Introduction to Buying Groups and Group Purchasing Organizations
You may have heard of group purchasing organizations (GPOs) or buying groups, but what are they and how exactly can they help your business? A buying group is an organization made up of small businesses that band together so they can negotiate as a larger group with vendors to receive better pricing and terms on goods and services.
As a small business owner, money is always at the front of your mind. Reducing expenses and smart financial management are essential to success. There are dozens of ways to shrink expenses, from minimizing your credit card processing fees to automating common tasks. One option you might want to consider is joining a buyers’ group or GPO. Let’s take a look at what that entails and the pros and cons of joining.
- What is a buying group?
- Benefits of Group Purchasing Organizations
- Drawbacks to Buying Groups
- What can you get through a business buying group?
- Costs to Join a Buying Group
What is a buying group?
“Buying group” or “buyer’s group” is a general term for organizations of small businesses working together when it comes to purchasing and other business functions. Buying groups that specialize in group purchasing are often known as group purchasing organizations (GPOs) or group purchasing collectives. These GPOs can provide the essentials for running a business: Stationery supplies, vehicle purchases, healthcare, computer equipment and hardware, consumables, and various other goods, services, and sundries.
Other GPOs help businesses source their stock and supplies for manufacture or resale to customers, meaning a lower cost per item (and higher profits). Some GPOs provide services for all small businesses, while others specialize in specific niches. It’s worth investigating and finding out if there are dedicated buyers' groups for your industry.
Benefits of Group Purchasing Organizations
There are many benefits to joining a purchasing group, such as lower cost of goods purchased from vendors, lower shipping costs, centralized ordering, and support from the organization itself.
Reducing Costs for Purchasing Goods and Services
One of the main functions of a business buying group is to bring together small businesses in a particular sector or industry. They will then consolidate orders from these businesses to place a single large order with suppliers. This is known as “group purchasing.”
Due to the economy of scale, manufacturers and suppliers will often give preferential rates and discounts for buying in bulk. The purchasing group then passes these savings back to its members, meaning reduced costs for you. Many vendors have large purchasing order minimums before they provide discounts — buyers' groups will help you meet those. Small businesses can enjoy the discounts normally reserved for big box, national, and international businesses.
Saving Money on Freight and Delivery
Many suppliers will waive freight and shipping fees for large orders. Your buying group may be able to negotiate discounted rates or free shipping on group orders over a certain size. Keep in mind that in most cases, that means your group’s order will go to one location, so your buying group may be responsible for then ensuring you get your portion of the order. Be sure to check how the specific group(s) you’re considering handle such shipments.
Saving Time by Centralizing Your Purchasing
As a small business owner or entrepreneur, time is one of your most valuable assets. A business buyers' group can make it easier to get everything you need from one place. Whether you’re setting up a new office or you just want to order stationery supplies once a quarter, being able to buy everything through one group is simply more efficient.
Support, Advice, and Advocacy
Some buyers' groups don’t just provide group purchasing options, they play an active role in supporting and furthering the interests of their members. These groups are often formed from industry bodies, lobbying organizations, and trade associations.
They will provide services in addition to purchasing, such as legal advice, business help, industry news, seminars, and support forums.
Navigating Foreign Manufacturers
Many businesses want to source their goods from abroad — Lower labor and materials costs translate into lower costs per item, meaning more profit. Unfortunately, navigating foreign manufacturers can be tricky, especially with language barriers, cultural differences, and product requirements. Specialized GPOs can point you in the right direction.
Drawbacks to Buying Groups
While there are plenty of pros, there are also possible cons to consider. Perhaps the biggest one is that buying groups aren’t likely to work with all suppliers, so if there’s a vendor you prefer, you may not be eligible for buying group discounts on that company’s products or services. In some cases, if the buying group requires supplier exclusivity, you wouldn’t even be able to use a different vendor.
Additionally, depending on the size of the buying group, you may need to put in some time to help the group and other members. Be sure to check on any commitments required by the group before signing up.
What can you get through a business buyers' group?
As I’ve already mentioned, there are many areas where a good buyers' group can secure you some significant discounts and benefits. That may include:
Office Supplies and Facility Maintenance
Every business needs office supplies. There’s also a big markup on buying stationery through retail outlets. Join a GPO to get much better pricing on the stationery and sundries your business uses. Additionally, managing commercial spaces and offices can be a complex and costly operation. Grouping together with other businesses in your location can help you negotiate better rates on facilities management.
HR, Hiring, and Payroll
Payroll is a big expensive for many small businesses. Payroll, hiring, and other HR services are common expenses. Grouping your payroll and HR services together can mean good discounts and more benefits for your employees.
Another big cost for a small business is health insurance premiums. There are a number of specialized small business buyers' groups that can help you get employee coverage at better rates than on the open market. In addition to health insurance, you may have better access to other types of insurance as well, including liability, professional indemnity, property, vehicle, and more. GPOs can provide discounted rates for some of the more popular types of business insurance.
FedEx, UPS, and other carriers give much better pricing based on the quantity of items shipped. A GPO can negotiate better rates and reduce your logistics and shipping costs.
Hardware and Technology
Desktop and laptop PCs, tablets, smartphones, servers, and other technology infrastructure will be one of your largest capital expenditures. Many GPOs have specialized programs letting you buy hardware at a discount from some of the biggest manufacturers.
Costs to Join a Buying Group
Most buyers’ groups are funded through membership fees, paid by the small businesses they represent. If you’re interested in joining a buyers’ group, find out how they are funded.
Some purely pay for themselves through membership dues, others get a portion of their money as commission from the suppliers. Some groups may use a combination of the two, or have other ways of bringing in money. Before you join a buying group or GPO, make sure you know how they operate and the benefits you’re going to get.
Check whether you need to spend a certain amount on orders or if there’s a minimum quantity. In short, read the fine print and rules of membership to make sure you’re getting a good deal.
It’s worth looking into business buyers' groups who specialize in your industry or niche. Contact your peers in similar businesses to find out about their purchasing habits and see if there are dedicated GPOs who can help you out.
Whatever type of business you run, there could be significant benefits and cost savings from joining a buyers’ group or group purchasing organization. Explore your options, get recommendations, and see if they’re right for you. Just a few minutes of work could substantially reduce your business expenses.
Paul Maplesden is a writer specializing in business, finance, and technology. He finds research and writing about money deeply interesting.