Written by Marijn Overvest | Reviewed by Sjoed Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Procurement Fee — The Basics and Its Importance

What is a Procurement Fee?

A procurement fee is the payment of a company to procure goods and services from a supplier. It usually includes fees involving your procurement process:

• Legal Fees
• Advertising Fees
• Consultant Fees
• Transportation Fees

Basically, these are fees that ensure you obtain the goods and services you want to procure. Procurement fees vary based on a company’s need and strategy employment. For example, a company engaging with various suppliers pays more than others that specifically tailor their procurement strategy.

Why is a Procurement Fee Important?

Knowing how much a company spends in a procurement fee is important, as it helps them formulate effective spending strategies. Usually, it concerns the fund allocation of the procurement team to ensure that they are not spending unnecessarily. It also involves payment for engaging with suppliers for their exertion of effort.

Procurement fees also account for services rendered by a skilled individual’s involvement in your procurement process.

Where Do Procurement Fees Apply?

Companies charge procurement fees to finance various operational needs, such as legal compliance, marketing, consulting, and logistics. By doing so, businesses ensure smooth procurement processes while maintaining transparency and efficiency.

These fees also help incentivize suppliers and optimize financial planning. Below are some common areas where procurement fees apply:

1. Legal fees 

Payment for individuals who process the legal compliance activities of the company. Usually, this involves the lawyer, or the law firm that handles matters concerning the court and law-based problems or compliances. As much as possible, legal fees smoothen out the procurement process. You would not want any legal scenario action-packed, least to say.

2. Advertising Fees

Payment for advertisements that aim to engage customers with the product. It involves marketing as it makes a business concept or product exposed to its target market. Mostly, it involves the creative side, where you need to make the engagement more appealing and enticing for its purpose.

3. Consultant Fees

Payment for individuals who help assess and evaluate certain marketing structures, to improve business competitiveness. Usually, consultants help recognize opportunities along with the procurement team. More like a hand-in-hand situation.

4. Transportation fees

Payment for handling the transfer of goods. It may involve fuel expenditures, driver fees, meals, and other vehicular-related fees that can apply. In contrast to transportation costs, this deals with a more active side. You pay because the driver needs payment, he needs lodging, food, and a budget for other transport-related expenditures.

Considerations for a procurement fee are made when it is legal and ethical. It improves business relations, establishes an agreement, and maintains these processes to be smoothly flowing.

Should you Pay a Procurement Fee?

Usually, paying a procurement fee involves bidding contracts and cost optimization. Some also require it depending on their contract agreement. But most of the time, a procurement fee incentivizes a supplier for their engagement with a company.

To some, an imposition of a procurement fee may, or may not be, necessary. A company may choose to implement a procurement fee because it is part of its procurement strategy.

But in general, paying a procurement fee is an important part of the procurement process. It helps cover fees regarding the services done for the procurement process. Additionally, it stabilizes the payments involving the company’s procurement.

What are the Types of Procurement Fees?

There are various types of procurement fees, which vary based on business needs and contract agreements. Here are the most common types:

1. Fixed Fee

This type of procurement fee involves a set amount charged for procurement services, regardless of transaction size or complexity. A company typically establishes the price upfront to manage predictable costs, making it ideal for small projects or recurring procurement needs.

For example, a restaurant chain may pay a fixed fee to a procurement agency to source ingredients on a monthly basis. This cost remains consistent, ensuring budgeting stability. 

However, the procurement fee may change accordingly to the company’s agreement.

2. Percentage Fee

A percentage fee is calculated based on a portion of the total contract value, meaning the procurement cost scales with the volume of purchases. Unlike fixed fees, percentage fees are often costly for a buyer and tricky for a supplier to implement. It is best suited for large projects where procurement spending fluctuates. 

For instance, in a construction project, a procurement firm might charge 5% of the total material cost to handle sourcing and logistics, aligning fees with the project’s overall budget.

3. Contingency Fee

A contingency fee serves as a cushion for a supplier. It serves as an additional fee beyond the agreement of both parties. Contingency fees may only occur with deals that usually involve high-risk, high-reward items or deals where costs may fluctuate due to market conditions, legal risks, or unforeseen complications. 

An example of this would be: In aerospace manufacturing, procurement teams may include contingency fees for sourcing specialized components that are prone to price spikes due to supply chain instability. 

See the Kraljic matrix for more details regarding supply assessment.

4. Flat Fee

A flat fee applies to any procurement transaction, regardless of the work and effort put into the procurement process. Oftentimes, applying flat fees encourages direct spending. However, it may also affect workload times depending on the individual’s activity. Businesses with frequent, straightforward purchases often prefer this model. 

Let me give you an example, a retail chain might pay a flat fee per shipment to a service for sourcing seasonal inventory, ensuring consistent pricing across multiple transactions.

Industry-Specific Procurement Fees

Different industries have different procurement needs, and procurement fees vary accordingly. Below, we break down the most common industries that rely on procurement fees and how they are applied:

1. What is a Restaurant Procurement Fee?

A restaurant procurement fee covers the cost of sourcing fresh ingredients, kitchen equipment, and packaging materials. It ensures that restaurants maintain a consistent supply chain and secure high-quality products at competitive prices.

For instance, a popular burger chain pays a fixed monthly procurement fee to a supplier who ensures a steady delivery of fresh buns, meats, and packaging materials at the best price. 

2. What is a Real Estate Procurement Fee?

This fee is charged for sourcing and managing contracts for cleaning, security, and maintenance services in property management. It also covers agent commissions, contract fees, and legal expenses. 

A perfect example would be: A property developer hires a consultant who charges a 2% fee to help negotiate the best land purchase deal. 

3. What is an Interior Design Procurement Fee?

An interior design procurement fee covers the sourcing of furniture, decor, lighting, and design elements to bring an interior space to life while maintaining budget and quality. 

For example, a designer may charge a procurement fee to purchase custom-made furniture for a luxury hotel lobby.

4. What is a Construction Procurement Fee?

A procurement fee is charged for sourcing building materials like cement, steel, and wood while ensuring cost efficiency and timely deliveries.

For instance, a contractor may charge a 3% procurement fee to source high-quality steel for a skyscraper project. 

5. What is a Hotel Procurement Fee?

Hotel procurement fees are fees for acquiring goods and services essential to hotel operations, including furniture, amenities, and food supplies.

Let’s say, a new resort pays a one-time fee to source 500 high-quality beds, ensuring they meet comfort and durability standards at the best price. 

6. What is a Healthcare Procurement Fee?

It is a fee charge for sourcing medical equipment, pharmaceuticals, and hospital supplies while ensuring health regulatory compliance and quality standards.

 An example of this would be: A hospital pays a compliance-based fee to purchase MRI machines, ensuring they meet government health standards. 

7. What is a Retail Procurement Fee?

It is the fee charged for sourcing products, packaging, and inventory for retail stores. It helps businesses maintain stock levels and manage supplier relationships. 

For example, a clothing brand pays a per-transaction fee to ensure a reliable supply of fabric for its seasonal collections. 

8. What is a Manufacturing Procurement Fee?

A charge associated with acquiring raw materials, machinery, and components necessary for production. It ensures supply chain efficiency. 

A perfect example for this would be: A car manufacturer paying a procurement fee to secure high-quality steel for vehicle frames. 

9. What is an IT Procurement Fee?

An IT fee refers to charges associated with acquiring software, hardware, cloud infrastructure, and cybersecurity solutions. It helps businesses secure technology solutions while managing vendor contracts. 

For example, a tech startup pays a monthly fee to a vendor management firm that negotiates bulk cloud storage deals at a reduced rate. 

10. What is a Government Procurement Fee?

A government procurement fee refers to the costs associated with acquiring goods, services, or projects for public use. This includes transportation, contract management, and compliance with regulations. 

For instance, a government agency hires a consultant for a fixed fee to handle the bidding process for a $100 million highway construction project. 

Procurement Fee vs. Procurement Cost

A procurement fee is a charge or payment for the services you incur in the procurement process. On the other hand, a procurement cost is what you need to pay for in executing your procurement.

A procurement fee specifies the amount you need to pay on account of services in the procurement process. Additionally, procurement cost exemplifies the overall expense on account of the procurement itself.

The table below can further clarify the difference between a procurement fee and a procurement cost. The procurement process is filled with varying amounts that need to be paid. A better understanding of where and what to spend can help you optimize your funds.

Conclusion

To sum it up, a procurement fee helps finance the procurement process of a company. It enables them to collect funds to sustain and incentivize the skilled individuals in their procurement arsenal. Procurement fees also add a layer of security for a company’s continuous engagement in business.