I’ve spoken a lot on this blog, about my love of trade exchanges like Bartercard – and how it can help improve your business; by giving you new customers and generating a new stream of business income.
In a post today on his blog, Seth Godin, talks about the principle that makes a trade exchange so effective.
I like to think of margin as the money left over after you’ve paid the direct costs for making an item, the last one of the day.
If you run a pizza place and a large pie costs $10, your gross margin is $10 minus the cost of flour, water, yeast, tomatoes and cheese. And maybe salt. That’s it.
If you’re not operating at capacity, the key word here is margin. The marginal profit of one more pizza is high. You’ve already paid for the rent, the oven, the sign, the ad in the Yellow Pages, the hourly wage, the uniforms, all of it. Whether you sell that last pizza of the day or not, all those costs are fixed. So, if your ingredients cost $2, your gross margin is $8.
This is the exact same thought process and calculations, you need to “GET”, to make a trade exchange like Bartercard work for you… The sales you make in a trade exchange, need to be treated as additional (other wise lost) sales- “the last one of the day” as Seth puts it.
The ‘cost’ of those sales are simply your raw/direct costs, as the overheads are taken care of …
Seth continues – “If someone offers to run a coupon in the Welcome Wagon envelope that goes to new residents, and the rules are, “one per customer, new customers only”, and the coupon offers a large pizza for $2, is it worth it for you to run it? That’s 80% off! Surely, this is too expensive. You can’t afford 80% off.
On the margin, of course you can. You got a new customer for free. Unless your store is at capacity, with people waiting in line, one more pizza sold at cost is a great way to build your business (unless there are too many coupons and unless it changes your positioning as a high-end place, but that’s a story for a different day).”
The great thing about trade exchanges is that you can apply this principle, get a customer for less than cost, and still make a profit as you still get paid the full $10 for the pizza.
Yes the $10 is in ‘trade dollars’, but you can then go and spend that trade on off-setting business costs or other ways to grow your business
… and for those you have experienced ‘over-pricing’ in a trade exchange; technically you could pay 5x the price off-setting a business cost, and you’ve still got that new customer for free, as this best selling business author suggests.