In March, some 20 staffers of BD’s Mongolian BBQ partied in a Detroit Pistons suite at The Palace of Auburn Hills. They’d won a contest to sell the most food and beverages for the six-location Detroit chain, and this night was their reward.
But Billy Downs, the company’s CEO, didn’t pay a dime for the shindig. Not technically. The incentive to Downs’ top-selling servers was paid for through bartering.
Downs has a lot of company. According to the International Reciprocal Trade Association in Rochester, New York, bartering is bigger than ever. Among businesses it’s been rising 10 percent annually, according to a 2005 IRTA study looking at recent years. Bartering, says executive director Krista Vardabash, helps market a business for far less than the cost of mass advertising.
That’s certainly been the case for Shannon Hogg, marketing director for the Tavern Restaurant Group in Cincinnati, Ohio. “I’m not shy if I’m working on an advertising deal to ask if the station will do a portion of it in trade,” she says.
Larger magazines, TV and radio stations are often eager to trade air time for meals, she says. Almost every quarter, Hogg works with Clear Channel on a weeklong promotion, where her chain of six restaurants auctions off 50 gift cards worth $50 each to Clear Channel listeners in exchange for a heavy, weeklong promotion that involves Hogg and her chef making on-air appearances. Hogg is getting $20,000 in airtime for $2,500.
Bartering is more sophisticated than in years past, with members paying annual fees in groups that can contain upwards of 5,000 or even 10,000 businesses worldwide. “I personally don’t like the term ‘barter,’” says Vardabash, “because that means I have this and you have that and we swap. That’s really not what modern exchanges do.”
Today’s bartering systems are more like a virtual market, where members of a trade exchange pool their services, accruing one trade dollar for every dollar given away in goods or services. Offer up a $100 lunch to a trade member and you’ve earned $100 toward another member’s services, even if they never visit your restaurant. “When I started this [in 1978] everyone thought I was crazy,” says Fred Detwiler, president of TradeFirst.com, a trade exchange in Detroit.
Detwiler charges a $475 yearly membership fee and a 10 percent commission for each transaction. For their dues and fees, TradeFirst.com members, like BD’s Mongolian BBQ, gain access to trade brokers who can negotiate exchanges, as well as their own TradeFirst credit card.
For owners like Downs, who last year contributed $100,000 to the trade pool, or less than 1 percent of his $55 million in sales, it’s a great way to organize staff promotions and incentives without having to pay cash for them. The winner of his company’s Create a Stir-Fry contest this year, in which servers were encouraged to sell more food, enjoyed a trip to Disney World—paid almost entirely through trade.
The 5 Rules of Bartering
Be careful out there
Many fly-by-night trade exchanges are born that will fail within a year or two. Make sure your exchange has at least a few years under its belt. Also, ask for a list of members to make sure the exchange will offer services you need.
Do the numbers
Restaurants with low margins are probably not suited for trade, since every table they barter is one less table earning cash. Experts say 20 percent of sales is the most a restaurant should spend on trade, and far less than that is actually smarter. Also, mind trade exchange fees (as much as $500 a year) and transaction commissions (from 6 to 12 percent).
It’s only for business
Want to take your family on a vacation this summer? Don’t use trade dollars to do it. It will complicate your tax statement and means you’re taking business dollars and using them personally—an expense that can’t be written off.
Watch out for price gauging
For years Matt Prentice, CEO of the Matt Prentice Restaurant Group in Detroit, avoided bartering, but he recently joined TradeFirst.com. The reason for his wariness? Inflated pricing. “As a restaurant, we have a menu, and the price is the same whether you’re paying me with cash or a trade slip,” Prentice says. But if he gets his carpets cleaned on trade, for instance, the cleaners may agree “to do the trade but at inflated pricing.” Most trade exchanges forbid such practices. Make sure yours has a policy in place.
Think about a broker
In addition to pooling local businesses, many exchanges also offer brokers who can help businesses find the best products and services for their exchange dollars. Use them.