Buying in bulk means lower prices. The concept is simple, right? What could go wrong?

Understanding the Model

My client has a large portfolio of fitness centers. He was referred into a purchasing group by a friend in the business who had saved considerably in their Group Purchasing Organization (GPO). After obtaining energy rates through this group, my client was surprised to discover that the best terms were actually higher than when they priced individually.

Group purchasing of paper towels and soap saved them thousands of dollars! Why would energy be different? Economies of scale affect most simple consumables—why not complex, market-driven purchases?

Energy is a complex purchase because numerous components are built into the rate. Some are generalized, while one component is specific to your facility, your capacity tag. This individual tag determines whether your facility would be a ‘winner’ or ‘loser’ when purchasing through a group. And this is because in a buying group, your tag is socialized across all included accounts.

Joining a socialized rate grouping will be massively beneficial if your facility has an unfavorable capacity tag. Conversely, if you have a great capacity tag assigned to your facility, you would lose the benefit of this tag as it’s spread into the group. So, understanding the individual nuances of your account is crucial.

Such nuances that shape an account can be particulars such as time of energy use, energy demand, and meter classification. My client’s fitness clubs are 24-hour facilities, with high off-peak usage. His friends’ clubs operate differently with heavy afternoon usage. Their tags vary significantly.

Aggregation that Works

Similarly tagged or similarly grouped meter classifications such as Small Commercial or Residential meters often benefit quite well from group aggregation. We manage a portfolio purchase for the Retailers Association of Massachusetts that is successful due to the similar usage profile and meters of a large group of small business retailers. Massachusetts and now New Hampshire also have numerous Community Choice Aggregation municipal groups which we manage to similar successes. In these cases, the power of group purchasing is at its greatest!

So, it pays to understand your facility’s nuances. Different businesses have wildly different experiences within these buying groups, and it’s simple to understand why. So next time you’re considering a buying group or community aggregation, ask yourself; am I the loser or the winner?