Businesses are evolving. Unlike the past decade where businesses operated on brick and mortar stores, virtualization is the new norm. You do not need to have a physical shop to drive sales. All you require is a digital store where customers can access your products and place orders.
Despite all these changes, one thing remains constant. Every business needs a model that they use to achieve its objectives. As an entrepreneur, you must come up with a way of operating your venture. B2B or business-to-business is one of the model e-commerce businesses is to run their operations. If you do not know how this model works, you are on the right page.
In this article, we cover what B2B is as well as how it works and its pros and cons. Thus, keep reading on to learn more about this model.
What is B2B Business Model?
For many entrepreneurs, selling to consumers is their objective. You develop products that you offer to your consuming customers. However, this is not the only way to operate your business. B2B business model is where businesses sell to other businesses or simply called business to business. It is a situation where a business offers its products to another business instead of selling them directly to the consumers.
Here, businesses make products destined for use by other businesses. You sell what you make to another business that can either use it to generate other products or sell the same product to the final consumers. So, this model does not involve transactions between a business and consumers.
How Does B2B Work?
Typically, B2B business involves transactions between one company/business to another business. Your company makes products or services for consumption in another company. For instance, your company can be a supplier of raw materials to company B which produces a given product. Or else, you might be selling products to wholesalers and retailers in bulk for them to sell them to the consumers.
In this model, your targets are other businesses and not consumers. This means that you must reach out to other businesses and offer convincing reasons to consider your goods or services. Say for example you offer business solutions. You need to convince the business owners or decision makers why and how your solutions will enhance their operations.
In most cases, the B2B model involves the use of proposals and procurements. Businesses require suppliers and solution providers for proposals. The engagement is also on a long-term basis rather than a single purchase.
Example of B2B Business
B2B business model applies in every stage of the supply chain or value chain. When a manufacturer orders raw materials to make a product from another company, this relationship involves two businesses. Also, when you source products from a wholesaler or supplier to sell in your retail store, you are applying the B2B model. So, there are many examples of businesses applying this concept in their operations.
Apple is a good example of a company using the B2B concept. As you know, Apple is a renowned high-edge smartphone. In developing their iPhones, Apple sources chips from Samsung. Without Samsung, Apple can have challenges in manufacturing its iPhones. Also, Apple has other B2B connections with companies providing semiconductors and other materials for making smartphones such as Micron Technology and Intel.
Pros and cons of B2B Business Model
B2B model allows many businesses to operate and succeed in both physical and virtual arena. However, it is not perfect and has both pros and cons. Here they are:
Pros
Long-term engagement leading to customer loyalty
B2B model operates on long-term engagement. Both businesses agree to supply raw material or products/solutions for a given duration. This aspect enhances customer loyalty as the two have a mutual agreement. As the supplier, you have consistent sales as long as you retain the quality and dependability of your product and services. This aspect is hard to achieve in other models.
Easy to predict revenue
Since you have a long-term engagement, you can easily predict your revenue. You can determine with certainty the amount of revenue you’ll generate in a given period. With this, you can easily make conscious decisions and business plans. So, this model makes your business more secure as you will have customers for your products at any given time.
Short selling cycle
No doubt, selling to consumers can be a long process. The process involves a number of intermediaries. When you consider selling to consumers directly, you need a lot of time to clear your inventory. As you know, the longer the selling cycle or duration, the more expensive it becomes. You need to invest a huge amount in promoting your products and service when dealing with final consumers.
Unlike the business-to-consumer approach, the B2B model comes with a short-selling cycle. You sell your products or service to specific customers. You do not need to spend a lot of time money on marketing what you are offering. So, the short-selling cycle saves you money and time.
Cons
Limited customer pool
By concentrating on businesses as your customers, you reduce your pool. Having a small customer pool can affect your sales and expectations. The small target poses a lot of challenges to beginners in securing their first customers. For this reason, many B2B businesses do not last for long due to the hardship of driving sales.
Long decision-making period
Unlike selling to customers, dealing with businesses is a complex affair. Businesses have long decision-making processes that involve several parties. First, you need to send a proposal. The business can take several weeks or months to respond to your proposal and accept the deal. This approach can hurt your expectations especially when patience is not your virtue.
Conclusion
As an entrepreneur, you can consider using the B2B business model in your venture. The model will work effectively when what you offer is suitable for other businesses. Also, you can consider this concept if you want a short-selling cycle by selling your products in bulk to other businesses.
However, you need to be aware of the hurdles to expect in your operations. The businesses can take a longer duration to accept your proposal. Nonetheless, when your business gets some grips, you’ll enjoy massive sales and long-term relationships meaning consistent revenue generation.
