Two Popular Pricing Models for 3rd Party Procurement Companies

Posted on

Third-party procurement services operate on a range of different pricing models. If you're thinking about hiring a company that provides procurement services, you should ask them how they can streamline your procurement process and save you money, but you should also find out how they charge their customers. Some of the most common payment options are as follows.

Fee-Based Pricing Model

Some 3rd-party procurement services charge a fee for their service. The fee may be a set amount, it may be a percentage of the supplies they procure for your company or it may be an hourly fee for their time. In some cases, you may pay a monthly retainer for their services plus a percentage of supply. Make sure you understand how billing works for a fee-based pricing model before you sign up.

Contingency-Based Model

In other cases, 3rd-party procurement companies charge their clients on a contingency basis. This is similar to how personal injury attorneys only charge you if you win the case. If you're a bit skeptical about the potential advantage of working with 3rd party procurement and you want to see results before you agree to pay, you should look for a company that offers a contingency-based model of pricing.

When companies have a contingency-based fee structure, they base their charge on how much you save. In other words, with this pricing model, your costs are contingent on how much the company saves you. Typically, these companies start by auditing your current procurement operations and supplier relationships, and they try to identify wasted money or inefficiencies. Then, they use their insider knowledge about the marketplace, and they set up deals that will help your company save money. Finally, they base your payment off your savings.

The exact numbers vary from company to company, but to illustrate how the contingency-based pricing model works, imagine that you hire a company that provides 3rd-party procurement services, and they restructure your procurement process so that you save $1 million per year. The company may charge you half of that amount in a fee. With this pricing model, you can try the services risk free, and you only pay if they bring value to your company. As you can see from the example, even though you pay for the services, you still end up saving money over all.  

To learn more, contact a 3rd-party procurement service directly. Ask about their services and get to know their pricing model.