Buying Groups:
A buying group, cooperative or purchasing alliance provides independent businesses with a method to reduce the costs of acquiring products for resale. A buying group combines order quantities from all its members and then places orders on manufactures on behalf of all of their members to receive a larger quantity discount then an individual business would receive on their own.
Buying groups have become very popular with manufactures of product because it provides them numerous benefits, the primary advantage being the financial ability of the buyer to actually pay for the merchandise they have purchased. Other benefits include a lower customer support staff as the manufacturer is dealing with a smaller number of customers.
Buying groups may also offer other services:
- Printing and distribution of catalogues and advertising material.
- Advertising in media such as television, radio and newspapers.
- Web sites and other Internet services.
- Regional or national identity.
- Financing arrangements.
- Private branding.
The buying group exists because it can supposedly acquire product and provide services at a lower cost then if each independent business did the same thing on its own.
In theory most buying groups are jointly owned by the independent businesses that acquire their products from the buying group. The buying groups will have meetings on a regular basis, usually two or three times a year where the members vote on policies, services and in some cases the officers and directors. However, in reality the buying groups are usually quite independent of their membership and operate more as a master distributor/dealer.
Being a member of a buying group can be a very expensive proposition. There is usually a substantial initial membership fee and the members are usually billed for their share of services on an on-going basis. In some cases members are billed for services whether they utilize them or not. In return the members usually receive some sort of rebate based on how much of what they purchased through the group at yearend. This rebate supposedly represents the member’s share of the profit of the buying group.
When performing your due diligence you must also consider the status of any and all rebate monies that may be due to the business. Rebates are usually based on annual sales of a specific product, groups of products or a product line. You have to be very cognoscente that in a lot of cases there may be a threshold of $Y of sales of that specific product, group of products or product line before any rebate is allowed. If the seller has not reached that threshold yet and your additional sales do not cross the threshold then you will not be receiving a rebate check at all. If the seller tells you that he is going to be getting $X back as rebates at the end of the year for sales that he has made so far this year you will have to develop a method to calculate what is actually owed as rebates. I suggest that if you are giving the seller his portion of the rebates that you offer to provide that amount on receipt of the rebate check from the buying group and that his share will be a percentage of the total check based on his sales divided by the total sales. In other words if he had sold $100 of whatever the rebate check is based on and the total sales for the year were $200 for whatever the rebate check is based on then he would receive 50% of that rebate check.