Starting a buying group

Starting a Buying Group

ByJoseph Ferriolo Last Updated on -

Running a small business has its good moments and bad moments, and one of the things a small business may have issues with is meeting minimum order requirements. 

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It can be frustrating when you feel that you are not getting the same opportunities and services that large businesses receive. One solution to this may be a buying group.

GPOs or buying groups may sound familiar to you, but what exactly are they and how can they help your business?

What is a Buying Group?

A buying group is a collection of people and companies who join together to increase their buying and bargaining power. Together, they can bargain for better discounts and services.

Businesses can benefit from GPOs that provide stationery supplies, vehicle purchases, healthcare, computer equipment and hardware, consumables, and other essentials.

Moreover, GPOs can help businesses in sourcing their goods and stock for resale or manufacture, meaning lower costs per unit (and higher profits).

Before you decide to start a group, do research to see if one already exists in your category. You may be able to join an established group.

This might be a better choice than starting your own. If an appropriate group does not exist, it may be time to start your own.

Why Do Businesses Use Buying Groups?

The IBIS World database estimates there are 602 buying groups in the USA, which contribute to a $6 billion market. In the following industries, smaller businesses take advantage of their combined purchasing power to receive goods and services:

  • The healthcare industry
  • Industrial manufacturers
  • The agricultural industry
  • Retail and grocery businesses
  • Non-profit organizations

Group Purchasing Organizations Benefits

Joining a purchasing group has many benefits, including lower cost of goods purchased from vendors, lower shipping costs, centralized ordering, and support from the organization itself.

Here’s what you need to know.

Lower product prices

Bringing together small businesses in a particular industry or sector is one of the key functions of a business buying group. After consolidating orders from these businesses, they will place one large order with suppliers. The process is called “group purchasing.”

For bulk purchases, manufacturers and suppliers will often offer preferential rates and discounts. These savings are then passed along to the purchasing group’s members, which means reduced costs for you.

Insurance

Health insurance premiums are another major expense for small businesses. Several small business buyers’ groups offer employee coverage at lower rates than the open market. Besides health insurance, you may have better access to other types of insurance as well, such as liability, professional indemnity, property, and vehicle insurance. For some types of business insurance, GPOs offer discounted rates.

Reduced shipping fees

Large orders are usually exempt from shipping charges. Group orders over a certain size may qualify for discounted rates or free shipping.

The order will usually go to one location, so your group’s buying group may be liable for ensuring you receive your order.

Saving Time by Centralizing Your Purchasing

In the business world, time is one of the most valuable assets. With a business buyers’ group, you can find everything you need in one place.

GPO support

Small business owners should seek advice or support when they need it. There are many GPOs that actively support their members. Apart from actual purchases, buying groups can even provide legal advice, industry updates, business assistance, workshops, and support forums.

Networking

A GPO is most beneficial to businesses that value and understand the partnership. It’s a great opportunity for business owners to share their knowledge, best practices, tips, tricks they’ve discovered over the years, challenges, and even bad experiences.

Workloads are minimized

Having a GPO manages all contract lifecycle stages for you, you are able to focus more on your business strategies.

Less risk

GPOs aim to provide members with suppliers that offer the best value for their investment. A buying group vets suppliers thoroughly before doing business with them, ensuring their credibility and value, as well as reducing members’ risk.

Getting to know foreign manufacturers

Businesses like to source goods from abroad because labor and materials are cheaper, thus resulting in higher profits. However, negotiating with suppliers in other countries is often complicated due to cultural differences, language barriers, and product demands that are different. You can find guidance from specialized GPOs.

Drawbacks to Buying Groups

While there are many pros, there are also cons to consider. Buying groups don’t work with all suppliers, so if you have a favorite vendor, you may not be eligible for buying group discounts on their products or services. Sometimes, the buying group will require supplier exclusivity, so you cannot use multiple vendors.

How much does it cost to join a buying group?

The majority of GPOs charge membership fees. Research how a specific GPO is funded, what membership fees are used for, and how much buying power your membership fee gives your business.

Some buying groups receive commissions from suppliers, while others use membership fees to purchase goods. Some groups may also combine these tactics. Understanding the source of funding for a group and what your membership fees entitle you to is essential.

Be sure to check if there are any minimum order requirements. To make sure your membership is a good deal, read the fine print.

Consider joining a business buyers’ group that specializes in your industry or niche. See if there are dedicated GPOs who can assist you by contacting your peers in similar businesses.

Regardless of the kind of business you run, joining a buyers’ group or group purchasing organization could offer significant benefits and cost savings.

How to Start a Buy-in Group

The first step to starting a buying group is to find other business owners that need the same help you do. You need to reach people outside of your area that is not competition. These potential members meet certain criteria and agree to your group terms.

Once you’ve gathered your initial members, you all need to decide on what products to buy and which providers you want to use. You and the other members need to set up and organize the group. 

This can include all bank accounts needed, a Board of Directors, and other details needed for your group to be successful. Once everything is organized, you can register your group and begin saving.

Most buying groups are run as their own companies, and they will require employees and, of course, good planning. Don’t forget to treat your buying group as carefully as you would any other business venture.

Determine if you have the time and space for a buy-in. As your bulk order is divided up, you’ll need space to store it and space to store your packaging materials. Your time will be needed to create, send, and package each buyer’s order, then ship it.

Locate products that you think will sell well. Make a list based on your research.

Register your business. If you want to buy directly from manufacturers, you’ll need a business license.

Alibaba is a good place to start searching for overseas manufacturers. Develop relationships with manufacturers. It is usually as simple as sending them an email or a message on a marketplace.

You can request samples from manufacturers you want to work with after you find them. Your manufacturer may send it for free or they may ask you to pay.

You should become familiar with import duties if you plan to order products from overseas (such as China).

Tags: Small Business Tips
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