Buying Group Funding

It doesn’t need to be complicated

There is no correct way to fund a buying group, as each group has different needs, different goals, and is managed in different ways.

Therefore, there are many different ways a buying group can be funded and we’ll highlight some of those here.

1. Administration Fees
   Administration fees are flat fees that groups charge their suppliers in order to manage the agreements they undergo; it’s the fee to cover administrative costs associated with the agreement (negotiation, management, rebate chasing and distribution). These fees can range from a few hundred to thousands, depending on the expected turnover of the members through the supplier in question. They can be placed either on a supplier basis, or on a per-agreement basis. There can be other factors too, such as a suppliers history of on-time payments or a suppliers credit rating. A large supplier who may turnover fifty million with the membership is likely to face a higher administration fee than one who’s turnover is in the tens of thousands.
2. Listing Fees
   A listing fee is a similar fee to an administration fee, but in some cases this fee gets distributed either in part or in totality back to the members in the form of a rebate. Usually, this is on a pro-rata basis, so a 10k listing fee may be distributed to the members based on their level of spend with that supplier. To take an example, a member who’s spend makes up 11% of the total spend with that supplier will receive a rebate in the form of 11% of the 10k listing fee. However, not all listing fees are distributed back to the members, and some or all of it can be taken by the group to cover operating costs.
3. Rebate Commission
   In some instances, groups are funded by taking a commission on rebates. An easy way to understand this is by thinking of rebate as an incoming and outgoing stream. The group may negotiate a 5% annual rebate with the suppliers, but only 4% is actually distributed to the members, leaving the group with the excess 1%.
4. Member Fees
   Member fees are annual fees paid by members to be part of the group. Pretty self-explanatory!

Most groups employ a combination of these fees to fund their group — and the differences are based on lots of variables, such as:

1. Does the group negotiate directly with the suppliers, or do members do that on a rotation basis?
2. Does the group need to turn a profit, and is that profit returned to the members?
3. Does the group provide other services to it’s members other than agreement management? Is the group a limited company, a LLP, or neither?
4. What levels of funding are required for IT infrastrucure and service provision?
5. Does the group employ people, or do members submit volunteers on a rotation basis?

All these variables need to be factored in to help determine the correct funding model for any Buying Group. Usually, when a group is owned by the members (in a LLP scenario or where all members are directors within an LTD), the most common scenario is for a membership fee, administration fees on a per-agreement basis, and listing fees which get distributed back as rebates on a pro-rata basis.

Is your group funded in a different way? Let us know — we’d love to hear about differences or options we have not come across before!

Our Buying Group platform can manage all of the funding types listed above. For more information or to signup for free, visit the eBiz website.