Trade Declining Sales for a Competitive Advantage

Businesses in many industries are facing declining sales in the current economic downturn as a result of declining consumer confidence, and a perceived loss of wealth.  This decline in sales leads to idle inventory and excess capacity.  The spiral continues as it generally will lead to layoffs and in the case of the small business owner declining personal wealth.  Some businesses will even close their doors and go bankrupt leaving suppliers with further losses in revenue, potentially leading to the bankruptcy of those suppliers as well.

However, a declining economy doesn't have to be bad news for your business.  If you act intelligently and are flexible you can achieve a competitive edge.  One major area of flexibility is being able to trade for the supplies and advertising that is needed rather than paying for them out of your current cash flow.

The idea of trade is not new and in fact pre-dates all current economies.  If you have a supplier or potential supplier who uses the product or service you provide (either from you or from your competitor) you have an opportunity to negotiate all or a portion of your purchases from them in "contra".

The benefits of purchasing using your products and services rather than your money are that you directly force an increase your sales, you conserve cash flow and you eliminate receivables.  Any business concept that achieves these goals should be investigated during good economic times and bad economic times.  There will always be products and services that you cannot trade for such as taxes, insurance, and utilities, however the majority of the rest of your budget has trading opportunities.

Despite these benefits most businesses are not successful in achieving a significant portion of purchases through trade.  The reasons for this are that most direct trades require that you and your prospective trading partner need to want each other's product, the products to be traded need to have approximately the same value and the timing has to match.  One way to solve these dilemmas is to be part of one of the trade networks that are in the marketplace.  A trade network takes these direct exchanges and makes it multi-directional by establishing an account for each of the members within the exchange whereby rather than taking back what another business has available at that time the members accept a trade credit good at any of the other businesses at the exchange.

According to Ryan Quattrini, Trade Analyst Tradebank Inc. "We had a dentist, who had taken on a number of our clients as patients on trade, looking for furniture, conveniently we had a furniture store who could satisfy his order, the furniture store would have had little use for $60,000 in dental services in a direct trade, however they were interested in an advertising campaign in a local newspaper and getting their roof repaired, both of which they were able to achieve using the credit from the dentist." 

Willingness to trade can also help you close sales that otherwise you would have lost out on.  "Having the ability to accept trade can help you close a deal where the prospective customer is debating between you and a competitor," says Andreas Bogner, assistant controller, Tradebank Inc.

Virtually all purchasing decisions should go through the following steps:

   1) Attempt to find a direct trading partner.

   2) As a member of a trade exchange or multiple exchanges (ask them to source the product on trade)

   3) Negotiate your best cash price and make the purchase

Whereas all sales should step through the following steps:

   1) Negotiate the deal in cash.

   2) If you can't close deal in cash offer to accept a portion of the deal in direct contra (if you need the product or service) or in trade currency through a trade exchange.

With most of your competitors only investigating the cash options on purchase and sales, if you embrace trading, direct or through an exchange, you have improved the odds of getting new business and decreased your cash cost of doing business simultaneously.