Dropshipping

 

Dropshipping is a business model in which items purchased from an online retailer are shipped directly to customers by the manufacturer or supplier. When the  dropshipper makes a sale, it forwards the order to a supplier who handles the delivery to the customer, thus permitting the dropshipper to concentrate on other activities such as sales and marketing. It also relieves the retailer from having to maintain an inventory and physical facility. Dropshippers are almost always online retail businesses.

 

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Glossary of Barter Terms

 

Barter Association

A barter association is an organization that promotes and facilitates modern barter systems. Examples of barter associations include the International Reciprocal Trade Association (IRTA) and the National Association of Trade Exchange (NATE).

Barter Dollars

Barter dollars are the medium of exchange used in barter transactions generally valued as one US dollar.

Barter Leverage

Barter leverage is the difference between the cash dollar amount invested in a product or service traded and the value received in the exchange.

Barter Systems

Barter Systems are also called trade exchanges and credit clearing exchanges. All act as third party record keepers to facilitate trade between members. They all utilize a trade credit as a medium of exchange between participating members.

Common Currency

Common currency refers to a universal medium of exchange used by organizations that engage in barter.

Corporate Barter Companies

Corporate barter companies work with large and small companies to assist them in purchasing inventory, equipment, services and other things. with trade credits.

Cost of Goods

This is the direct cost required to replace that which is sold.

Cost of Trade Dollars

The direct cash cost incurred to use one trade dollar which is usually the company's own internal cost of goods and/or services.

Deficit

Refers to spending more trade dollars than what is earned.

Excess Capacity

Excess capacity exists when demand for a product or service is less than the amount that can be supplied resulting in a reduced profit. This excess capacity is ideal for barter transactions. An example is when a hotel trades an empty room for some needed product or service.

Fixed Expenses

The expenses of a company that remain the same regardless o! their sales volume. These expenses generally include rent, fixed labor, real estate taxes, and general overhead, Including utilities.

Gross Profit Margin

Sales less cost of goods sold. Companies with high gross profit margins generally are more receptive to bartering in high volume. Companies with low gross profit margins are generally less likely to barter in large volumes.

Non-Performing Assets

Non-performing assets are assets owned by prospective barter clients that are ideal for bartering. Examples are unsold hotel rooms and empty tables at restaurants. If not bartered, the revenue is lost forever.

Non-Reciprocal Trade

Refers to indirect exchange between two or more parties, accomplished through a third-party barter exchange.

Private Currency

Private currency is a medium of exchange issued by a private company such as a barter company, a community group, but not a government or government agency. Private currency is not legal tender.

Reciprocal Trade

Reciprocal trade refers to a trade where two parties exchange products or services of equivalent values. This is not common which is the reason barter exchanges exist.

The Tax Equity and Fiscal Responsibility Act of 1982

The law that granted third party record keeper status to barter exchanges mandated that all barter exchanges file a report annually with the IRS that verifies the gross amount of barter sales made by their members, and required barter exchanges to provide 1099B reports to each member that made barter sales in the prior year.

Trade

Trade refers to the cashless exchange of goods and/or services.

Trade Dollars

Trade dollars refer to the medium of exchange used between barter exchange members in place of cash. The IRS and FTB value trade dollars the same as U.S. Dollars.

Trade Velocity

This refers to the speed at which trade dollars are turned. Trade velocity is measured by how many times trade dollars are earned and spent in a client's account within a defined period of time.

Variable Expenses

The expenses of a company that increase with increases in production or sales, such as direct labor, shipping supplies, freight, and additional product costs.

Wholesale Buying Power

Refers to the ability through bartering to sell products or services to new customers at a profit.

 

 

Before You Join a Barter Exchange

 

Not all barter exchanges are the same. Before joining an exchange, it is wise to make some comparisons. Examining how a barter exchange is compensated is a major factor. Most, but not all, charge a cash startup fee.

More significantly, are the ongoing monthly fees. These fees are typically paid monthly based on the volume of trades made. Some barter companies expect to receive a monthly fee whether you trade or not. Obviously, this component needs to be evaluated carefully.

While every barter company must be paid a reasonable fee in order to stay in business, some expect to be paid 100% in cash while others expect to be paid a combination of cash and trade dollars. Obviously, paying in trade dollars is preferred. After all, joining a barter exchange is intended to conserve your cash, not deplete it.

Ideally, a company should select a barter exchange that requires the following:

• No startup fee,
• Compensation payable 90% or more in trade dollars, and
• Compensation paid only on trades made with no monthly minimum payments.

A well-run barter exchange should be able to operate profitably while offering the structure outlined above. Any cash required to run the business and pay taxes should be generated from the 10% cash portion described above.