What is a Supplier-Funded Model in the VMS World? [Buyer’s Edition]

When organizations think about investing in a Vendor Management System (VMS), one of the first questions that comes up is

“How much will this cost us?”

Surprisingly, in many cases, the answer is nothing.

At least, not directly.

Welcome to the world of supplier-funded VMS models, where the platform fees are covered not by the client, but by the staffing suppliers. Let’s unpack how this works and why it’s become the go-to structure for many contingent workforce programs.

Wait, Who Actually Pays for the VMS?

Here’s the short version:

You, as the client, do not pay for the VMS.

Instead, staffing suppliers (those who provide contingent talent) contribute a small fee, typically a percentage of their invoice value, to cover the platform's costs.

This makes it a “no-cost-to-client” model- a major advantage when you're trying to scale workforce management without expanding budgets.

So, Who’s Involved in this Model?

To understand how this works, let’s look at the key players:

• The Client (You): Uses the VMS to manage contingent workers, track spend, ensure compliance, and standardize vendor operations.

• Staffing Suppliers: Provide talent and pay a small per-invoice fee to the VMS provider (or sometimes to the MSP if one is involved).

• VMS Provider: Offers the technology, the actual platform that handles job requisitions, supplier performance, timecards, billing, compliance, and reporting.

• MSP (Managed Service Provider): Optional, but often involved in large programs. The MSP manages the end-to-end process and may also collect a fee from suppliers to fund their services.

Note: The VMS fee percentage in the below example is for calculation illustration purposes ONLY. Please consult our experts for the actual VMS fee applicable for your CW program. 

Let’s Talk Numbers: What If You Use an MSP + VMS Setup?

Now, let’s say you’re working with an MSP who runs your contingent workforce program and uses a VMS in the background.

In that case, the fee paid by suppliers typically covers both the MSP’s services and the VMS platform.

Here’s what that looks like:

Total bill rate to client: $100/hour

Total supplier-funded fee: 3.4%

MSP receives 2.5% = $2.50/hour

VMS receives 0.9% = $0.90/hour

The supplier receives $96.60/hour

Client still pays $100/hour.

From your side, it’s seamless. You still pay the bill rate. All the management, oversight, and technology infrastructure are handled within that fee structure, funded entirely through the supplier side.

But Why Would Suppliers Agree to Pay?

This is a fair question. After all, it’s their margin on the line.

But most suppliers are actually comfortable with this model for a few practical reasons:

• Access to Business They Wouldn’t Otherwise Get:

Enterprise clients typically don't work with suppliers outside of a structured VMS/MSP program. Being part of that ecosystem often means more volume and better stability.

• Faster Payments and Simplified Billing:

VMS platforms often automate approvals and reduce delays, which translates into better cash flow for suppliers.

• Lower Admin Burden:

Standardized onboarding, compliance processes, and submission systems reduce overhead and operational chaos.

• Fair Playing Field:

All suppliers pay the same percentage and compete purely on merit, not on relationships or favoritism.

Many suppliers factor the fee into their pricing, so it’s already accounted for in the rate they propose.

Why Do Clients Prefer the Supplier-Funded Model?

It’s not just about saving money (though that’s certainly a part of it). There are some strong operational benefits too:

• No budget approval needed for software licenses
• Full visibility and centralized reporting without needing to buy additional tools
• Standardized compliance across multiple vendors and locations
• Fewer manual processes in hiring, invoicing, and tracking hours
• Scalable and audit-friendly structure with built-in governance

For large organizations managing multiple staffing partners, this model strikes a balance between simplicity and sophistication, without introducing complexity to procurement or finance.

In Summary

The supplier-funded model is designed to make the VMS ecosystem easy to adopt, cost-neutral for clients, and scalable for growing programs.

• The client pays only the agreed bill rates
• Suppliers contribute a small percentage. 
• Works well in VMS and MSP-led programs
• Suppliers benefit from automation and access
• Clients get world-class tech and oversight at no added cost

If you're evaluating VMS options and wondering about ROI, supplier-funded models are often the best-kept secret in the conversation.

Would you like to know how this model would work with your current suppliers?

Let’s run the numbers together.