What is Business-to-Business (B2B)?

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Definition:

Business-to-business (B2B) is a phrase used to describe any sort of transaction or engagement between a business and another business rather than a business and a consumer.

🤔 Understanding B2B

Business-to-business activity takes place when one company purchases goods or services from another company. Business-to-business transactions are also often referred to as B2B or B-to-B transactions, and usually occur at multiple points within a company's supply chain. For example, a business may purchase computer software from another business to handle its IT needs, or wholesale items or raw materials from another retailer to manufacture products. Some companies focus exclusively on B2B sales and do not sell their goods or services directly to consumers.

Example

Let's say you run a retail store that sells knitting supplies. To stock your shop, you'll need to purchase yarn from a wholesaler. Because both the wholesaler and your knitting store are independent businesses, this purchase would be part of a business-to-business (B2B) transaction. That supply of yarn is critical to your supply chain, and your B2B purchase ensures that you've got something to sell your retail customers.

Takeaway

A B2B transaction is like selling hay to a dairy farmer…

The dairy farmer isn't planning on turning around and using that hay to sell to his milk customers. But to raise his cows and ultimately sell milk to consumers, that farmer has to buy some hay so that he can feed the cows. By purchasing an item from another business — an item that he isn't planning to sell to customers but that helps him to produce consumer goods — that dairy farmer and his hay supplier are now sowing the seeds of a new B2B relationship.

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What is business-to-business (B2B)?

Business-to-business (B2B) is a phrase that can be used to describe any number of activities, transactions, or interactions between two or more companies.

When you hear people referring to B2B, they're often going to be talking about B2B transactions in particular. B2B transactions are a critical component of many company supply chains. In these transactions, businesses sell goods or services to other companies (rather than selling items to consumers).

In the business-to-business context, businesses are the consumers — and a large proportion of B2B transactions center on the purchase of raw materials that companies can then use to manufacture products. Those finished products subsequently get sold to consumers as part of a business-to-consumer (B2C) transaction.

Although companies have been operating in a business-to-business capacity for a long time, the term “B2B” didn’t emerge until the rise of the internet and ecommerce in the 1990s. B2B is strongly associated with web automation, and a large proportion of B2B transactions occur in the realm of ecommerce and the provision of business software. For example, a clothes retailer might purchase cloud accounting software or an email marketing subscription from another company to bolster their B2C sales.

Although transactions are typically the focal point of B2B activity, there are plenty of other ways businesses engage with one another outside of the consumer space. Businesses also engage with one another to share advice and network as part of wider B2B support groups.

The U.S. Small Business Administration partners with business-to-business non-profits like SCORE and Small Business Development Centers across the country to connect business owners with mentors and inter-business support networks.

What is B2B in ecommerce?

B2B ecommerce enables companies to sell their products, materials, or services to other companies online.

A significant aspect of online B2B activity in the ecommerce space centers on specialized development companies and the provision of digital B2B portals, services, or gateways that companies can use to run their businesses more effectively.

Tools like customer relationship management (CRM) systems, enterprise resource planning (ERP) systems, tax software, translation apps, cloud storage, payment gateways, and web hosting are all business-critical B2B products or services upon which many companies rely.

Many of these B2B products can be purchased online as part of an ecommerce transaction and are fully web-based. More importantly, these tools can then go on to support online stores and facilitate B2C ecommerce transactions.

What are examples of B2B products?

If you can dream up a business need, chances are there are already at least a dozen B2B products available to service that need. Web hosting is an essential B2B product, in which providers offer companies the ability to host websites for their businesses. GoDaddy, for example, is perhaps the best-known provider in this space.

Other examples of well-known B2B products include: Dropbox Business (for cloud document sharing), Xerox (which sells printers and related devices to offices), Salesforce (which offers customer relationship management services), ADP (which offers human resources management software), and WeWork (which rents flexible office space to companies).

These sorts of B2B products aren't generally aimed at the average consumer. They are aimed at businesses — many of which then go on to create products offered for sale to end consumers.

What are examples of B2B companies?

Because B2C businesses require a wide range of support to operate smoothly and effectively, there's a vast market for B2B companies — particularly online. Email marketing companies such as Mailchimp, Campaign Monitor, and Sailthru sell their digital platforms to other businesses so that companies can use the platforms to market to consumers. That makes these companies B2B service providers.

Many B2B companies work to offer small businesses essential services on an ad-hoc basis. For example, companies such as WeWork, Impact Hub, and Green Desk connect business owners with co-working environments, event spaces, and flexible office space.

Then you've got commercial sanitation companies that only clean business premises, wholesale suppliers that generate income from the sale of office supplies in huge bulks, catering companies that restock company cafeterias — the list goes on.

What is the difference between B2B and B2C sales?

The difference between B2B and B2C sales boils down to who's making the purchase. In a business-to-business (B2B) sale, a business is purchasing goods or services from another business. In a business to consumer (B2C) sale, a consumer is buying finished products or services from a business.

Generally speaking, B2B sales are going to involve very different types of products or services than a B2C sale. That's because a large proportion of B2B transactions include raw materials that have yet to get turned into a consumer product, or advanced business software programs that aren't particularly relevant to ordinary consumers.

What types of B2B business should I choose?

If you run a company and require business products, services, or support, the B2B businesses you reach out to will ultimately depend upon your company's own unique needs.

For example, if your business is run entirely online, chances are you won't need to get in touch with a B2B company specializing in flexible office space. On the flip side, you will want to choose a reliable web hosting service provider, payment gateway, and digital marketing suite — just to name a few of the services you may need.

The easiest way to figure out which types of B2B companies you should be seeking out is to have a good look at your business and note what makes it tick. List any missing gaps you're able to spot or places you're looking for improvement, and then conduct a thorough online search and do a bit of shopping around.

Alternatively, you can also reach out to your local or regional Small Business Development Center to ask for advice or a referral concerning the type of B2B suppliers or service providers you may want to consider.

Likewise, B2B companies on the hunt for business customers should first consider the unique selling points of their products or services, as well as think about the type of business issues that their offerings are meant to address.

With those sales propositions in mind, B2B companies should then reach out to their local or regional Small Business Development Center or area B2B support groups. That way, these companies can network with other companies — which may be their potential clients.

It may also be worth getting in touch with smaller networks that are specific to particular industries in order to get your name out there. You may also wish to establish an online presence across relevant trade forums in order to demonstrate what it is that your B2B company does and why fellow business owners need your products or services to succeed.

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The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory.

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