What Is Business-to-Business (B2B)? Definition & Example
When companies are set up, they have a choice of whether they are going to sell straight to customers and the general public, or whether they are going to sell to other businesses.
Businesses that sell to customers are known as B2C, or “Business to Customer”. While businesses that sell to other businesses are known as B2B, or “Business to Business”.
Read on as we take a look at exactly what B2B is, how these types of companies work, the different types of B2B businesses, and the advantages and disadvantages of running a B2B.
Table of Contents
- Business-to-Business (B2B) is a specific type of transaction or business that is conducted between one business and another. A good example of this is transactions between a wholesaler and retailer or a wholesaler and a manufacturer.
- B2B transactions can be most common in property management, software as a service (SaaS), industrial cleanup companies, and auto industry companies.
- Business-to-consumer (B2C) transactions are those made between a company and an individual consumer.
- It’s common for B2B transactions to occur throughout the supply chain. This is because some companies rely on purchasing raw materials from other companies to create their products.
What Is Business-to-Business (B2B)?
Business-to-Business (B2B) refers to when certain transactions happen between businesses. For example, it could involve a wholesaler and a manufacturer or a wholesaler and a retailer. The concept of B2B involves business being conducted between companies instead of between a company and an individual consumer.
Essentially, it’s a type of business model where the companies involved create a product or service for another company. There can be a wide range of industries and companies that use this model, such as marketing firms, software as a service (SaaS), and general businesses that sell various supplies. Similar types of business transactions include business-to-consumer (B2C) and business-to-government (B2G).
How Do B2B Companies Work?
B2B transactions can be most common throughout the supply chain since several companies must purchase the raw materials required to manufacture their products. As well, any finished products, depending on what they are, can also be sold between companies.
In these cases, there would often be a department or group that requires the use of a vendor’s product or service. There can sometimes also be a single user specifically on the buyer side that conducts transactions to help reach business goals. Some B2B transactions can be fairly simple, such as purchasing office furniture, computers, or productivity software.
In other cases, the purchases can be a bit more complex which requires B2B product selection to be overseen by more than one person or a buying committee. These can include the likes of:
- A technical decision-maker — This could be someone who is dedicated to evaluating the capabilities of potential products for business use.
- A business decision-maker — This could be the person or department that is responsible for overseeing the company budget. For example, it could be individual business owners.
- Influencers — These are individuals who could provide important and relevant input on certain purchasing decisions.
B2B is an important concept to understand because businesses are always going to need to purchase certain products or services from other businesses. Making these purchases can play an integral role in the efficiency, productivity, and growth of a business. As well, B2B consists of midsize businesses, larger businesses, and even private businesses.
Types of B2B Companies
There are several different types of B2B businesses and they can vary depending on the specific type of business or the industry they operate in. It could be construction companies, gas companies, or manufacturing businesses. Here are some of the most common types of B2B companies to be aware of:
- Retailers and resellers — These types of businesses sell products and services that have been manufactured by other companies. They often sell these products or services to other companies and they can do this online, from a physical store, or from both. This also includes a B2B e-commerce company.
- Producers — These types of businesses manufacture and create their own products. Some choose to sell their products or services directly to other businesses, and others choose to sell through another retailer or reseller.
- Agencies and consultants — These are the types of businesses that give actionable advice, provide oversight, and subcontract work to other businesses. An advertising agency is a good example of this. They would manage and then execute advertising budgets for various businesses and brands.
On top of the various types of B2B companies, they can be part of any type of industry. That said, here are a few industries where B2B is fairly common:
- Marketing and sales
- Real estate
- Food and beverage
Perks of B2B Companies
Depending on the type of business, B2B can bring several benefits. Everything from faster delivery, better deals, and better order management can all be experienced.
Let’s take a closer look at some primary benefits of B2B companies:
- Sales growth — Since most B2B companies are able to get better and larger average deals, they can grow sales more efficiently with a small amount of high-value deals. For example, a B2C company might require hundreds of individual sales to see growth. B2B companies can buy and sell in bulk, which means average transactions increase.
- Market potential — B2B companies benefit from the opportunity of leveraging and targeting enterprises across multiple industries. They aren’t necessarily constrained to a single demographic or geographic location.
- Efficient delivery — E-commerce tools allow the entire sales process to become more efficient. They can accelerate the processes and fully automate inventory needs and requirements.
Drawbacks of B2B Companies
While there are several benefits of B2B companies, there are also some drawbacks that are worth mentioning. For example, obtaining long-term customer retention can become challenging since it might be difficult to get repeat purchases.
The B2B landscape can also be more competitive compared to B2C. This can lead to a longer decision-making process and create obstacles to overcome when it relates to price negotiation.
As well, supply chain management can become complicated to navigate if there are several e-commerce tools being utilized. This is also the case if there is more than one partner or vendor involved throughout the supply chain.
B2B Company Example
A great example of B2B companies is within the automobile industry. Several of the individual components and parts of a vehicle are manufactured by independent companies. This means that auto manufacturers need to purchase all of these parts to be able to assemble their vehicles.
Everything from the tires, electronics, seats, navigation systems, windows, door locks, and paint is often created and manufactured elsewhere. These companies would then sell directly to the automobile manufacturer and would not sell to individual consumers.
Business-to-Business (B2B) is a specific transaction that is conducted between businesses. For example, it could involve a wholesaler and a retailer or a wholesaler and a manufacturer. Some businesses rely on other businesses to create and manufacture the necessary components and parts to assemble and manufacture their own products.
B2B is commonplace in industries such as manufacturing, education, technology, telecommunications, and marketing, for example. There are also a few specific types of B2B companies. These include producers, retailers and resellers, and agencies and consultants.
FAQs About Business-to-Business (B2B) Companies
Why Is Business-to-Business Important?
Every business is going to need to make purchases for certain products or services. This is essential to help the business launch, continue to operate, and grow in the future.
How Do B2B Companies Make Money?
Several B2B companies make their money by selling wholesale. They would sell products or services in bulk at a lower price. Then, the companies that make these purchases can use the products or services to sell their own product or service.
Why Is B2B More Rewarding?
Oftentimes, B2B brands see higher value transactions since customers have higher value needs. Businesses will be more likely to have larger orders, longer-lasting contracts, and ongoing subscriptions compared to an individual consumer.
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