Every small business will eventually be faced with the prospect of entering into an exchange of services. You’ll ask yourself if you should forgo the revenue opportunity. The answer is usually “Yes”. Here’s why.
While you don’t get cash, you get services you would otherwise pay for. This reduces expenses, and in many cases enables you to take steps to improve your business which you could not otherwise afford. Your accountant will tell you to record the transactions as revenue on both sides, and to issue credit notes. She is right – this way the amount of business you conduct is still reflected in your overall revenue totals – important for many reasons including figuring out how much work you’ve done for how much money.
The major caveat has to be – are the services offered in return services you need or want? This is not worth doing just for the goodwill – although goodwill does factor into the decision. To get around this, I recommend never broaching the idea of contra services unless the other partner has indicated a need for your own. It is rude and potentially sabotages relationships to discuss purchasing services, then suddenly suggesting that you will pay in kind.
“I would be open to discussing exchange of services, if that’s of interest to you.” Stick to this line as your way on introducing the concept. It ensures that both sides are willing, and don’t feel obligated to play along.
Removing that imposed obligation is critical, because it allows you to benefit from a new perceived obligation – an alliance. When a service partner has performed services for you, you will feel obligated to refer them. It’s natural, and you can speak from experience about how well they executed. You don’t get the same perceived obligation in a transaction where money changes hands – think how hard it is to get testimonials from your customers.
The trick to making a barter or contra job work for you is for it to be roughly equitable. Be up front about this for best results. “I normally charge $2500 for this – how does that compare?” If the answer is $2000 or $3000, you are in the ballpark, and this should work fine. Don’t be stingy, but don’t give away too much for free, or you will build hidden resentment.
Finally, also be up front about passing through direct charges for materials, sub-contractors etc. These are not the important parts to making this work – so don’t lose money on them and build value for your own services instead. Even if you aren’t being paid.