If you've ever shopped for groceries at a warehouse store, you know you can often save money buying in bulk. The same concept applies to buying groups, sometimes called group purchasing organizations.
When your small business joins a buying group, you can purchase products and services collectively to take advantage of price breaks and other benefits. In this guide, we answer the most common questions business owners have about buying groups to help you evaluate the pros and cons of this type of arrangement.
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What Is a Buying Group? How Does It Work?
Buying groups are made up of small and medium-sized businesses that use similar products and services. By coming together to create a larger organization, the business owners can save money with bulk pricing, volume rebates, and similar incentives. Buying groups have more negotiating power together than each business has alone, so you can potentially access better payment terms and lower costs for your necessary supplies.
What Types of Businesses Can Join Buying Groups?
Buying groups can benefit most types of businesses. Some organizations serve a single industry while others accept companies in any sector. Industries where you'll most commonly find group purchasing organizations include:
- Health care
- Legal services
- Agriculture and food production
- Retail and manufacturing
- Nonprofit and charitable organizations
How Much Does It Cost to Join a Buying Group?
Buying groups typically charge a monthly or annual subscription fee. While many organizations have affordable membership rates, some cost several hundred dollars a month or tens of thousands of dollars a year.
Other groups charge a percentage of your purchases, often around 3%. In this scenario, for every $10,000 you spend through the organization, you'll pay a fee of about $300.
Your membership fees fund the operating cost of a buying group, and some groups also get commissions from their preferred suppliers. Each organization has unique terms and conditions, including the membership cost and the benefits you receive in return, so you should carefully read the contract before you decide to enroll.
The Benefits of Buying Groups
These pros could make it worthwhile for your business to join a buying group.
Enhanced Purchasing Power
Getting involved with a group purchasing organization allows your company to compete on a larger scale. You'll have access to the same suppliers and vendors that typically cater to major corporations, which can not only reduce your overhead expenses but also improve the efficiency of your business's supply chain.
As a result, you'll be better able to keep popular products in stock and even get new items sooner than you normally would. You'll also be able to work with suppliers that have minimums you couldn't previously meet.
Substantial Savings
Large orders cost less per piece than smaller shipments, so you'll reduce the cost of the items your company uses every day. Buying groups can save you money on a variety of business needs, including but not limited to health care, computers, equipment, stationery supplies, vehicles, furniture, hardware, maintenance, and inventory.
You may also be able to take advantage of discounted freight rates, another source of savings. Some buying groups provide access to discounted outsourcing for services like payroll and human resources or even offer rebates for a portion of your annual purchases.
Increased Efficiency
Since the buying group will coordinate your orders, you won't have to track down the items you need, compare prices, complete paperwork, or arrange for delivery. You'll get the supplies you need through a centralized system.
This is especially handy when working with vendors in other countries. You'll be able to bypass language barriers and shipping concerns without missing out on the available savings from international suppliers.
Expanded Professional Network
Many buying groups double as industry organizations that connect you with others in your field from all over the United States. When you join, you may have the opportunity to attend events, meet other small business owners, and access training workshops and other helpful resources.
Since there are hundreds of different group purchasing organizations, you'll likely find one that dovetails with your business needs and professional goals.
The Drawbacks of Buying Groups
These possible downsides of buying groups may affect your decision about whether to join:
- You'll may need to switch vendors since you'll be working exclusively with the group's preferred suppliers. If you decide to stay with your existing vendors for certain items, you'll miss out on the savings and it may not be worthwhile to keep your group membership.
- Some buying groups require exclusivity. That means you have to use all their vendors and can't pick and choose based on your preferences.
- You might need to meet a minimum purchase requirement. Many buying groups require you to spend a certain amount or make a specific number of orders each month.
- Groups may have membership requirements beyond the subscription fee. For example, you could have to commit to volunteer hours or other obligations as part of your agreement.
What Else Can a Small Business Do to Save on Costs?
Spending less money on supplies by signing up with a buyer's group is just the start of how you can save as a small business owner. Reduce your costs even further with these smart ideas.
Select a Transparent Payment Service Provider
You need a merchant service account to accept payments online, but some providers charge expensive fees that dramatically reduce your per-transaction profit. Pay.com makes merchant services affordable with our transparent flat-fee structure.
You can see how much you owe for each sale in real time when you log onto your Pay Dashboard, so you'll have more control over the cost of accepting online payments.
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Reduce High-Interest Debt
Small businesses often spend a lot of money on interest, since you'll likely need loans to start a new company. If you have good credit, see if you can transfer high-interest credit card debt to a 0% APR card.
You'll be able to pay off the balance faster, improving your company's cash flow. If you can't qualify for affordable rates, take steps to build better business credit by paying all your monthly bills on time.
Eliminate Excess Energy Use
Going green is great for the Earth, and it's also a win if you're trying to save money. Investing in solar panels, smart thermostats, LED lighting, and energy-efficient appliances can significantly reduce your company's energy bills and its carbon footprint.
Although you'll need to pay upfront for these improvements, you may qualify for tax credits and other incentives from your city or state.
Use Less Space
Moving to a smaller commercial space can cut some of your company's biggest expenses, including rent and utilities. If you're in an office environment, consider switching to a virtual platform and allowing employees to telecommute. For other spaces like warehouses and storefronts, evaluate your company's use of space to see if you can get away with less square footage.
The Bottom Line: Is a Buying Group Right for Your Business?
Buying groups can boost your business by reducing costs, saving time, and even creating new revenue opportunities. However, you should carefully review the rules of the organization to make sure you can actually get better prices.
Whether you're starting a new business or expanding an existing enterprise, partnering with Pay.com makes it easy for you to accept payments. We pride ourselves on our transparent approach to merchant services, with a convenient customizable platform and a straightforward rate structure. We also protect your sensitive data through every transaction with the highest level of PCI DSS security compliance.
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