Ken Mara, World Wide/GC Alarm & Audio Video Design: Bartering the Bottom Line

The history books say in 1626 Dutch colonist Peter Minuet received New York's Manhattan island from the Native Americans in exchange for $24 worth of trinkets. It's probably the greatest barter deal ever made.

Following in Minuet's footsteps, Ken Mara of World Wide/GC Alarm & Audio Video Design (World Wide/GC) in Garden City, N.Y., has bartering down to an art form. On a regular basis, Mara trades for just about everything ... advertising, airline tickets, hotel rooms, Broadway theater tickets (for clients), transportation service, pest control service, landscaping service, office machines (printers, faxes, phones, toner cartridges, chairs ... everything but computers), carpet cleaning, construction and painting for the office, uniforms for his technicians, legal services, accounting services, lettering for his fleet of vehicles, graphic design, direct mail and brochures. The result, Mara says, is an estimated increase in the company's cash flow by 40 percent.

"There is a saying: Think Barter ... Save Cash," says Mara. "I think barter and it means I am conserving my cash, because you can't pay utility bills and employees with barter credits. I have to use cash for that."

The bartering system has allowed the company to preserve cash flow for purchases of other companies, and to maintain a vigilant customer service program.

The business is actually four companies in one: Worldwide Security & Audio Video Design, GC Alarm & Audio Video Design, Telestat Security & Audio Video Design, and Vision Monitoring Services. Mara and his partners, Joe Ingegno and David Young, have migrated the company from a pure alarm company to a $5.5 million low-voltage contractor specializing in the New York metropolitan area.

Add Clients, Save Cash

What the heck is bartering, how does it work and how does it increase cash flow? That's a question that Mara often has to answer for most of his vendors since he started trading for goods and services 25 years ago.

In essence, it works this way: For every low-voltage installation you perform, you earn trade credits with a "middle-man" barter company that acts as the bank. Your cash flow is boosted by the fact that you are earning trade credits based on the "retail" cost of your goods and services, not based on your actual costs.

"Barter exists to fill excess inventory, capacity or time," explains Mara. "In my case, if I hire a new installation crew that I can only keep busy three days a week, I will fill the other two days with barter installation jobs. I am still in the black in that scenario because I might do an alarm installation and charge $2,000 in barter credits. My costs for the job are likely only $1,000. Now I take that $2,000 in barter credits and trade it for a printing job for my new brochure with a local printer. I have now purchased $2,000 worth of printing for a real cost of only $1,000."

Typically, the barter exchange takes a 10 percent cash commission fee for the job, so in Mara's example his actual costs are $1,200 ... still an $800 savings.

One added benefit to the system is that it allows World Wide/GC to conduct business with someone who they may not have normally garnered as a customer. "I get them as a new client because they are in the same barter group," says Mara.

Filling excess capacity is an important goal for Mara's central station monitoring company, called Vision Monitoring. The company is actively seeking out low-voltage alarm dealers willing to use Vision Monitoring as part of a barter exchange.

"After you have built a monitoring center, the incremental costs of adding accounts are small. I want alarm companies all over the country to join a bartering group and use my services," says Mara. Vision Monitoring currently has 18,000 accounts, but the central station has the capacity to monitor 100,000 or more. "There is a very low incremental cost to add accounts. The unfilled capacity is a lost opportunity for me that is gone forever."

According to Mara, several other industries, like hotels and airlines, have come to the same conclusion that they need to increase capacity. For example, if the average hotel only has 70 percent occupancy, every night that passes without the hotel rented out fully is "lost money." But if the hotel barters and fills its rooms, it has earned barter credits it can use to get the carpets cleaned, landscaping, pest control, advertising, linen service, etc. Meanwhile, the hotel only faces some incremental costs for cleaning and utility costs. Airlines are also discovering the power of bartering. If a plane takes off with empty seats, that potential revenue is gone forever. So airlines are bartering to fill the seats, in many cases in exchange for advertising.

Likewise, Broadway theaters are doing it. When a show has been around a few years, often the theater is 25 percent empty. Many of those unsold seats are put into barter exchanges. Mara takes those tickets and gives them as rewards to employees and to clients. "When I run a sales contest, I am able to reward the winner with a limousine into the city, tickets to a Broadway play, dinner and a hotel ... all for trade. It's a nice package. It gets my staff fired up," he says.

Recently, a low-voltage company in Connecticut and another one in Pennsylvania switched over all their alarm accounts' monitoring services to Vision Monitoring. "They are saving thousands of dollars every month. Ultimately, they are boosting their sales and, most importantly, increasing cash flow and bottom line ... that's the name of the game in the low-voltage industry.

Ads, Uniforms -- Big Savings

Advertising in print, radio and TV is one of the biggest expenses where World Wide/GC saves money, especially with creating, printing and mailing brochures and direct mail. Also, the company's elaborate vehicle paint jobs and lettering are expensive -- about $2,500 apiece. Instead, that is traded. World Wide/GC also has tracked that without bartering, it would spend $20,000 a year on embroidered uniforms -- hats, shirts and jackets.

"We have the best-looking crews in the business. We also have beautiful offices and a showroom. Between the vans, the men and the offices, we portray a very professional image. I am using those credits that I have earned to create an image for the public, who will ultimately become cash customers. That image helps us explain to customers why our installation quotes are not the cheapest," says Mara.

In addition to working through the barter exchanges, World Wide/GC also has several vendors with which it conducts direct trades. For example, Mara may install an alarm system or audio system in exchange for a printing job. He has even bartered on bad debt. He had a local business that owed him lots of money for alarm monitoring. Mara credited out the bad debt in exchange for one of its brand-new copy machines. "I could have sued them, but instead I worked out a barter arrangement and hopefully we will keep the customer for a long time," he says.

Mara has also set in motion another way to boost his cash flow by acting as a consultant for other businesses that are not willing or able to join a barter group. As part of the service, he does a complete analysis of every expense a company is paying, with a guarantee that he will be able to save that company 10 percent on certain goods and services. Mara uses the barter credits to purchase the goods and services for the company in exchange for the cash payments.

"This allows me to convert some of my barter credits to cash, again, boosting my cash flow. So far, people love it. When I can save a company 10 percent, it goes right to their bottom line," he says. In some cases, Mara is able to keep some of the same vendors the business is already using at a 10 percent discount. It's not unheard of for a vendor to join a barter group.

One difficulty to bartering is that you have to spend your credits. To solve that, World Wide/GC belongs to 10 different barter groups, each one with particular specialties in different areas. For example, one group has a lot of restaurant members. So when the company needs to hold an off-site manager's meeting, Mara can rent a room and cater the evening.

Another barter exchange group is strong in travel, so when company executives need to attend an out-of-town convention, they can book the airline and hotel for trade.

"My advice for any dealer looking at getting into the barter world is to join two to three trade exchanges," says Mara. "One of the early problems was that there weren't enough diverse companies in the barter groups, so you could not find a company to do your job. For instance, I might have a $2,000 brochure to be printed and the barter group would not have a printer willing to do the job. Those days are over. Now, a barter group might have 10 printers, because barter has become a more accepted way of doing business."

Customer Service Emphasis

World Wide/GC is built on much more than just bartering. The company started in residential business 27 years ago, when Ingegno stopped by a construction site for 12 model homes and left his business card. Hours later, the foreman called because the alarm contractor had been kicked off the job. Nearly three decades later, that builder is still a customer.

"That single builder is what drove us beyond just doing alarms. We did cameras, prewires for cable and Internet, satellites, central vacuum, heating systems for swimming pools, lighting control, home automation, etc. Now, we do multimillion-dollar homes in which the security is an afterthought. The main thing is the builder wants an integrator who can tie all the low-voltage together," says Mara.

Today, about 70 percent of the company's business is residential, with about half of that being retrofit.

Being based in the Northeast means there are not a lot of large production homes being constructed, so Mara has become a firm believer in mining his existing customers, constantly letting them know what the different solutions for World Wide/GC can provide. Recently the company took back its billing system from a professional service to hone its marketing message. In every invoice that goes out, World Wide/GC now inserts a four-color brochure on its A/V and integration division.

Mara comments, "There's nothing more frustrating than to have an alarm customer say, 'I didn't know you did home theater. I just had one put in.' It's not like missing a $2,000 alarm job. It's missing a $50,000 home theater."

In every piece of mail that goes out the door, including all invoices, the company sends what it calls an Action Response Card. The card asks customers if they want to pay their alarm monitoring bill by credit card, then asks if they would like information on an itemized list of products, including multiroom audio, home theater, lighting control, central vacuum and home automation.

The card also asks if the customer would like to make an appointment in the showroom or if would they like a World Wide/GC salesperson to visit them in their home? Finally, the card asks, "Are you satisfied with our service?" and "Would you like to give us a referral to another homeowner for which you will earn a $100 monitoring credit if the referral becomes a customer?"

Mara says that any client who says they are unhappy with his service is also going to give him an opportunity to rectify the situation. Mara personally opens the majority of the incoming mail.

"It sounds crazy, but I see a lot of interesting information that people write on their bills. If a customer says they are canceling their service, I don't even wait to open the rest of the mail. I pull the file, check the service history and then call them immediately. I always ask, 'Did we do something wrong?' This statement takes the position of fault right away and makes them feel more at ease. If there is a misunderstanding ... it's our fault. If there is dispute for a service ... there is no charge. We get a lot of referrals with this policy."

If the account is moving, he asks for a recommendation for the homeowners. World Wide/GC provides a free service call to new homeowners to explain how to work the system, make sure the stickers and lawn signs are in place, and possibly upsell more services. For the departing homeowner, Mara asks to install a system in their new home. If the home already has a system, he asks to take over the monitoring contract, and upsell a home theater if possible.

Motivating Staff with Barter

How does Mara keep employees motivated? Besides the sales contests, he provides a $50 gift certificate to any employee who receives a written letter of commendation from a client. He even rewards the people answering the phones with barter gifts and incentives.

"Sometimes, the office staff will get paid extra for the week following a price increase, just because I know they are going to field a lot of 'hot' calls. Some customers will go crazy over a $2 per month increase in their monitoring fees. Insurance is going up, gas is going up, electricity is going up ... we had to raise our monitoring and service fees recently. I had a meeting with all the people who answer the phones and did some role-playing. We went over all the reasons why we had to increase our prices. It's important that our staff understands," he says.

Finally, his customer service department makes a follow-up phone call after every installation and service call, primarily asking questions that reinforce the company's performance, such as:

• Was everything satisfactory?
  
• Do you require any other services?
  
• Is there someone else you know who might need our services?
  
• Did the crew show up on time?
  
• Did the crew clean up?
  
• Is the system working properly?
  

The goal of the call is to get referrals. Inevitably, the customer service person will also attempt to upsell the customer by asking if they are aware of World Wide/GC's other services, such as home theater. The customer service program seems to be working. Mara says that fewer than 5 percent of customers leave each year, compared to 16 percent residential attrition cited by industry experts.

"We fold like a cheap tent for our customers," he adds. "Whatever they want, we give them."

Checking Out Barter Groups

If you Google "barter groups," (enclosing the phrase in quotations) 552 hits are displayed. So how do you choose and how do you join? The exchanges themselves will look at your business and evaluate what services you can provide for its other members. If a barter group already has 15 printers and the trade exchange is not helping those members fill their capacity, then it will not add another printer.

When you log on to the specific barter exchange's Web site, you can see exactly how many credits you have in your account. You can surf the site for the services you need, link to the company's Web site and order it.

"Your local exchange is going to be the most helpful," according to Ken Mara of World Wide/GC. "That's where you find the copy machine toner, snow removal/plowing, landscaping, restaurants or carpet cleaning. I don't want a company from far away to do that."

Some particular barter groups to check out are:

ITEX Corp.
Founded in 1982, publicly-traded ITEX is the largest national barter group and processes more than $300 million a year in transactions across 21,500 member businesses and 60 regional licensees. Headquartered in Bellevue, Wash.
www.itex.com

Continental Trade Exchange
Founded in 1985, CTE has a bartering client base of more than 9,700 business and professional people.
www.ctebarter.com

Business Networking Inc.
A large regional barter group with offices in New York, Delaware and Pennsylvania.
www.businessnetworkinc.com