This is truly a treasure that deserves uncovering. I had the great privilege of talking with a barter genius Michael Jackman about how, specifically one becomes a successful business using the help of a barter organization. Mike is a broker for one of the busiest and most respected barter organizations in North America. He has more than 10 years of practical experience and know-how in business. He is a marketing consultant and is constantly training and coaching businesses on how to grow effectively. Michael claims he can grow your business 5-15% per year using nothing more than barter. In this interview, Michael provides numerous, detailed examples of exactly what barter can do for you and how it can generate you new business. Michael describes in detail how get involved with barter, what it's going to cost you and the tax implications. Never before had I extracted such detailed, meticulous, and systematic barter fundamentals. Listen now and use these ideas to trade your way to more business starting today. Total time 28 minutes

Michael: How would you explain to a lay person what barter is?

Michael J: That’s a good question. The simplest way that I can phrase it is it helps you take what you have as a business owner and turn it into something that you need without taking cash out of your business.

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Michael J: I’ve been involved with the barter network for a couple of years now. I just fell in love with the concept and what it did for my business. They actually were a client of mine and they still are. I have an online consulting and marketing firm. They were an actual client of mine and I ended up getting to know the owner of the network. Literally launched my business to 1,100 people. That’s one of the great benefits about joining a barter network.

Michael: What was your business before you joined it?

Michael J: I’m a marketing consultant. I do a lot on online web development. Basically, what I do, Michael, is I find a brick and mortar small business owner, people who really don’t have time to spend any time online and I help them design marketing campaigns, web sites and that kind of thing. Set up autoresponders for them. And I was doing some online marketing work for them, as well, doing email, stationary—simple things.

Michael: So, this barter network was one of your customers.

Michael J: Exactly. And I ended up talking about growing their business and some of the things that they can do and some of the products that I’ve developed for the brick and mortar businesses. And we have a real nice partnership now where I’m helping them grow barter in their business. And they’re launching a lot of my online marketing products to their clientele. So, it’s a real nice partnership. I’m a firm believer in what it can do for you just from an exposure standpoint.

Michael: What is barter in simple terms? If I didn’t know anything about it, how would you explain to a lay person what barter is?

Michael J: That’s a good question. The simplest way that I can phrase it is it helps you to take what you have as a business owner and turn it into something that you need without taking cash out of your business. For example, every business usually has some type of excess capacity or excess inventory. If we were all operating at 100%, everybody would be retired and in the Bahamas somewhere. But for the garage mechanic who has an open bay on a Tuesday afternoon, or if a restaurant has open tables on a Thursday night, it’s a great way to take that excess capacity and buy something that you need for yourself or for your business. So, everyone is familiar with one-on-one barter usually. Let’s say I’m a web developer and you’re an accountant and I trade a web page for your accounting services; you do my taxes. That’s an even one-on-one trade and most people are familiar with that type of concept.

Michael: It’s like trading and that’s another term used within the barter. Barter is the same thing as trading.

Michael J: Exactly.

Michael: I think the Phoenicians, back thousands of years ago; this is how people transacted business isn’t it?

Michael J: Absolutely. There’s no doubt in my mind that it even started back with the caveman. The caveman came back with some meat and he traded the meat to the women, not to be chauvinistic, but I think was pretty much the role way back when.

Michael: So, was this a replacement for currency?

Michael J: Exactly. And now that the advent of high tech computer systems and the Internet, it’s really catching on again because you don’t really need to have the currency. The currency is just a symbol for value. And we can now trade the value that we each have in our own business with each other. So, it’s really catching on now that the Internet has reached like a critical mass.

Michael: Give me an example. Let’s say I’m a florist and I have a brick and mortar business. I have a flower shop. I have regular customers who come in and it’s summer time and generally business is kind of slow at this time of year. And then you come into my store and you introduce yourself with this trade organization. And you want to explain to me that barter maybe a good consideration for my florist business. What are you going to tell me and can you give me some examples, some specific examples, of how your trade organization will benefit me and give me the ability to, in the bottom line, profit from your organization?
Michael J: Absolutely. Certainly the florist, if she or he does have any downtime, as I mentioned before, we can help fill that excess capacity. Now, the way we do that is by supplementing incremental customers to your business outside your normal cash geography. So, let’s say you’re picking a town—I’ll just use my town for example in PA and the flowers are sitting here in my flower shop. He or she has a certain geographical concept. Most people will travel five miles in their geography. However, I’m going to introduce new clientele to her company because she’s now a member of the barter network that will supplement her cash business and increase her revenue. For example, if I were a member of the barter network and I saw that this florist was another member of the barter network and she is 20 miles away, well, now I’m not going to call my local florist and pay cash for flowers when I can take my barter dollars and trade them to the florist in another town.

Michael: So, barter network is a group of like-minded businesses who have this barter currency to spend within their own group.

Michael J: Right. It’s a captive market. It’s like a club almost. And we each trade with each other; it’s like a round robin. Just because you don’t need my products or services, I can still purchase yours because you can now take those barter dollars and spend them with any other member within the network. So, the first real advantage is that it’s going to help her grow her business. And we often say with BNI that if we can’t grow your business 5 to 15% every year with extra income, extra businesses, then we’re not really doing our job. So, that would be the first real advantage that I would try to sell on. We’re going to expose your business to 1,100 business owners that would not normally hear about you or decide to do business with you.

Michael: So, that extra spending money I’m going to get in the form of barter dollars or trade credits is going to come from business I would never have had originally in the first place.

Michael J: Correct.

Michael: And because all these members of your barter exchange group are members of the same exchange group, they are more predisposition to buy from someone within the group.

Michael J: Exactly, you got it.
Michael: Let’s talk about your example. You were outside of the barter industry and you were working for this barter company and you became a member. What happened to your business once you became a member and specifically how did the start of new customers from the barter exchange happen? What kinds of promotion happen? What did the barter exchange do for you that got these barter members to call you and spend money with you?

Michael J: Well, I was actually exposed to a lot of things that I needed. For example, I did work for a couple of major magazines in the area. And the one thing that I will say about barter is that not only are you going to be exposed to people that are going to barter business with you, but it also leads to cash referrals. For example, I got exposed to the magazine that I did business with on barter but then they introduced me to some people that I did cash business with.

Michael: So, you don’t have to do barter if you don’t want to and you don’t have to use all barter. If you have a business that takes cash, you can do part cash and part trade?

Michael J: Absolutely. We have a threshold we prefer and we’re just one specific exchange. There are a lot of different barter networks out there. But we prefer 100% trade under $2,000 and if it’s $2,000 and above, then we allow elements of cash to be inserted in there. But let’s go back to the example where you can get cash referral business. For example, we just signed up a seal coater who does driveways. And he did a job on barter. He drove his truck, did the driveway, put a sign in the yard and then did a cash referral from the next door neighbor who wanted their driveway done, as well. So, it’s not only a great way to grow barter business, but also to get cash referrals because now your trucks are out on the street, your guys are out and you’re getting exposed to different markets that you normally would not get exposed to.

Michael: Exactly. And it’s the same thing as referral if you had a cash paying customer. You’re going to get referrals just because you do business with one customer, you and I both know, it can ultimately lead to new business down the road, which you would have never had if you didn’t have that initial exposure.

Michael J: Right. If you do a good job and the people talk about you, word of mouth is still the best advertising. And barter is just a way to come and give that a little bit of inertia.
Michael: How many members are in this barter exchange group that you belong to?

Michael J: Well, it’s been around for about ten years. They done about $40 million in trade and have about 1,100 active members.

Michael: They’ve done $40 million in trade, what a year?

Michael J: For the last ten years.

Michael: For the last ten years, they conducted over $40 million worth of transactions.

Michael J: That’s correct. Now, what’s great about barter is that you have, as a business owner, the full control over whether you need to barter or not. For example, often it will be companies that are seasonal. They will be real busy with their cash business and they can suspend their account because it just doesn’t make sense for them at that particular moment in time to barter when they have all this cash business coming in and they are at capacity. So, it’s very much an ebb and a flow, depending on where you are as a business owner and how mature your business is and things of this nature. So, we constantly have people coming in and coming out of the network all the time.

Michael: Are some businesses better for barter than other businesses?

Michael J: Well, yes and no. Typically any business can use barter across the board. We have magazines, computer services, travel agents. But if your margins are under 25%, barter money is not as attractive for you. The reason being that since you’re trading your products or services, your gross margin is essentially your buying discount. For example, I’ll use the Italian restaurant again. Let’s just say pizzas. The Italian restaurant sells pizzas for $10. But what does it really cost him to make that pizza, the dough and the time—maybe $3-$3.50. So, essentially if you’re purchasing things at $0.30 on the dollar, that is your buying discount. You have a 70% buying discount in the market place. So, the larger your margins, the better barter will work for you.

Michael: Let’s do a simple formula. Anyone listening and they’re a business. You’re going to first ask them to calculate their margins, their net profit on their product or service that they are offering, correct?
Michael J: Correct.

Michael: So, as the example you gave, a pizzeria. He makes the pizza for $3. He sells it for $10. So, his margin is 70%. And if he gets $10 selling a pizza to someone within the barter exchange, he basically gets a 70% discount on whatever he buys through the barter network.

Michael J: You got it.

Michael: That’s a good explanation. Now, here’s something that is really important. Are the prices within the barter network the same as what the prices would be if I went out to the general population?

Michael J: That’s an excellent question. As a matter of fact, we demand that your retail pricing for cash be exactly the same as you would for a barter; retail to retail, dollar for dollar. And that’s one of the real good advantages of why a third party barter network, such as our self, works because we keep people honest. The industry term is called puffing prices. And usually a group of guys will try to get together something on the barter network but they don’t have an independent third party outside objective entity watching the market place and watching what people are doing with their pricing. And it usually falls apart because the next thing you know they’ll ask you if he’s trying to jack up his price to get more barter dollars than he normally would get and the deal falls through. But with our barter network, we actually have the right to kick you out if we find you puffing your prices or over exaggerating your prices.

Michael: So, this is and has been problem within the barter industry that depending on the barter organization can be problematic or not.

Michael J: Well, in the past it was a problem and is something that thank goodness due to the Internet and the systems keeping track of the pricing, we have a trade floor that all deals have to get approved through. So, you just can’t go out and do a deal on your own. You have to get a trade number and have to put it into the system and we see what the pricing is compared to the pricing on the street. Our guys are very well experienced after ten years. They kind of know when someone is not playing fair. And typically what we’ll do is we’ll sit down and have a conversation with that person or we might even, as I said before, they can be removed from the network.
Michael: What are some of the items that you’ve purchased on trade?

Michael J: Advertising. I’ve purchased a lot of advertising. Advertising can be very expensive. I can do that. Printing materials. The list can go on and on. But I tend to like to use it for advertising because to me word of mouth is still the best way to promote your business. But sometimes it tends to make sense to go out and do some outside advertising. I feel like I’m getting a real nice discount when I purchase magazine ads and things of this nature.

Michael: This advertising brings you cash customers also.

Michael J: Absolutely. Things I’ve set my barter dollars up for, quite honestly, is a trip to Disney World. I have three small boys and you can get an entire trip to Disney World or to the islands. One of the nice things about barter is that you can ratch up your life style with it. I know there’s a lot of business owners listening to this, they know they work really hard; they spend a lot of long hours, such as yourself and myself. And you can kind of treat yourself and your family to some of the nicer things in life.

Michael: Well, let’s talk about that. Tell me about some of the products and service that are more widely offered within your barter organization and other barter organizations for that matter?

Michael J: I mentioned media advertising. Our network has about 40% of our clientele in some type of media advertising whether it be radio advertising, magazine, newspaper and a Chamber of Commerce. It goes on. And then you can have some pleasurable things like jewelry, computer services. We have a barter client who just went to Cancun, Mexico for a week. Travel, printing, brochures; that kind of stuff.

Michael: How about dentists?

Michael J: I do believe we have some dentists in the barter network.

Michael: How about attorneys?

Michael J: Yes, we do have attorneys in the barter network. You can get services like that. Certainly accountants. Chiropractors, I know we have a number of them. Massage therapists.

Michael: Optometrists?

Michael J: Yes. There’s no reason optometrists couldn’t belong to the network. We have an eyewear and sunglasses place. But I’m not sure if we have optometrists.

Michael: Do you do any thing with reciprocal trading? Can you explain to the listeners and me what reciprocal trading is and how it can expand the network of products and services for someone who came into your barter organization?

Michael J: Well, reciprocal trading with another exchange?

Michael: Yes.

Michael J: Well, we belong to something called the International Reciprocal Trade Association.

Michael: What is that?

Michael J: That is basically an organization that oversees all the barter networks in the country. And we have a relationship, which they govern our trading dollars with other exchanges. So, for example, if you really needed something, and that’s another benefit of joining a network, is that if you come to me, our fees are based on us performing two levels for you. First of all, we’re going to bring in new business via the barter trade exchange. And the second thing is that we need to find something that you want to spend your barter dollars on. Only when you spend your barter dollars do we charge a commission and that commission is 12.5%.

Michael: Well, get into the pricing in a minute.

Michael J: So, the benefit would be let’s say that you were looking for that trip to Cancun, Mexico and we didn’t have it within our own exchange. A reciprocal trade would be that we would go out to another trade exchange and find that for you.

Michael: Even though I may not see it within your organization?

Michael J: Right. Even though that’s not within our particular exchange, we can go out and make that deal with another exchange to get you the trip that you want.
Michael: I can spend my barter dollars or credits that I earned through your exchange on that?

Michael J: Exactly.

Michael: So, you’re out there as a broker. You’re working for me. Your job is to help me spend my trade credits and help me find the products and services that I need. Is that correct?

Michael J: Absolutely. And your motive to do that is bringing in new customers because without those customers, you can’t accumulate the barter dollars and you can’t spend them.

Michael: What’s in it for you and what’s in it for the barter organization? When is this going to cost me in terms of cash to get started?

Michael J: Well, we have a one-time initiation fee of $250. That’s only charged one time to set you up within the system. It’s going to cost you $100 in trade right off the bat. And the reasons we have that fee is to fund the economy, basically. Every economy needs liquidity.

Michael: Where am I going to get the trade?

Michael J: It’s like a credit card. Everything is credit.

Michael: So, I’m going to start off with a debit of $100?

Michael J: Exactly. But typically we can get you a line of credit, as well, if we think you’re going to be a good trader. But the only fees other than that are $10 a month account fee. That’s used to maintain your account, keep you current, and then that 12.5% performance fee. And that’s the only other fees that are involved.

Michael: So, let me use an example. I’m a florist. You come in. You explain to me the benefits of your organization and barter and how it can bring me new customers. It’s going to cost me $250 right off the bat and then I’ll be paying $10 cash every month. You can offer me a line of credit if I have good credit worthiness and it looks like I’m going to bring your organization transactions. So, let’s say I started off with a $500 credit. I could either spend those barter dollars on anything within the organization or anything that you can find for me through a reciprocal. Then let’s say I purchase some services from an attorney with my $500 on trade that I needed and he drafts some letters. So, I have, let’s say, $500 in my account. Now, when I spent that $500, I’m going to pay your barter organization 12.5% of that $500 that I spent?

Michael J: That’s correct.

Michael: And that’s going to come in a form of an invoice at the end of the month and I pay that in cash?

Michael J: Correct.

Michael: So, that’s going to be … what’s 12.5% of $500?

Michael J: I don’t have my calculator on me.

Michael: Whatever it is … I don’t have mine in front of me. I’m going to pay that plus my $10 fee at the end of the month.

Michael J: Correct.

Michael: How does the barter exchange profit from this?

Michael J: Well, you have to remember that’s one simple transaction. But with 1,100 clients doing deals on a daily basis—some of them—those little dollars add up. So, it’s not really a large fee for somebody who is just doing it for their own business, but when you have 1,100 clients, that’s how we make our money.

Michael: What about tax implications?

Michael J: In the past it was looked at kind as kind of a tax dodge. But the IRS has passed laws and it’s looked at just like any other cash transaction deal; seeing you, your account and God. Basically, that’s how they view it.

Michael: So, at the end of the year, if I transact barter for a whole year and let’s say I create $50,000 in sales or revenue through the barter exchange, that $50,000 is reported as earned income just like my other business transactions?

Michael J: Well, yes, if you haven’t spent anything for your own business to off set that, yes.

Michael: Let’s say at the end of the year my net, and I have that sitting in my account, by the end of the year $50,000 in trade credits. I’m going to pay cash tax dollars on this $50,000?

Michael J: Right.

Michael: Now, let’s talk about that. That probably isn’t a very good strategy for someone getting into barter. What advice would you give to them when someone is a member of a trade exchange and why you shouldn’t let that happen and what you can do to off set that?

Michael J: The one thing that I would suggest is that every barter dollar that you spend on your business or that you accumulate for yourself, you find a way to buy something for your business to spend it on and off set it; just like a normal expense.

Michael: So, the goal is to get as many dollars as you can. Before you have a way to spend them, you should research and find out what you can spend them on within your own business or for your own pleasure because it is that easy to earn trade credits if you have a good service or product.

Michael J: That’s correct. And one of the things that we pride ourselves on, we have brokers that are constantly in contact with our members finding out what they need for their business; where they need to spend their dollar, where the marketing is going. We will align things up rather quickly on things that they can spend those dollars on to off set that tax hit.

Michael: I see. And how long does it take to get within the system? If I came to you and said this sounds good, how long would it take for you to have me up and trading?

Michael J: Probably a couple of days.

Michael: You’re in Pennsylvania, correct? I’m in San Diego. Could I realistically, if I sell a product or service that has no geographic boundaries, be a member of your exchange?

Michael J: There’s really no reason why not. It would marry you to some of the things that we have in this geography. Like restaurants, you wouldn’t really be able to partake in that unless you travel to the East Coast, but certainly things like travel and other Internet services; printing, marketing and that sort of thing. What I would suggest, though, is to try to find a good barter exchange within your geography. All politics is local. If you want to take advantage of a barter network, find one within your own geography. Now, BNI just happens to be the largest one in the Mid-Atlantic States. But there are a number of different exchanges out there.

Michael: Can you refer or name a few that you think or have learned that have a good reputation?

Michael J: Well, certainly if someone sent me an email or something like that, I would be able to help them out.

Michael: Can you think of anything else that would important to know about barter in your exchange?

Michael J: I think we’ve pretty much covered all the bases, Michael.

Michael: Can you think of any specific examples or stories that stick out in your mind, whether from your organization or any other barter exchange, good stories that have really propelled businesses into the next level?

Michael J: There’s a small printing outfit in Delaware—they were there before I was—called BZB and they are a multi-million dollar company. The guy started in his house; almost like a virtual type of company. And he grew the business into a multi-million dollar company. So, I think that would be a phenomenal story to tell. And that just happened within ten years.

Michael: How am I going to find a listing of all the members with your organization so I can do some shopping once I become a member?

Michael J: We have a printed directory and, of course, you can always use your broker who will find things that you need and recommend different companies that you’re looking at.

Michael: This has been very interesting and I think informative. I think with barter, when I first started in trade, was really hard for me to grasp the concept. I don’t know if it was like that for you. Do you experience other people who are interested just have a hard time understanding what it is and how it works?

Michael J: It’s interesting that you say that because some people will get it right away and then some people do struggle with the concept. The best way to explain it to somebody is just to try to break it down in the simplest terms that you can, like I did with the pizza. People understand that a pizza really doesn’t cost $10. It’s only $3.50.

Michael: I think that a good question for anyone listening to ask themselves. What is your net profit on your product or service? And if it’s pretty high, you can expect that to be your discount on whatever you want to buy through the trade organization.

Michael J: I don’t know if we really touched on this strongly enough, but the second real benefit is preserving your cash flow. Most business owners know that it takes money to make money; be it some big lawyer from one of your customers for like $10,000. You might have to go out and buy $5,000 worth of material just to make that deal happen. And you have to come up with that $5,000 before you receive your receivable. And what barter will allow you to do is to purchase the things that you need to make that deal happen—some of the things, not all of them—and allow you keep the cash within your business to spend it on the things you need to spend the cash on.

Michael: You say you send out a printed directory. Do you have an online presence?

Michael J: Yes we do.

Michael: So, there’s web site that I can look at all the members there?

Michael J: You’re not a member yet.

Michael: But once I become a member, I can go in and see all the members within your organization?

Michael J: Correct. Most of the members; some of the members want to remain private and just deal through brokers. We are revamping the whole system. We’re upgrading our system, so after the middle of September, every member should be able to go in and see who is trading what and what’s available, etc.
Michael: So, will the web site make it easy for me to contact other members via email?

Michael J: Yes, absolutely.

Michael: When you send out your monthly printed directory, do you offer any kind of promotions, let’s say I do web site design and I want to get the word out to all my members? You, as a broker, are going to promote me to generate business. But what other services does your barter organization offer to help get the word out besides just putting a listing in the directory and besides just you knowing that I’m a new member and when a caller calls in, they refer me?

Michael J: We put together an email newsletter called the Buzz. And if you’re a member and have excess inventory on your shelf—clothing or tickets or whatever—we will promote that to the other members. We will let them know that this has become available and you can get it for so many barter dollars.

Michael: What’s the owner’s name?

Michael J: Ron Whitney.

Michael: How long has he been in the industry?

Michael J: Over ten years. BNI has been around for ten years, but he’s been doing this type of bartering in the media and with other companies for over ten years. That’s all I can tell you. I’m not quite sure how long he’s been there.

Michael: Thanks, Mike. I appreciate it.

I want to thank you for listening to www.hardtofindseminars.com . If you want to get in touch with any of the people we interview, please contact Michael at www.hardtofindseminars.com by email. You can email Contact by Email or you can call (858) 274-7851.