I'll trade you twelve chickens for that sheep. I'll give you a goat to help me tend my crops.
Before currency, this was the foundation of economics and the introduction of the idea of specialize and trade. Currency then of course improved the whole system by serving as a universal tool of trade. But does this mean that currency is now needed for every transaction?
Of course not. I've used bartering on a number of occasions myself. I've traded my supply chain and cost management services for branding and marketing, and even merchandise. Not only is the concept alive and well, but there are some considerable benefits in partaking in this kind of trade.
1. Cash Savings
Bartering provides an obvious cash saving opportunity. In my case, I wanted to benefit of professional guidance in developing my brand, but I didn't want to expend the cash to do so. Luckily though, I had a skill set that was desirable to a local marketing firm, so I was able to trade those skills in exchange for their brand development services , and I was able to hold onto my cash for other purposes.
2. Cost Reduction
Bartering not only saves cash, but it also can effectively reduce costs for both parties involved. Suppose that you are a manufacturer of widget A, and you are making a trade with the manufacturer of widget B. Assuming that you have excess capacity, you can effectively trade widget A at it's full price for widget B, but this only costs you the cost of producing widget A. So if you sell widget A at margin of 50%, you get widget B for half the cost that you would paying in cash. The same perspective would be true for the widget B manufacturer.
3. Utilize Excess Capacity
Most businesses have some excess capacity. This excess capacity is, in essence, the excess supply over the demand for the the goods or services produced. Overhead is already being paid for this capacity. The building and production equipment are there. The staff is on hand. The excess capacity is just lost opportunity. So why not barter that excess capacity away and receive some benefit for it. The same could be said about excess inventory. Sometimes we might take a gamble on bringing in a new product, and sometimes we lose that bet. That inventory that is just taking up space might still be able to bring some benefit. There might be parties out there that may not want to part with cash for that inventory, but might have excess capacity of their own that they would be willing to trade.
4. Jump Start Sales
Bartering can provide a jump start to sales for a startup. This is especially true for startups providing professional services. Getting the first sales for a new business can often be the most challenging. When starting from zero, you don't have a reputation to draw off of. You haven't yet established a strong, trusted brand presence, so it can be very difficult to convince those first customers to buy. A bartering arrangement can help with that. As mentioned before, many companies have excess capacity that isn't bringing them a benefit. While they might not be willing to part ways with their cash for a yet to be proven service, they might be more than happy to trade some of that extra capacity to receive a potential benefit. Those trade sales can be great to build testimonials to start establishing a reputation, and can also be a great opportunity to practice and perfect the offering.
So whether you are a hungry startup looking for some traction in the market, or you are a well established business with some extra capacity, bartering can be a great tactic to obtain some benefits when a cash transaction might not be in play.