Deals I can live with: negotiating barter, trade, and skill swaps.
Straight Dealing for Barter and Swaps
In our line of work, we get a lot of offers to swap, barter, or work-trade instead of paying for our time. Milk and eggs for house-sitting. A free pass in exchange for improving a campsite. But we've also had people beg for bargains, and then show up in a car that cost more than our annual income. I hate finding out later that I've gotten the worst of a trade.
How do you know when a deal is right?
Here are some personal rules I've come up with:
1) Be generous.
Make sure you leave your barter partner feeling like they got a great deal, good value, and a good experience. Barter runs in social networks, and skunking someone on a deal will earn you a bad reputation fast. Whereas being the nice guy can get you networked into some great deals. And it feels better.
2) Don't offer something for nothing.
Giving away the goods doesn't attract customers' respect. Make sure the give-away brings in something of equal value to you, such as an expanded mailing list or publicity.
If you are tempted to offer someone a freebie out of pity, consider whether you will be upset if they don't respond 'properly'. What if they don't show up? What if they don't appreciate it, or just turn around and sell it? What if they show up wearing better clothes than you can afford? Charitable pity can quickly turn into self-pity, spoiling your mood for future (better) opportunities. Most people don't thrive on pity anyway.
The barter economy works best among people who offer something in return. Skills, time, or just a token trade. And once people have paid something, they are more committed to keeping the bargain. Charging as little as $25 or $30 for a "discounted" registration fee on a $500 offer (5% of retail value) can make the difference between a charity recipient showing up, or blowing it off.
If you enjoy giving away a little time now and then, consider volunteering for a charity where you can put the experience on a resume, or devoting your efforts toward loved ones whose well-being adds to your own happiness. These experiences build your social networks, and leave you feeling valued.
Random acts of kindness are still fun. Just don't make a habit of giving away good value when you deserve fair compensation.
3) Decide on terms before the deal goes down.
Think carefully about what you need, want, and can afford to exchange. Make sure both parties are clear on the terms of the deal, before either party provides their goods or services.
If barter offers and discounts are a regular part of your business, do your thinking before the other party shows up to ask. Define your terms - does 'bulk' mean a 6-pack, a case, or a truckload? If you accept barter or work-trade, have a list of parts and skills that you currently need.
Making a one-time special 'steal' offer to someone can backfire, as they may expect the same again, and so will all their friends! Be consistent, make only fair offers. Then if their friends all show up for the same deal, you will be happy to serve these new customers on the same terms.
Exchanging unspecified 'favors' can also backfire, as it can be difficult to agree on a fair exchange for past work.
If your deal was unclear, or has been mis-interpreted, do your best to clear things up right away. Give your trade partner at least a couple of options that seem fair to you. Consider throwing in a little token something to sweeten the deal / apologize for the confusion, while standing firm on your original intent.
4) Get work-trades in advance, or establish a cycle of trust.
We often save a place in our workshops for 'work-traders' - students, seniors, or others who can't afford much cash. But "I have no money" can also reflect poor work habits and unreliability.
To separate the earnest folks from the moochers, we often collect the work in advance. We set up a work-party before the scheduled workshop, or ask traders to show up early to help with prep and set-up. Then by the time the workshop starts, we know everyone is "paid up" whether it's trade or money.
If both parties are exchanging freelance services, try to set a date for the second service within a few weeks of the first. If neither party is willing to offer the entire portion in advance, you can start with smaller trades, or divide up the payments into before-and-after amounts. But if you really don't trust someone, it's better not to make deals with them in the first place.
5) Know the value to you.
A thousand pairs of socks are of limited value to a man with no feet.
Retail value of goods or services is one measure. Production cost is another. Then there are a whole host of factors around each individual's definition of what may be needed, wanted, or valuable.
For example, a licensed massage therapist can charge $60 per hour. The costs she pays per hour may be small (lotion and laundry soap), yet fixed costs like training, equipment, and rent can keep her from breaking even. A 'fair trade' by the masseuse for someone else's services could be hour-for-hour, discounted to reflect costs and convenience, or a straight market-rate exchange at both people's usual rates. (e.g. 4 hours of labor at $15/hr for 1 hour of massage.)
It's best to keep a mental list of things you actually plan to buy in the near future, or would benefit from if you could afford them. And know the market rate. Then you can decide whether it's worth swapping.
Likewise, know the costs of your stock in trade. Include indirect costs like renting storage space in your mental estimates of an item's value.
The best deals happen when both parties are receiving more value than their costs.
6) Know your local barter partners.
To male a good bargain, learn (or observe) as much as possible about the person you're dealing with. Learn their interests, vices, pet peeves, reliability, competence, and values.
One man's clutter is another's treasure. If a person is eager to be rid of something, the price drops. One of our friends makes a habit of asking the "wrong" person at garage sales: get the price on greasy tools from the lady with immaculate hands; ask the man in the overalls for a bulk discount on fine china.
Often, people can offer more than one thing for trade: professional services, garden produce, ride-sharing, or labor. And you may have several things to offer as well: things that are free, cheap, abundant, or once costly but now surplus in your life. The more you know about a person ahead of time, the easier it is to propose a bargain that will have value to both parties, and be easily fulfilled on both sides.
If you suspect a friend or family member will have trouble coming up with their part of a bargain, it may be better for your relationship not to make the deal in the first place. You can offer a gift (if you can afford it and want to help), or recommend they find someone else to help them out (if you can't afford it or are tired of their unreliability). You have more leverage on a friend than a stranger, but using that leverage can destroy a friendship. Obligations and unpaid debts can ruin a friendship even if you don't try to collect.
If you suspect an acquaintance or stranger cannot be trusted keep their part of the bargain, it may be better to avoid dealing with them altogether.
7) Gifts don't come with strings. Each gift stands alone. (But appreciation and reciprocity do make future gifts more likely.)
If you make a gift, be clear with yourself: it's gone. Enjoy the warm feeling, and the extra space it leaves behind. Remember, nobody owes you anything for a gift. Only give away what you can afford to let go.
Don't use past gifts as leverage to coerce someone into giving you money, goods, or services of any kind. And don't expect to be able to get back a gift, although it's permissible to ask in special circumstances. (Such as when you accidentally give someone an item that belongs to someone else.) It's traditional to give back meaningful objects such as engagement rings when a relationship ends, but the recipient is within their rights to sell the objects, fling them off a cliff, or destroy them instead. If someone fails to respond to a gift as you hoped, your most responsible action is simply to avoid giving them other things in future.
Conversely, when someone does give you a gift, it's good manners to thank the giver, and to reciprocate with another gift of similar value or thoughtfulness. In many cultures, gift-giving confers status on the giver as much as the recipient; the right gifts can show good taste, wealth, and skill as well generosity and affection. Return gift-giving, or at minimum an elegantly-written note of thanks, indicates you appreciate the gift and the giver. If you're not sure what to give in return, try to reflect shared values, hobbies, or interests. For the person with everything, consider a gift that can be used up or passed on, like a basket with candles, fruit, flowers, or other treats.
8) Be aware of local and national tax codes.
Many governments make a distinction between gifts and barter when it comes to taxes. If you make your living from bartering valuable items and services, you can expect the tax collectors to want their cut.
Many people barter "under-the-table," with neither party reporting the exchange as income. But remember that banks, websites, and even cell phone providers can be asked to give up their records, so electronic barter negotiations can be tracked.
Sometimes one person may report barter on their taxes, while the other doesn't. It may be to one party's advantage to report a trade as a deductible expense, for example, while the other party sees no reason to report the income. Professional contractors may report their barter income more carefully to protect their business, where a full-time employee may think nothing of bartering on the side. If you are not sure, you can sometimes report the income as miscellaneous, or the expense as casual labor, without naming the other party.
True gifts are not generally considered taxable income, within certain limits - check the current tax forms' instructions. But that means a true gift, no strings attached. Accepting a 'gift' in exchange for services rendered puts both parties at risk for collection of back taxes, especially if the state considers the transaction was really a form of employment.
Tax liability is less applicable to arrangements that are not simple exchanges. For example, a 'club' or family model, where members attend each other's work-parties, carpool, or share chores. If everyone is contributing, yet nobody is negotiating financial exchange, you can enjoy some mutual benefit without necessarily creating taxable income. Arrangements for mutual benefit, like house-sitting, can also be grey areas (does the owner pay the sitter to watch the house, or the sitter pay the owner for a short-term rental?). If no money changes hands and no 'payback' is negotiated, the arrangement may not be taxable. For high-value arrangements, explicit legal structures like co-ownership or charitable trusts may clarify the distinctions between shared responsibility, or gifts, vs. taxable income.
I'm not a lawyer or accountant, so please don't consider the above as legal advice. If your livelihood includes a lot of barter, consult a professional to learn about your tax liability for different types of transactions.