Find power in numbers: choosing a buying group

I have been a vet for more than 30 years, with a convoluted career path, initially going through the usual route of assistant vet to partner, before leaving to join the animal health industry for a period and subsequently opening my own practice in 2008, which we built up and sold in 2020 to concentrate on our buying cooperative.

When I was a partner in a large mixed practice with a significant amount of pig work, the part of the job that vexed me most was the pricing of medicines. In pig medicine, medicines are largely sold below list price, being marked up from net:net, due to the sheer volumes being purchased and competition on price. The first of these “nets” was the price of a product “net” of wholesaler discount, the second being the price “net” of manufacturer discount in addition to the former. So, net:net price is the price the practice actually paid.

This is vitally important, as you cannot set a selling price when you don’t know what you pay for something. It sounds simple, but a surprising number of practitioners and vet practice owners don’t know this, or don’t consider it important. As an example, I recently asked a practice owner, who spends £1.6 million a year on medicines, what net:net price he paid for a range of products – he didn’t know and he wasn’t too concerned about this, until I used the example of the “one-man-band builder” who was at that time building me an office. I said that he had to know how much a brick or a kilo of sand cost, because if he didn’t, then he may end up losing significant money when more than 10,000 bricks and 5 tonnes of sand are involved in the build.

The very same can be said for any practice with a health plan. While practice management systems will automatically update medicine prices, health plan prices are usually set manually and, like bricks and sand, you can quickly end up in a mess if you aren’t aware how much you actually pay for a product.

Getting the best deal

So, why the ramble into net:net pricing? Well, it’s the most important reason for buying groups’ existence. However, not all buying groups were created equal.

To touch briefly on the first “net”, when I meet potential members – especially new start-ups – I advise them how important it is to get the best deal and the best support possible from their wholesaler, and that joining the right buying group can assist in this process.

When setting up a new practice, building the right team, fitting out the premises, purchasing the equipment, and setting up the various maintenance contracts and employee contracts are seemingly the most urgent matters, as getting these wrong could cost a lot of money. However, purchasing is almost entirely overlooked, yet it’s the second-biggest monthly expense you’ll incur (behind payroll and its associated expenses). Strangely, and despite all the very good veterinary business coaches and advisors out there, it’s a subject sadly neglected.

It’s also a lonely place running any new business and the fact that no one appears to care can be overwhelming when you, as an owner, are already wearing so many different hats. This is why it’s important to have people looking after you who have your best interest at heart, advising the most cost-effective products to buy, rather than blindly just buying the products you know or have always just used. Members also need support when difficulties such as out-of-stock issues arise or price changes mean a change of product might work better for the practice. These, along with other matters larger businesses seem to find out about way in advance of smaller or newer practices who don’t have the same clout, mean you need someone in your corner.

Collective buying power

So, what should you look for in a buying group? It’s quite simply to obtain the best prices possible. This sounds simple, but most of the current buying groups don’t do this. They have a hefty infrastructure to fund, sales and marketing teams, head office functions and shareholders who expect a return. Also, when buying groups first appeared, their whole ethos was “all for one and one for all” – it didn’t matter how big your practice was, the collective buying power was what made the best prices available; however, from personal experience, I have found that this is not always the case.

Similarly, some have different levels of membership, which I believe goes against this original ethos. What does this tell us? Simply that the better prices are available… but at a cost. Why not give the best prices to everyone?

Rebate levels

Being vets, we don’t like having our clinical freedom or choice of a medicinal product curtailed, and, therefore, we like a buying group that offers as wide a product range as possible. However, although in such cases you will have complete freedom to buy what you want, in fact, the discounts you receive on similar products vary, effectively directing you to a pre-selected group of products. No different, then, from having a list of dedicated products.

Also, rebate levels and prices may change without you being notified. This is generally not so important for non-shoppable products, as they will be automatically increased in price on your practice management system, but (and this is especially true in times of financial turmoil like those in which we are currently embroiled) veterinary practice owners may be reluctant to increase the price of their health care plans on an annual (or more frequent) basis, or simply overlook this. This is despite some manufacturers having had to make two price increases in 2022 already.

In a situation like this, it’s important to review your prices on a quarterly or more frequent basis, and to have a good line of communication with the manufacturers because otherwise, you could end up losing significant amounts of money without even noticing – especially if you have a very successful health care plan with, say, 30% or even 40% of your client base signed up. Again, this is something I would expect from a good buying group.

Check the detail

I find it anathema that the more you buy, the more you pay. How can this be correct? The work done is at the negotiation stage. With automation, no increase occurs in the input required, whether you spend £1,000,000 a year or £100,000 a year. So, a fairer way would be to charge a flat rate. Not a percentage. After all, the bigger your practice, the more buying power you bring to the group.

Fees charged are also often across the board. This includes products that receive no manufacturer discount. I’ve even seen charges levied on products that don’t even receive any wholesaler discount. This is particularly important when it comes to big ticket items bought through the buying group and needs careful attention.

Not every buying group “peels the onion” the same way. I have seen the case where the manufacturers’ rebate percentage is deducted from product price after the wholesaler rebate has been deducted, so any calculated net:net price is higher than would be the case if it were calculated the way the majority of the veterinary world does.

In some cases, you might be given average prices paid across a period. In the case of a price increase, this makes it difficult to work out in your accounts what you’ve actually paid for a specific product.

Some buying groups pay your wholesaler invoice for you, which helps with cash flow initially, but further clouds matters with respect to trying to work out what you actually paid.

Wouldn’t it be a better idea if buying groups did more than just negotiate the prices? Perhaps including member-only CPD, a community with advocates from within the community, manufacturer support and a “brains trust” of like-minded people there to help each other with solutions to members’ problems, helping us all to have the best practices possible.

The fact is, these are all already available – you just have to look for them.