Charities Large and Small Put Their Collective Buying Clout to Work

In Chicago, a group of nonprofit organizations has been collectively saving a total of $1-million each year, on average, by banding together to buy services and supplies—and any nonprofit can now join them.

The Back Office Cooperative’s 32 affiliated groups use their group purchasing power to save on accounting and financial services, office supplies, telecommunications, insurance, custodial services, even the electricity that lights their facilities. Since it began five years ago, the cooperative has produced a total of $5-million in savings for its members.

Those savings make a big difference as nonprofits struggle to deal with sluggish donations and tight government budgets.

“The resources made available to us through Back Office Cooperative have helped us to grow,” says Kelly Walter, a fundraiser at Big Brothers Big Sisters of Metropolitan Chicago. Her group has saved about $10,000 annually since it joined the co-op four years ago.

Getting Attention

Besides reducing the cost of expenses such as office supplies and shipping, Big Brothers Big Sisters shaved nearly a third off the purchase price of two new copiers by ordering through the cooperative instead of using its previous provider. And when the group expanded its office space, Back Office linked the charity with a company that donated cubicles that were like new.

“The co-op gets us great prices with vendors, but they are also this terrific resource for connecting nonprofit groups with in-kind donations and other opportunities,” says Ms. Walter. “The cubicles alone saved us $10,000.”

The collective strength of Back Office Cooperative is what makes it successful in saving its members money.

“Most nonprofits are too small to wield any purchasing power, but when several nonprofits band together all buying the same products, you can really get a vendor’s attention,” says Frank Poremski, chief financial officer of Children’s Home and Aid in Chicago.

Additionally, he says, groups joining the nonprofit Back Office Cooperative save more than just money.

“The co-op has done all the research and legwork establishing the vendors and negotiating the discounts,” says Mr. Poremski. “This helps small organizations who otherwise couldn’t afford to spend that time to save the money.”

The co-op’s current members are based in the Chicago area, but organizers say charities around the country could benefit because the organization taps national providers like Staples and FedEx. Charities don’t pay anything to join Back Office Cooperative, but each time they make a transaction, 3 percent of the price goes to pay for the co-op’s services. When a charity needs supplies or services, it goes to Back Office’s online purchasing portal, with its menu of pre-negotiated discounts.

Groups can select deals that suit their needs, then contact the providers directly, though Back Office’s single staff member is available to provide support and help deal with any problems that may arise.

“It’s a very streamlined and straightforward process, with no unnecessary steps,” says Ms. Walter. “They make it very quick and easy.”

David McConnell, the co-op’s board chair and the chief financial officer of One Hope United, a group that provides child and family services, says the savings have grown steadily for his organization and others each year as new categories of services have been added. His group reduced costs by $50,000 in 2008 and last year saved $385,000.

He says the joint purchasing power is a key reason his charity reduced its costs for custodial services alone by 30 percent, without having to change providers.

Timely Benefits

The Back Office Cooperative came together in 2008—just when the recession hit and nonprofits needed its benefits the most.

The co-op had been in the planning stage for two years, with the help of start-up grants and loans totaling $300,000 from United Way of Metropolitan Chicago and the Chicago Community Trust. Six charities whose leaders formed the co-op pooled $250,000 of additional money.

The groups used the money to hire a chief executive and a purchasing manager, and to build the web portal. After several years, and once most of its programs were in place, Back Office Cooperative pared its staff to a purchasing manager only, to reduce costs.

In 2012, Back Office generated $180,000 in revenue from the transaction fees, enough to pay the salary of the purchasing manager—who works from office space donated by United Way—and to meet its obligation to repay start-up loans.

Some Tradeoffs

While the approach brings the biggest savings to the biggest organizations that participate, the co-op helps groups of all sizes save on buying supplies and services. An important benefit for small groups is being able to get more for the money they do spend.

As an example, says Denis Hurley, chief financial officer of Metropolitan Family Services, one of the co-op’s founding members, small nonprofits can get access to an accounting firm that provides a range of services for the same amount they might spend using a part-time bookkeeper.

But the reason such services are available at low cost could pose ethical dilemmas for charities: The organization’s finance and accounting services are provided by an offshore company.

Mr. McConnell says he recognizes that some charities may find it difficult to justify the use of non-American companies to keep their books, particularly if their mission involves jobs or local economic development. At least one charity, he notes, decided to forgo membership in the Back Office Cooperative for that very reason.

The decision is one “each organization has to make for themselves,” he says. “If significant savings help a group put more resources into programs serving their mission, for example, it can be a case of going with the greater good.”

Who can join The Chicago Back Office Cooperative: Nonprofits nationwide can join free.

What it offers: Office supplies and food, energy, custodial services, insurance, telecommunications, and finance and accounting.

How much members save: Typically 15 to 20 percent. Together, its 32 members have saved more than $5-million since 2008.

What they pay to the co-op: 3 percent of the purchase price of goods and services.