B2B is short for “business to business.” It’s a business model in which the companies involved create products and services for other businesses and organizations. B2B companies can include software as a service (SaaS), marketing firms, and businesses that create and sell various supplies. B2B businesses have unique challenges, including cash flow management, and must continually innovate and maintain customer loyalty.
We’ll explore the B2B business model and how B2B businesses can maximize their profits and market share.
How do B2B business models work?
In the business-to-business model, businesses and organizations exchange goods and services. For example, one company may contract with another business to provide the raw materials needed to manufacture a product.
Another business may need to purchase products from another to stock their shelves, while other companies hire businesses to promote their products and services, insure their operations, design their logo, or write website content.
Consumers aren’t a direct factor in B2B transactions, but they’re a critical component of why B2B companies work together.
B2B isn’t the only business model involved in the supply chain. While B2B companies sell products and services to other private businesses, public-sector organizations, and charities, B2C (business-to-consumer) – or DTC (direct-to-consumer) – companies sell products and services directly to consumers.
Some companies have a mixed B2B and B2C model. Businesses and consumers may both use their products and services, or they may have separate product versions or ranges specifically for businesses or consumers.
Where do B2B companies sit in the supply chain?
If you want to understand where B2B companies factor into the supply chain, it’s essential to look at the three economic sectors: primary, secondary and tertiary.
- Primary market: The primary market is exclusively B2B. Primary-sector companies are responsible for extracting or producing raw materials – for example, farmers or oil and gas companies.
- Secondary market: The secondary market is almost exclusively B2B. Secondary-market companies manufacture and assemble products. They add value to the raw materials they buy from the primary market by turning them into something else. Think about manufacturers that turn oil into plastics or jewelers that cut and polish diamonds. Secondary-market assembling companies include car manufacturers and construction companies. Occasionally, secondary-market companies use the B2C model – for example, farmers who sell products in a market stall.
- Tertiary market: The tertiary market is a mixture of B2B and B2C models. Some tertiary-market companies deliver the goods or services businesses or consumers want. These businesses include plumbers, internet retailers, floor installers, supermarkets, commercial finance brokers, home improvement specialists, tutors and the hospitality sector.
What are some B2B tertiary market examples?
Some tertiary companies are B2B only. They provide goods and services other customer-facing tertiary companies need to do their jobs. Here are some examples:
- Plumbing supply companies sell plumbers the equipment they need.
- Point-of-sale (POS) providers sell POS systems to retailers.
- Commercial finance brokers need lenders to fund small business loans, equipment leasing packages and asset-based loans.
- Management and business consultants help companies survive and grow.
- Retailers need credit card processors to process payments from customers.
- Companies need advertising firms to help them achieve higher sales.
- Businesses need payroll providers and financial services companies to run payroll and streamline taxes.
- Businesses need lead-generation services to create revenue opportunities.
- Organizations need insurance providers to protect employees, customers and their own interests.
All functioning economies rely on successful buying and selling between companies in different sectors across the supply chain.
Challenges of running a B2B company
Perhaps the most significant challenge most B2B companies face is finding businesses to buy their goods and services. B2B marketplaces are much smaller than consumer-facing models. For example, a B2C clothing e-commerce website would have a broad audience of potential buyers.
However, businesses often spend more on purchasing than consumers and have much more generous budgets. So, while a B2B company may make fewer sales, it’s likely to see a much higher profit than a B2C company.
Here are some of the unique challenges B2B businesses face.
1. B2B businesses must continually innovate and maintain customer loyalty.
Innovation is a critical issue for many B2B companies, especially those that sell products and services with a monthly subscription model, such as SaaS packages and online accounting software.
B2B businesses must find new ways to constantly improve their products’ functionality and ease of use to improve their chances of increasing market share while maintaining customer loyalty. And their competitors are also in the same continual development cycle looking to create an even better product.
When planning new products or incremental changes to your existing products, request client feedback through business surveys to ensure your customers will still be pleased with your offerings.
2. B2Bs must build a strong internet presence.
B2B companies must invest in a well-designed and consistently maintained business website so their customers can find them and easily navigate their offerings. Search engine optimization is critical for achieving a top ranking in Google, as is optimizing your website for mobile.
Your website content – including blogs, guides, product descriptions and whitepapers – should appeal to customers and prospects at the three stages of the sales funnel: the awareness, investigative and action stages.
- Awareness stage (top of the funnel): This stage is when a potential client realizes there are points of friction within their business or opportunities that they currently don’t have the personnel, technology or knowledge to pursue.
- Investigative stage (middle of the funnel): In this stage, a potential client is proactively looking for a solution, and they know there are multiple solutions and providers. During the investigative phase, clients consider different solutions and providers, often relying on website content to make decisions.
- Action stage (bottom of the funnel): After a prospect makes a shortlist of solutions and providers, they contact candidates to begin the sales discovery process.
Every time a prospect visits your website, you have an opportunity to provide the information they need to choose your solution, follow you on LinkedIn, download helpful content, or join your email newsletter.
3. B2B companies must manage cash flow and late payments.
Many B2B companies invoice clients on 30- or 60-day payment windows. For example, an invoice issued on Feb. 1 may not be paid until April 1. Even then, some clients don’t make timely payments, despite generous credit terms.
If your company issues many invoices, the effect of delayed payments may be mitigated by the regular arrival of money in your account. However, some manufacturing businesses may only issue a handful of substantial invoices a year, so being paid late puts the company’s future in jeopardy.
While business loans are available, consider invoice factoring if late payment is an issue for your company. Invoice factoring (sometimes called invoice discounting) means you sell your invoices to a finance company and receive 80% or more of the invoice value the following day. When the client makes a payment, you receive the remaining 20% minus factoring fees.
Money owed to your business appears in the accounts receivable column in your accounting software. Keep an eye on how much money clients owe you to maintain effective cash flow.
B2B-specific sales and marketing
B2B marketing campaigns require careful planning, according to Brent Walker, senior vice president of marketing and analytics at PatientBond.
“B2B typically relies on its sales function and account management team to establish and strengthen customer-client relationships,” he said. “Marketing may include advertising in trade journals, having a presence at conventions and trade conferences, digital marketing – an online presence, SEO, email outreach – and other traditional awareness efforts.”
The key to B2B marketing is demonstrating value to a business’s bottom line, increasing your likelihood of achieving a return on investment. If your solution makes business processes more cost-effective and efficient, promote these points. If your service increases traffic to a website or boosts conversion rates, highlight these benefits for added revenue.
The underlying motivation behind all business purchases is increasing profit. If you demonstrate how your product and service can boost your customers’ bottom line, you’ll likely get the opportunity to discuss it with a decision-maker.
Matt D’Angelo contributed to the writing and research in this article. Source interviews were conducted for a previous version of this article.