Have you ever done a contra deal? The kind where you do a trade, for eg, one person will create a website and the other will swap coaching or something else. This is a brilliant way to manage your cash flow, especially when you start out in business but it can often end in disaster.
In this week’s episode I share:
- Why contra deals often go sour
- The pros and cons of contra deals
- The method I have developed over the years to make sure contra deals run smoothly and you don’t lose friends through the process.
To find out more, watch this quick video in this week’s episode of Wonderful Web TV. Your Monday dose of Motivation, Mindset and Marketing.
I’d love to hear your comments and any tips you’d like to share. Share your thoughts below. I’ll come back and join in the conversation.
Cheers
Janet
P.S. If you like this episode please, I’d love you to leave a ranking and comment over on itunes.
Here’s the link (you can also subscribe here too)
P.P.S. One thing I didn’t mention in the video that is really important. Only ever do contra deals to get something you would be happy to pay for anyway. Sometimes people will offer you a contra deal for your service, because they can’t afford to pay, but you don’t really want what they are offering in return. Too often people take the offer just to be nice.
If they don’t have something to trade you really, really want then they should be expected to trade cash.
Great topic Janet, and well explained.
I’ve used contra deals on a number of occasions, and my most recent have been really successful.
The ‘invoicing’ idea is the ONLY thing I’ve found that works effectively. Putting the verbal agreement in writing, right from the start (even if just a quick email) is essential, but regardless of how clear that is, the invoicing system to keep track of the service provided along the way, is what has saved us from sabotaging many a healthy business relationship. If it’s not an official invoice, even a spreadsheet to be clear on ‘costs’.
What needs to be crystal clear, is… Is this a hour for hour agreement or dollar for dollar. Keep your contra partner up to date with your time or dollar quota. If your service is a ‘high paid’ service in return for a ‘lower cost’ service (eg. coaching for bookkeeping), this is even more important to consider.
Happy Monday!
Shelley
Hey Shelley it’s a good point to use an excel spreadsheet or similar if you don’t want to issue invoices. You can’t do the hour for hour unless you both charge the same hourly rate. You absolutely need to do a value agreement. For example i have traded photography services for mentoring and massage services for mentoring. We simply say to each other what we need, quote on what that would be, possibly in mates rates (as long as both do that) and then see if it balances out.
Thanks for sharing this is working for you too Shelley.
Janet, the tax department must love you for your honesty! Most people don’t raise invoices…
This is very topical for me as I was talking last week with someone about this exact topic, and we both agreed that it has to be done on value, not on the number of hours.
I think the more difficult part is when you’re friends with the person. If it’s an associate it’s relatively easy to negotiate and keep on top of the supply of services but when it’s a friend trouble can arise – especially if you’re giving business or personal advice. I find that the lines often blur and people will keep asking you for advice after the arrangement has ended because they see you regularly and are part of your circle of friends. It’s a bit like the stereotype of doctors who always get asked about aches and pains!
Talia´s last [type] ..Welcome Golden Retriever Dog & Puppy Lovers!
Hey Talia the lines will always blur with advice and friends. Sharing tips and contacts is something i will always do with my friends. Hard to stop me really. But when it comes to spending time to really concentrate on their business and give informed mentoring, then it is best to formalise the agreement. If you respect your own time and explain that you are busy with clients, then your friend should respect your time and value as well.
If they don’t they either aren’t really a good friend, or just as likely, you are not being clear on your boundaries and value (something i think all of us need to learn continually).
I had a good chuckle at “Hard to stop me really.”
I love contradeals – it’s how I first got my step into the business world.
I had some terrific people I was nannying for – when I would have ‘friendly advice chats’ with them, I’d glean some info – but trading just half an hour of their ‘professional’ time for a night of babysitting – saved me loads in the long run – not just in consultation/service fees – but by being able to avoid many common start up issues.
They also felt emotionally invested and would act as mentors and hold me accountable to actioning their advice. Brilliant.
In later businesses, I’ve had issues where it’s not worked out perfectly – but sometimes I’ve used these experiences to really suss out what a person’s service is like, before I recommend them to others.
I’d rather that I experience a slight singe – than one of my ‘likers’ or clients being burnt.
If people don’t follow through – I will approach them about it – if they don’t fulfil on their commitment, they drop off my ‘little blue book’. I’m OK with this, as I don’t invest alot on the initial arrangement. That said, I haven’t had any issues in the past year
Love how you understood the importance of valuing mentoring early in your business. Your idea of giving small contracts to determine if you can trust a contractor is exactly what we do to. Like your phrase “better singed than burnt”.
Hi Janet
Thank you again for this one, I am just at the stage of putting something like this together and would love to do it right the first time.
I have done so many contra deals in my life and then I feel as if I keep on putting effort and not getting the other person to reciprocate what they promised to do int he first place.
Invoicing can give the physical worth of the product or service and it is much more tangible that way.
Love your tv tips.
I wish I had this tip when I started out. It’s so easy to build resentment when you feel the other person isn’t meeting their obligations. The common thing though is they think they have will be very surprised to know the relationship is damaged.
Excellent message Janet … and something that I have wanted to know more details about. I have done contra deals – and have worked out the value and written that down. I have also experienced the raw end of the deal and so am more wary of doing this and when I do, I make the boundaries clear. When I got a lot of media exposure about my work many years ago – everyone suddenly wanted to be my friend and it took me a long time to recover from a no boundary response to this – and have wised up – and have a clear distinction between my business and my personal life. It has made such a difference – and now instead of having a hobby – I have a business. A tough lesson to learn, but a good one.
Great idea Janet to invoice. I also have done ‘contra deals’ in writing however not as formalised with $ value invoices. I will certainly be using this one in the future.
I am sitting in my office on a cold June day in Melbourne so it was lovely to see you speaking in a ‘seaside setting’.
Regards Bev
Tell you what Bev, it was still a bit chilly with the breeze blowing over the surf!
Julie great lesson re having clear distinctions between business and personal life. Wonderful to see what a difference it has made to your business.
It’s really hard to do business with friends, especially if you are on the same field of work.. So as much as possible i do not do contra deals with friends to avoid conflicts
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Good point. Sometimes it is easier to keep things very separate.
Janet, where was this advice 5 years ago????
Through my work videoing events I have the license to literally tens of thousands of dollars worth of information videos on marketing and copy writing etc etc. I’ve ‘attempted’ 2 kind of ‘contra deals’ ( they’ weren’t Joint Ventures in that each of us were to bring different things to ‘swap’ to the deal) where I supplied discs and supporting material of the licensed material – at costs of time for meetings and then duplicating and materials etc . And the other parties supplied websites, staffing and marketing etc and we do a 50/50 split of sales. From one party I made maybe $200 and the others ziltch/nada/zip..
The reason? I put it down to there was no ‘skin in the game’ for the other parties. So there was no real obligation (and nothing in writing – smack on wrist) on their part to fulfil.
So I love your suggestion of exchanged ‘invoices’ setting out values etc. Then if one party doesn’t meet their end of the deal they contribute ‘value’ in other ways (maybe not just ‘cash’).
Just gotta love the learning’s we get
Paul
Paul this is a brilliant way for you to formalise future agreements. The tough one comes when the other person agrees to marketing as this can be interpreted in so many different ways. Often people will send an email to their list and they can feel they have met the obligation. This often won’t be enough to recoup your investment as I know (because I have happily contracted your company) you have sizeable outgoings and a service that is highly valued in the industry.
You do have a huge asset though which you can still leverage. Possibly another “swap” with someone who is willing to actively do the marketing of the videos so you can get a return without further investment of your time?