Starting a Buying Group

buying groupRunning 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. 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.

What is a Buying Group and Should You Join One?

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.

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.

What Do Businesses Use Buying Groups?

The IBIS World database estimates there are 728 buying groups in the USA, which contribute to a $5 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.

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.

Costs of joining a buying group

The majority of buyers’ groups are funded by membership fees, paid by the small businesses they represent. Find out how buyers’ groups are funded if you’re interested in joining.

Some members pay their dues purely through membership, while other members get a portion of the commissions from suppliers. Some groups use a combination of both or have other ways to raise money. It is important to know how buying groups work and the benefits you will receive before joining.

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).

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Joseph Ferriolo

Director at Wise Business Plans®
Joseph Ferriolo is the Director of Wise Business Plans. He has overseen over 15,000 written business plans during his tenure, raising over $1BN in funding and providing 30K+ consulting hours for startup companies.

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