Could the ‘bartering economy’ help your freelance business? Thousands of businesses think so. It could save you shed loads of money and build new business relationships too.

The bartering economy is the oldest form of economy around. Before coins and banknotes appeared, bartering was the only way you could get food (if you weren’t a farmer), clothing (if you didn’t know how to sew or tan leather) or exotic fruit (if you didn’t live in the tropics).

When I started school, my mom would give me potato chips to take as a mid-morning snack. Not satisfied with the usual flavors, me and my buddies would often swap chips. Some kids were lucky and had rich parents – they were the ones with the real tasty flavors and the more prestige brands (like Monster Munch, pickled onion flavor.) So I would have to swap 2 chips for one of those. It seemed a fair trade!

I was bartering with the other kids. I’d joined a microcosm of a bartering economy that specialized in potato chips.

Later in life, I bartered other stuff – often the crap presents I’d received after a birthday or Christmas. In my professional life, I have bartered too. I’ve often done work for a local business in exchange for beer, or a service of their own. Currently, I am building a website (I did that once!) for a neighbour who is an architect, and he is going to design my new garage.

What’s great about it is that no money changes hands, and no taxes are levied. It’s a real cheap way for me to have my bespoke garage designed by an architect, and of course he gets a great website built by someone who hasn’t used notepad in 10 years…

Personal Bartering

The point is, bartering creates one of those unique outcomes – a win:win. If you have read my article on freelancer negotiation, I don’t believe in win:win outcomes where money is exchanged. But when bartering, there is much less need to go for the jugular – it’s a friendly agreement that doesn’t find its way onto the books.

I think all freelancers can benefit from bartering. Freelancers are specialists, and with that comes a high price, and ultimately, high taxation. When two buddies exchange services, why should you always assume the IRS should have their slice of the action?

Before I go on, I should point out that the legalities of bartering and associated tax differ from country to country, but in most, business bartering is STILL taxable, and still represents a cash value. When done between businesses, bartering isn’t a way to avoid tax. The kind of bartering I am referring to is a personal exchange of services between people who have formed a relationship outside business. Luckily for freelancers, these kinds of relationships are very common.

A great consequence of bartering is that the whole process is based heavily on trust, and if that trust is honored then what results is a strong relationship. (Maybe your buddy might even refer you to their peers and their own customers…?)

If you have a buddy who is a freelancer that you could exchange services with, why not ask?

A word of caution – I advise speaking to your accountant before you barter. There may be some consequences, especially if you use raw materials in the process. Those materials have to be accounted somewhere, and they would appear as a loss on your books.

Bartering between buddies is strictly an off-the-books affair, and is complementary to business rather than a replacement. Avoid turning a personal exchange into a business exchange and it could save you serious money if done right!

Business Bartering

As I mentioned above, business bartering is different. When goods are bartered, it has a cash value that tax must be levied against. Both sides of the exchange have to pay it. So an exchange of goods worth $50 counts as a $50 sale, and a $50 expense.

There are advantages for the freelancer who barters in a business relationship. Because (most of the time) no money really changes hands, both sides of the exchange value their services at the same price point. So why not agree a low price point to lower your tax liability? Nobody, especially the tax man, can tell you how to price your goods (assuming no loss is made when viewed as the cash equivalent).

Sometimes the value of the exchange isn’t always initially the same, just like my school-day example of the premier brands of chips. What then? In these cases, something called a ‘Boot’ is added to equalize the value of the exchange. Say you’re designing a logo in exchange for a TV, and you don’t think the TV is worth enough for your time. You’d ask for a Boot; it could be a wall bracket to hang your new TV on, or simply some cash.

If you’re considering using business bartering, I strongly urge you to speak to your accountant about it and check out the legailities and how it will affect your tax.

Bartering is Best When…

Bartering comes into its own when you have over-capacity or you’re over-supplied. In other words, it’s a very efficient way of exchanging surplus for value. As a freelancer in a knowledge economy, the thing you might have most surplus of is time. If you’re not fully-utilized, then that spare time goes to waste and returns no real value to you. So if you can exchange it for something of real value, it makes total business sense.

©2012 SimonStapleton.com. All Rights Reserved.

Freelance Marketplaces, like Elance and Rentacoder, have grown very popular with freelancers and their clients because they are a ‘platform solution’ to many freelancer business problems. For a small(ish) fee, freelancers enjoy many benefits. What are they, and why use these platforms?

You might already be familiar with these platforms, and use them regularly. If that isn’t the case, then are you not wondering yet why you don’t get as much work as you would like?

The Power of the Freelancer Marketplaces

Freelancer Marketplaces connect buyers of work with providers of work. Simple really. What they do is provide an exchange where buyers post jobs with a specification of the work, and then providers bid for that work, followed by the buyer’s selection of the provider who has offered the best price or deliverable but also with credibility. These platforms provide a commercial process that manages the flow of information, requests, proposals, bids, payments and feedback, making it really easy to do business.

Here are the 10 big reasons why you should use a Freelancer Marketplace as a freelancer:

1. Access to a massive project portfolio- the number of leads available are considerably larger than any single freelancer could generate on their own. At the time of writing, there have been almost 22,000 jobs posted on Elance in the last 30 days.
2. Buyer vetting – if you’re providing services based on a relationship and trust alone, how do you know you’re not going to be ripped off? With these platforms, you can learn about your buyers before bidding for jobs. This means you can check out buyer’s credibility (just like buyers check you out). I think the most important things to look at is the buyer’s project award rate (how many projects they actually award against posting), their purchase value (the higher the value, the greater the commitment by the buyer) and most of all, feedback left by other providers. This is a two-way street.
3. Connectivity- buyers and providers are connected to each other just like people are in Facebook or LinkedIn. No need for phone books, search engines, or anything like that. The whole market is brought together in one place.
4. Quickly Paid Bills- one of the best features of these platforms is their ‘escrow’ services, which means you should never be ripped off again by buyers who don’t pay. Why? Well, using the escrow service means that the buyer must already pre-fund your work before you start. The money is held by the platform, and then released to you once you complete the work. So, you’ll always know that your client has the funds before you get working.
5. Free Marketing- these platforms offer you free marketing through your profile. Your profile typically shows your track record, customer ratings, number of repeat customers, etc. and the best thing of all is that the data is provided by a 3rd party – Elance, Rentacoder, etc – so it is trustworthy. You only pay for marketing at the point you are paid for the work you provide.
6. Project Tracking – the platforms typically provide project tracking through the use of ‘milestones’ (major events in the project, such as start and end), and they support the sharing an storage of documents relevant to the project.
7. Payment Collection & Processing- payment is collected through the platform through your PayPal account (or credit card). And all payments are in $USD, no matter where the work gets done
8. Terms of business – freelancers working outside of these platforms need to ensure they are protected by a terms of business. The platforms provide these automatically and also manage the process of finalization and acceptance.
9. Feedback – buyers can (and should be encouraged to) leave feedback for their providers. It’s a satisfaction rating that is recorded against the provider’s profile and forms part of the free marketing benefits of the platforms.
10. Standardization – the commercial process of ‘provision’ is fully managed to the platform’s standard, so that means you use the same process for every client you work with in the marketplace. This allows you to optimize your own ‘workflow’, saving you bags of time which means more cash in the bank.

Elance

Elance is the platform of choice for me as it offers the widest variety and volume of jobs, from programming to admin, and it is the slickest site of all. Fees vary from 4% – 6% of job value(so make sure you incorporate this into your pricing and commercial considerations) and there is an additional 2.75% feeif you use their payment processing. These costs are likely to be clawed back by a reduction in marketing costs, efficiencies and no lost interest due to late payments. There is an easy admissions test, yet the sign up process is straightforward and quick to complete. So far, Elance has enabled over $135m USD of work since 2005!

Rentacoder

Rentacoder comes from a more IT developer stable and has over 100,000 registered buyers and over 230,000 registered coders. The kind of jobs that appear on Rentacoder are wider than just programming jobs (such as writing) although it’s branding is still on the geeky side.
 

Other Uses of Freelancer Marketplaces

There are other uses of Freelancer Marketplaces other than what’s stated above. Because they are platforms for conducting business through a repeatable commercial process, I strongly suggest that you conduct all your business through them, even on jobs you have found and agreed outside of the platform. Why? Well here are two good reasons:

1. You can exploit the escrow services for your work to ensure your supplier can pay you, and that their are arbitration processes should their be a dispute.
2. You will gain recognition and build your profile for this work, even if you and your customer didn’t find each other through the platform. This way, you’re building up your portfolio as a basis of credibility when you bid for work with other buyers.

In addition, you can use these platforms to benchmark your rates and services against other providers in the market, even if you don’t do business through the platform. Chances are, your customers will be looking there too, so don’t bury your head in the sand.

These platforms can support fixed-cost projects, as well as jobs based on time and materials. Whatever job you do, see if these platforms can be used to manage the commercial process.

Flip the model – use these platforms to outsource work if you can personally apply your time to higher value work. For example, outsource admin, submissions, writing, etc.

Conclusion

Freelancer marketplaces offer great benefits for a small fee. If you can make the price you pay work for you (by saving you time, lost revenue or increased efficiency) then they come highly recommended. They’re free to sign up – what have you got to lose?

• See what’s happening at Elance here.

• Check out Rentacoder here.

©2012 SimonStapleton.com. All Rights Reserved.