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What's a GPO and How Do GPOs Make Money?
By Mackenzie Oakley | September 1, 2022
Group purchasing remains one of procurement’s best-kept secrets. Not because the concept is new, but because inaccurate, preconceived notions surrounding the concept of group purchasing still exist in the sourcing world today.
Some procurement professionals are concerned that a group purchasing organization, or GPO, won’t be able to accommodate their unique requirements. Others worry that a GPO will lock them in to certain contracts indefinitely.
The Una team is dedicated to providing resources that hopefully answer these questions, and deliver the tools you need to make the best possible sourcing decisions for your organization. This includes deciding if group purchasing is the right fit for you.
In this article, we’ll address some of the most frequently asked questions regarding group purchasing organizations: what fees are associated with joining and how do GPOs make money?
We’ll cover the following:
- What is a GPO?
- A brief history of group purchasing organizations, and how they were initially structured
- Different ways GPOs may be funded
- How a GPO like Una makes money
What's a GPO?
Simply put, a group purchasing organization leverages the collective buying power of its members to secure discounted prices from suppliers and vendors. Any business, regardless of size, can take advantage of the “strength in numbers” concept and access pre-negotiated contracts with some of the nation’s top suppliers and retailers, saving big on their portion of spend.
As a GPO, Una provides your organization with countless procurement solutions geared toward improving your bottom line and generates opportunities for better overall spend management. We’re designed to save you money, time, and effort.
You can learn more by downloading our free Complete Guide to Group Purchasing:
A brief history of GPOs
The first group purchasing organization was established in the healthcare industry in 1910 as a way for hospitals and clinics to save money on supplies and medications. The healthcare GPO negotiates the prices of these items, among other things, on behalf of the healthcare provider. At first, the number of GPOs grew slowly, increasing over time thanks to the establishments of Medicare and Medicaid.
Today, there are over 700 GPOs serving healthcare providers throughout the United States. In 2019, it’s estimated that GPOs saved the healthcare industry more than $34 billion and will reduce supply chain costs by more than 13% over the next decade.
GPOs aren't just for healthcare anymore
After growing in popularity within the healthcare industry, the GPO model caught on in other verticals as well, including the business, hospitality, dental and veterinarian segments.
Horizontal GPOs are great at reducing procurement costs by combining the demand for non-strategic, indirect spend on supplies and services of a broad spectrum of industries and trades. As a result, the consolidation of purchasing power and the GPO’s ability to establish contracts achieves preferred pricing, terms, and service standards for their members.
See how some private sector businesses found success by partnering with Una:
How do GPOs make money?
The concept of group purchasing and working with a group purchasing organization sounds appealing but what are the fees associated with joining a GPO? Will you end up paying to save? How do GPOs make money?
Healthcare GPOs are normally funded by administrative fees paid by vendors. Usually based on the price of whatever items are purchased, the fee is paid when a GPO member buys through a GPO contract. On average, the contract administrative fee for healthcare GPOs ranges from 1.22% to 2.25%.
Likewise, GPOs in other vertical or horizontal segments typically make money by using this same vendor-fee model. GPOs might also collect participation fees from their members, or a use combination of the two methods. The membership fee may be a one-time thing paid upon joining or a set fee collected on an annual basis. In other circumstances, some GPOs might even waive their membership fee after a certain purchasing threshold has been met.
When researching GPOs and their pricing structure, we recommend working with one that is completely transparent about the way they conduct business and what they expect of their members when it comes to fees and purchasing volume.
Working with a GPO like Una
At Una, our pricing structure is set up so membership is always free to join and free to use. Really, it’s free. Every time you purchase through an Una contract, we are paid an administration fee by the supplier. In turn, we use the administrative fee to finance our services, allowing us to make and keep membership free for our members.
In other words, we make money by saving you money.
Free membership might sound too good to be true, but the reasoning is simple. Suppliers are motivated to pay admin costs because it essentially guarantees an increase in volume sold thanks to the collective buying power of Una’s membership.
As a group purchasing organization, Una simply facilitates the connection between suppliers and manufacturers and the businesses that need their products and services. Most importantly, we take the time to vet our suppliers and negotiate the contracts so our members are free to pick their favorites and start saving immediately.
In addition to never charging a membership fee, Una does not require members to purchase from certain suppliers or commit to a specified purchase volume. As a result, you are in control as a member and our team of Sourcing Advisors are here to provide support every step of the way.
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Do you have questions about group purchasing? Wondering how a group purchasing organization works to save you money, time, and effort?
Una’s team of Sourcing Advisors is here to help.
Contact us to learn more.