Pooling buying power can generate tremendous savings by negotiating better prices for services or materials.
The Delmarva Poultry Industry Inc., recently renegotiated an electricity contract for its 200-member buying group that realized an 11 percent lower rate. The new three-year contract is one of the lowest negotiated by the buying group since its founding in 2006 and will save members more than $600,000 over the life of the contract, or about $1,000 per member per year.
Bringing many advantages
As the Delmarva poultry example shows, participating in a buying group allows smaller consumers to band together and get better deals on common needs by using greater purchasing power. Such negotiating can also reduce per-unit and per-transaction costs.
When properly organized, buying groups can also manage the entire lifecycle of a contract, from negotiation to signing to maintenance to renegotiation. It can also bring best practices and redundancy reduction to keep costs low for each member and can allow them to share information on markets, technologies and individual products. This can maximize efficiency and reduce workload.
The benefits are not one way: While the buying group members save money, the businesses they sign contracts with receive access to a new customer base.
And if the buying group is part of a nonprofit association or organization, they not only provide an excellent service for its members but also show the effectiveness of the organization.
The possibilities are many
There are targets for group buying programs:
- Retirement funds
- Office equipment
- Financial planning
- Legal services
Buying group will usually vet these services so members are certain to get quality service as well as savings, and having such a large pool of customers under one contract helps the business owners to plan manpower and expenses.