If you are looking to form a buying group, it’s important to understand a few things going in. Buying Groups, otherwise known as Group Purchasing Organizations (GOPs) or Purchasing Co-Ops, are made up of many independently owned businesses in similar industries. By coming together and combining your collective buying power, you can negotiate discounts with vendors that you couldn’t normally achieve.
Before you can start reaching out to people and asking them to join with you, it’s important that you understand the key selling points for belonging to a group, as well as how you plan to fund it.
WHAT ARE THE BENEFITS TO THE MEMBERS?
When you contact potential members, it’s possible that many of them will never have heard of a buying group. So you need to make sure you are fully prepared to discuss the many benefits, or selling points, of belonging to a group. You also know need to know what your specific group is doing and why it’s a good group to join.
Some of the main benefits will always include:
- A large group of buyers has the bargaining power to be able to lower the cost of merchandise
- Ordering those goods can be streamlined through making the process more efficient with the vendors
- The members can enjoy better response time from the vendors since they become a higher volume purchaser
- They can increase their competitiveness by allowing them to offer goods at prices similar to their larger competitors while still making the profits they need to make to keep their businesses successful
- You can also provide additional benefits to your members, such as providing advice or training in marketing, employee training, merchandising, and more. The group can even choose to adopt a single brand name, like Ace Hardware, and pool their collective power for marketing, branding, and advertising on top of just leveraging group buying power.
WHAT VENDORS DO YOU WANT TO APPROACH?
You can start by putting together a list of vendor types that your group will need. Having this list on hand when you approach potential members will help make your group more attractive. You can find vendors for a variety of needs outside of just inventory as well. Consider needs that your businesses will have, such as payroll, insurance, postage, marketing, IT, collection, answering services, and more.
When it comes to inventory, include vendors that offer wholesale items as well. This can give you more options for carrying more product lines at lower prices as well.
HOW WILL IT BE FUNDED?
It is normal for members to pay an administration or member fee to join the group. You need to make sure that the fee is low enough that it is more than offset by the savings they will get on their purchases by belonging to the group. Set this fee as low as you possibly can in order to keep joining attractive.
The fee you collect will be used for staffing, office expenses, and even warehousing of goods. You will likely need to rent a small and affordable office space for the staff to work out of, so factor in that cost as well.
HOW WILL YOU BE STAFFED?
There will be some positions you can outsource, such as hiring an attorney that specializes in navigating the legal complexities of buying groups. Other positions will need a dedicated person to fill that role internally and will need to be hired by the group. One of the most important roles is a chief executive officer. You’ll want someone that is both an industry expert and someone that is well respected by vendors and potential members.
While it can be tempting to utilize a member for the CEO position, this can be a major mistake. Most business owners are too busy running their own business to be able to devote the time to managing the day-to-day operations of the co-op.
You may also choose to hire for additional positions that would handle ordering, coordinating shipping, and keeping the financial accounts of which member(s) should be billed for specific services and goods.
START CONTACTING POTENTIAL MEMBERS
Once you have those initial hurdles conquered, it’s time to start finding members so you can get off the ground. You will need to look for like-minded people that will understand and appreciate the benefits you’re offering them. You want your initial members to be people that respect their fellow entrepreneurs and won’t see them as competition. They also need to have respect for the vendors and be willing to do their part to maintain healthy relationships with the vendors the group chooses.
RETAIN A QUALIFIED LEGAL PROFESSIONAL
Buying Groups come with a lot of legal hurdles. From the initial formation of the group, through day-to-day activities like members joining or leaving, you will need to have your i’s dotted and your t’s crossed to make sure you are addressing everyone’s needs legally. Buying Group laws aren’t exactly the same as traditional business laws, so you’ll want an attorney that specializes in co-ops and not just standard business law. Of course, we’ve been serving businesses since 1985, and we’re happy to answer any questions you have.
ESTABLISHING THE BUYING GROUP’S BRAND
So how does a buying group go about protecting the name of its business? The first step is in choosing the correct name. Not only does the company need to select an attractive name that would help market its services, but it also must be a name that does not infringe upon the trademark rights of others. A trademark search should be conducted. Once the trademark is selected, it should be protected it through registration. The mark should then be protected by preventing others from using or registering marks that could be confusingly similar. The final step in protecting a mark is complying with the additional filing deadlines required by law.