As giant businesses try to gobble up their independent competitors, small businesses unite to fight for their place in the market. Co-ops are yet another indicator of the importance of small business networks, much like crowdfunding, in which individuals combine their resources to support one cause. Through the power of the crowd, whether individuals or businesses, the very necessary independent and innovative ideas can continue to thrive.
Purchasing Co-ops: The Ultimate Primer
What are purchasing co-ops?
Purchasing co-ops (short for “cooperatives”) are basically groups of related small businesses that band together for a variety of benefits. Advantages include better purchasing and negotiating power and a wider range of resources to share. As monolithic mega-companies push small businesses out of the market, thousands of independent enterprises are joining together to compete on the grand scale.
Purchasing co-ops are just one of many different types of cooperatives, such as consumer and worker co-ops. Each co-op is designed to serve the unique needs of its members, and purchasing co-ops can serve a range of functions. For example, the co-op can provide its members with joint delivery and shared warehouse space.
What are the costs and benefits to joining?
Purchasing co-ops provide great benefits, but these can come at a cost. Because of the wide variety of co-op services, costs vary from one group to the next. Possible expenses include quarterly dues and stock or initiation fees. While co-ops can usually negotiate a higher discount rate, the co-op may charge a percentage of the discount volume. Bill Hartman, President of Furniture First Cooperative, explained the following system to Businessweek: “So if there’s a 2% volume discount, our members would get 80% of that, and we’d get 20% to fund our operations.”
Nonetheless, many small business owners find that the benefits greatly outweigh the costs. When small business owners have the power of a larger institution behind them, they can negotiate discount bulk rates for everything from inventory to electricity and health insurance. Very recently, reports Biztimes, one Wisconsin co-op was able to secure over $50 million in federal loans to finance health care for thousands of small businesses and non-profits. While small businesses can also benefit from Obama’s Affordable Care Act, deal of that scale would otherwise have been impossible for small businesses on their own.
In addition to the greater competitive and financial edge, purchasing co-ops can function as an extended trade network. Small businesses can exchange advertising tactics, business practices, training, and so on. However, some small businesses consider this a drawback, as they may wish to protect their singular practices. Small businesses may also be wary of generic marketing, says Chron.com.
How common are purchasing co-ops?
According to the National Cooperative Business Association (NCBA), there are nearly 30,000 cooperatives that operate in 73,000 locations across the country. In total, these co-ops own over $3 trillion in assets, and they generate over half a trillion in revenue. The vast majority of co-ops are consumer-based, but purchasing co-ops are the second-most common, accounting for over $1 trillion in assets and 130,000 employees. In short, co-ops are incredibly widespread. Case in point, according to the NCBA, ACE, True Value and Do It Best are all purchasing co-ops that are collectively owned by over 13,000 independent hardware stores.
How to join a purchasing co-op
Every small business should do some research before joining a purchasing co-op. Check out trade associations and member market places such as BizUnite, which aggregates over 40 business programs into one location. While many great co-ops exist, if you do not find the right co-op for you, you can always start your own!