t sound too bad, if you can get some extra business that you wouldn’t otherwise get? However, the catch isn’t just in the fees. The real cost of Bartercard is in other factors both tangible and intangible. Let’s cover a few of the benefits that Bartercard claim and see how they stack up. Remember that these are my personal opinions and not everyone will have the same experience with using Bartercard that I had. If you just want to get to the nitty-gritty, head down to “What’s the real cost of Bartercard?”.
Barter increases sales
Bartercard has over 7000 members in NZ, so this is certainly true. When I was using Bartercard, we took over $30k in extra business in a year.
Barter improves cashflow
This claim, I don’t agree with at all. In fact, I don’t see how making sales with greater fees and increased costs for something that isn’t real money, can improve cashflow. In my experience, it was a significant drain on cashflow. I see how Bartercard try to make this claim but it just doesn’t stack up.
“Cash savings are the primary benefit of barter. Barter allows you, as a business owner, to pay for what you need with your own goods or services, allowing you to preserve working capital for other expenses.”
Not in my experience. Most people I’ve spoken to who use Bartercard struggle to find ways to spend their trade dollars as a business expense.
“When you use barter, instead of cash, to purchase needed goods and services, you reduce your cash costs by paying for them with revenue generated by incremental barter sales.”
“Bartering helps reduce cash outlays for overhead costs. Many of the services offered through barter — such as accounting, cleaning, gifts, restaurant dining and travel — relate to overhead costs. Obtaining these overhead services through barter rather than writing out a cheque saves you cash.”
This doesn’t really make any sense. A cost is a cost, whether or not it’s cash is irrelevant. In fact, with fees, it’s actually costing you more.
“Making purchases with your Trade Dollars means the payment is made with new sales – sales made by your exchange affiliation.”
Okaaay… but in reality, no one joins Bartercard because they’re already working at capacity. Bartercard is quite simply not as good as cash, so businesses who join Bartercard, tend to do it because they need more income. Trade dollars are not as liquid as cash, increase costs and come with other problems.
Barter moves excess inventory and fills idle inventory time
“Bartering also allows you to improve inventory management by converting excess products into valuable goods and services. If you barter, you avoid having to liquidate excess inventory through drastic discounting.”
This I do agree with, because if you look at it from a different angle, it highlights one of the main problems with purchasing products through Bartercard – they are often crap! Excess inventory exists because it didn’t get sold. The reason it didn’t get sold is possibly because no one wanted to buy it because it was over-priced, inferior or just that no one wanted it. This isn’t the case all the time but as anyone who is a member of a “points” program (I use Airpoints), the products often turn out to be not quite as good as you though they would be.
Barter can enhance productivity
“Barter helps companies put inventory, equipment and employees to good use, creating new revenue that would not have been available otherwise. That new revenue can be used to finance the purchase of new equipment, raw materials or services to support the business. Essentially, a company’s less productive assets are exchanged for more valuable goods or services through the help of a barter exchange.”
So what you’re saying is that we should trade our unproductive assets for someone else’s unproductive assets… hmmm. It doesn’t shout “quality” does it? See the next claim…
Barter can reduce non-performing assets
“Businesses with obsolete inventory frequently find that bartering the assets yields a much better value than liquidating it for pennies on the dollar. Instead, the company can sell the inventory to a barter member for trade credits close to the carrying cost or book value, and then apply those credits to other business expenses, such as marketing, entertainment, travel or raw materials. Exchanging an unwanted asset for something else of value helps recover a significant amount of incremental revenue that might otherwise have been lost.”
Quality is one of the biggest issues I had with Bartercard. Because the product or service being offered is being paid for with a Trade dollar and not real money, the provider tends to offer a lower quality product or service than you’d normally get if you were paying with cash. Prices also tend to be higher to compensate for the perceived lower value of the Trade dollars and everyone walks away wondering why they bothered in the first place.
Barter can reduce seasonality
“During periods when business is typically slower due to a company’s goods or service mix, companies can still strengthen their overall financial position by accepting trade credits through barter.”
Sounds great but again, the costs and difficulties are glossed over.
Barter facilitates new cash sales
“The key to sales success is referrals – word-of-mouth marketing. If you perform a good job for a client you serviced through your barter exchange, they will undoubtedly refer their cash-paying friends, clients, family and associates to you.”
The trouble is that it doesn’t work this way. What happens is that word gets around that there is a new Bartercard member offering a valuable service or product and they get swamped with other Bartercard members trying to dump their Trade dollars on them before they figure out what the “benefits” really are. Once I stopped using Bartercard, all the members that had been using my services evaporated into thin air to find the next sucker web designer!
Barter facilitates increased profits
“Sellers within a barter network make incremental barter sales (over and above their cash business) and increased sales mean increased profits. Additionally, the real cost of the goods or service you purchase on trade is actually the wholesale cost of your Trade Dollars earned (see benefit: Barter creates wholesale buying power).”
Bartercard have a habit of making what are some of the worst aspects of Trade dollars sound like a benefit. Yes, members may well have increased profits. What do increased profits mean? Tax. As Trade dollars are taxable just like any other income, the IRD will want their cut. If you haven’t managed to spend all your Trade dollars on deductible expenses (I was never able to), where is the cash gong to come from to pay for the GST and income tax? You guessed it, your normal cashflow. Remember how Bartercard was going to improve your cashflow? Yeah right.
Barter expands distribution channels
“Barter exchange members can cost-effectively expand their business market reach by marketing to the exchange network’s membership base. The larger the membership base, the better, as this provides a larger market and a far higher selection of trading options. Bartercard has a nation-wide and global membership of over 7000 New Zealand businesses, and over 36,000 around the world. This provides strong marketing and trading options through its national and global directory service, plus the national opportunities the eMARKETplace offers.”
Yes, it expands your opportunities to get more Trade dollars you can’t spend. Awesome.
Barter creates wholesale buying power
“With barter exchanges, the real cost of the goods you purchase on trade is actually the wholesale cost of your Trade Dollars earned. Making sales with built-in profits makes the cost of your purchases more economical on trade. When you join a barter exchange, you open the door to a new, cash-free way of handling everyday business and personal expenses.”
Does this make sense to anyone? If anyone can explain it, please register and post a comment because it just sounds like meaningless waffle to me.
Barter builds customer loyalty
“When one business is connected to another through barter exchange, the two businesses are connected by more than a simple transaction, rather a network. Businesses that routinely trade for goods and services will bypass competitors to deal with each other.”
Because no one else wants their Trade dollars! And if these two theoretical businesses had any brains, they would stop using Bartercard, avoid the fees and just use cash.
Barter gives you advantages over your competition
“Increased customer base, expanded geographic markets, additional sales, improved cashflow and increased profit, all facilitate increased advantage over your competition. Bartering through a trade exchange can assist a small business to portray the image of being a big business without the cash-costs incurred by much larger businesses. For example, barter enables businesses to execute additional marketing to gain more sales without spending cash.”
Bartercard are really big on making “spending cash” sound like something that dodgy people do in dark alleys. It’s a contradiction that is repeated over and over again. They are at pains to convince us that Trade dollars are just like cash but only better, funner and used by only those who are smart enough to step away from the fools who prefer cash!
What’s the real cost of Bartercard?
As I mentioned earlier, when I used Bartercard, we took around T$30k+GST (30,000 Trade dollars) in a year. What I’m showing here is the worst case scenario, not exactly what happened with us. For the sake of the example, I’m also assuming that we also spent all the T$30k in the same year.
In this example, all the Trade dollars are spent on personal, non-deductible expenses. In an ideal world, you’d spend all your Trade dollars on business expenses but we found this to be impossible.
The Bartercard cashflow drain
- Bartercard Sales Fees (5.5%) – $1650.00
- Company Tax (28%) – $8400.00 (it was actually 33% when I was taking Bartercard)
- GST – $3913.04
- Monthly Fees – $420.00
Total cash required to take T$30k is $14,383.04 – nearly half of what was taken. Remember that this cash has to come out of your normal operating cashflow. Using Bartercard actually means you need to earn even more cash in order to subsidse the Trade dollars that you take in. If Bartercard object to this calculation, I invite them to correct me on these figures.
- The monthly fee, I set at $35. I couldn’t find the actual fee for NZ anywhere, so used the same fee as Bartercard Australia charge.
- There are also other fees for directory listings and advertising but I couldn’t find any details on those either.
- There is also the 1% T$ fee on all sales and purchases.
Yes, this is a worst-case example but it still highlights the massive cash drain that Trade dollars can have on your business. Even if you were able to spend ALL your Trade dollars on business expenses (and you’re unlikely to) so that you paid no company tax or GST on the income, there is still the question of the huge 13% total fees for transactions, plus other membership fees.
How these fees impact on Bartercard members in practice
Basic economics dictates that if costs are added to a transaction, prices will rise to accommodate that cost. I’m not just talking about the fees or tax costs either, there are other less tangible costs that find their way into the Bartercard economy.
Taking Trade dollars means that you can only spend them on the goods and services available in Bartercard membership. Even with so many members, this significantly limits your options.
After taking the time to track down a business that will sell you what you want, there is no guarantee that they will take your Trade dollars. This happened to me a lot and when they were willing to take them, they often wanted to take part in cash. This was against Bartercard rules but it happened all the time.
Wasted Purchases Cost
As we became frustrated with our inability to spend this massive haul of Trade dollars that we were sitting on for business expenses, we started to buy things we didn’t really need, just to get rid of them. This took us into a false economy, where any benefits that did exist by using Bartercard were gone as we felt forced to waste the Trade dollars we did have.
Personal Purchases Cost
Because it is often so difficult to spend on business expenses, members tend to buy a lot of personal things instead. This immediate creates additional cash costs for GST and Income Tax.
Perceived Value Cost
This is probably the worst of all and is the real source of a lot of the problems with Bartercard. Due to all the above costs, inconveniences and difficulties associated with Bartercard, members (rightly) don’t consider them to be as valuable as real money. They adjust for this by raising prices or reducing value on Bartercard purchases. This is against Bartercard rules but it happens all the time. Wikipedia states that “Most independent forums (like Whirlpool.net.au) consider the value of 1 Bartercard dollar to be about 0.33c AUD”. That means your Trade dollars are only worth a third of the value of real money.
Why use Bartercard?
Given that there are so many downsides to using Bartercard, I’m amazed that so many businesses still seem to use it. The inherent and intangible costs are a huge barrier that only seem to be recognised by those who experienced them for themselves.
If you’re considering using Bartercard, don’t. Put those costs into marketing your business more effectively and get real cash income without all the added fees!