Adapted from “When You’re Short on Cash, Try Bartering,” first published in the Negotiation newsletter, November 2009.
In an economic downturn, negotiation opportunities sometimes dry up because parties think they have nothing left to give. During times like these, bartering flourishes. Whether it’s toxic assets, piano lessons, manicures, or a fleet of new cars, most cash-strapped negotiators have something of value they can trade for what they want.
Bartering doesn’t need to be limited to one time swaps of goods and services between virtual strangers. In more complex, ongoing negotiations, including those between long-term business partners, bartering is a smart way to avoid getting bogged down in price haggling. Just as you might create value in a negotiation by discussing delivery options and payment plans, you can expand the pie by adding new goods and services to the discussion.
Yet bartering can bring added risk to negotiation; goods and services can be difficult to assess and sometimes difficult to claim. Here are four guidelines to help you barter successfully:
1. Inventory unwanted assets. When preparing for a negotiation, after determining your target price in the deal, consider whether you could replace some of that cash with items or services that would be easy and inexpensive for you to provide. If your printing company is planning to make a purchase from an ad agency, for example, you might get a lower price by offering the agency a certain amount of free printing.
2. Find out what it’s worth. In many cases, the negotiator across the table will appreciate the creative thinking that bartering brings to dealmaking. But after the fact, you could end up with a dissatisfied trading partner if your bartered goods and services turn out to be less useful or valuable than you promised. In a 2009 New York Times article on bartering, a painter told reporter Alina Tugend that she’d had many satisfying bartering transactions, including giving a painting to a plastic surgeon in exchange for a “free nose.” But she regretted trading a special painting for weekly massages that “weren’t that great.” In the business world, a bartering failure could damage your reputation or that of your organization.
How can you be sure you are representing bartered items accurately and fairly? First, when preparing to barter, remember that sellers have a tendency to overvalue their assets. To bring your estimates in line with reality, research the value of the items or services you’re bartering thoroughly and present your negotiating partner with evidence of their worth. In addition, be very specific about what you’re offering and how soon you will provide it. If you’re tempted to offer your firm’s accounting services to one of your vendors, for example, make sure you have staff available to fulfill that obligation on a timely basis.
3. Explain your position. Bartering shouldn’t be a tough sell if the other side is eager to receive what you have to give. But sometimes the other party would simply prefer cold, hard cash. Even so, you may be able to convince your counterpart to accept what you’re offering if he believes it’s the best you can do and if he has nowhere else to turn.
4. Barter with caution. Because an excess of bartering arrangements could leave you overworked and cash poor, limit your bartering to a small percentage of sales. In addition, go back to cash when you can. Finally, be sure to conduct due diligence on all your trading partners and insist on detailing bartering arrangements in writing.