The Deal Economy

How buying groups can put more money in their members’ pockets

A buying group, otherwise known as a group purchasing organization, is the coming together of similar independent businesses to leverage their combined purchasing power to receive better net costs and terms on the products they buy, well beyond what any single company could attain. As a buying group membership grows, so does its ability to drive greater value for its members, while vendors benefit from increasing volume. Below are some of the ways buying groups can put more money in their members pockets.

Negotiate better deals

One of the key benefits of being in a buying group is the ability to use the combined buying power of the group to negotiate better prices with vendors. One of the key ways of achieving these better prices is by agreeing better rebate rates, with the buying group then distributing this achieved rebate back to its members (likely apportioned based on each member’s transaction volume, e.g. if one member is responsible for 20% of the group’s spend with a vendor then they can expect 20% of the rebate earnings to be distributed back to them).

The members benefit from rebates because they are able to protect negotiated pricing and the margins made on the sale of the products. Then, when the rebate cheques come in, they go straight to the bottom line!

Standardizing the purchasing process

Cost savings happen not only through reduced prices negotiated into the purchasing contracts but also by standardizing the purchasing process. Rather than going through a complex negotiation process with multiple vendors and trying to keep track of those contracts, a buying group handles this process for their members.

Increased purchasing power

Small and mid-sized companies don’t have the power needed to get aggressive pricing from well-known vendors. A buying group will help members get those prices and by placing orders as a group the distributor sees an increase in sales that translates to volume-buying cost savings. The vendor also benefits by getting one large order instead of several smaller orders. 

Access to real time insights

Gaining access to analytics and data will help members make more informed decisions and is vital to improve buying groups’ negotiation of vendor contracts as well as improve their relationships with vendors. Most buying groups will have a variety of tools at their disposal that can be used by members to better assess their purchases. They can complete different analysis that could help members better evaluate their purchase options, which can help them make informed decisions about how to best manage their business. For example, if the member knows what they purchased in the past year, the buying group can let them know what the potential cost savings will be. The buying group will take that purchasing report and give them a breakdown of the discounted price and their expected cost savings.

Long-term value

Buying groups can provide long-term value with multi-year vendor contracts. Once a member locks in pricing with a buying group, they will benefit from a long-term price guarantee. Buying groups actively manage those contracts, holding regular business reviews with vendors and obtaining feedback on their performance. The value they deliver is enhanced by that feedback. As more members join, it’s also not uncommon to see pricing go down.

Receive improved repayment terms

Being able to cut down on inventory and purchasing costs is always a major benefit for companies joining a buying group. However, having more control over their working capital and supply chain is another advantage. When joining a buying group, the increased power with vendors can also help members get more favorable repayment terms. This could allow a member to extend the date by which an invoice needs to be paid. This ultimately can help cut down on their working capital costs. 

Cut costs internally

A member may also be able to cut costs associated with vendor evaluation, contract negotiation, and account management. Depending on the nature of the buying group, administrative fees may be paid by the vendors themselves as part of an incentive package, which means their membership, even with purchase minimums, can produce substantial savings from day one.

Bulk discounts

The sole purpose of the buying group is to save its member practices money by negotiating discounts on goods and services which they regularly purchase. The buying group negotiates with vendors, after which they identify ‘approved’ vendors, who guarantee to give the member significant discounts over what they would otherwise pay for their services, in return for the buying group’s endorsement and help in making the member aware of what they offer. As well as saving the member money, buying groups save time which would be spent getting quotes from several vendors by doing all the negotiations for the member. That way, the member can 100% focus on their business.

The cost-effective nature of group purchasing is arguably one of the most sought-after benefits. With collective buying power, members receive considerable discounts on goods and services. That’s because, with multiple parties involved, the purchasing volume is much higher and there’s greater leverage to negotiate lower prices. Not only that, but a member can also have confidence as part of a buying group that they’ll receive quality products each time.

Is a buying group for you?

Buying groups continue to provide a variety of benefits to businesses of all sizes, which can help members save money and be more efficient. This can free up cash flow and resources that could be used to invest elsewhere in the business, which can further help to fuel future growth. We have helped many buying groups including UAG and Affiliated Distributors streamline their rebate processes and give back to their members.