- B2B companies create products and services for other businesses, organizations and charities.
- B2B businesses have unique challenges, including cash flow management, and must continually innovate and maintain customer loyalty.
- To maximize profits and improve market share, B2B companies should consider optimizing their websites and try lead-generation services that help them reach decision-makers.
- This article is for business owners and aspiring entrepreneurs who want to better understand the B2B business model.
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.
No matter your business's size, at some point you'll need to purchase products or services from B2B companies. We'll explore the B2B business model and how B2B businesses can maximize their profits and market share.
What is B2B?
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.
Did you know? 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.
Key takeaway: 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.
Tip: 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.
Did you know? 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.
Tip: 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.
How B2B companies can boost market share
Running a B2B business presents many challenges, but there are ways to maximize revenues and market share.
1. Join supply and procurement exchanges.
Supply and procurement refer to a business purchasing the goods and supplies it needs to run profitably.
Cost-effective procurement is an ongoing challenge for many businesses. Within larger organizations, multiple departments and locations may have distinct budgets and agreements with various suppliers. This might mean one department pays $3 for a lightbulb while another pays $30.
Online supply and procurement sites provide pre-approved, pre-priced lists of goods and services to larger businesses and public sector organizations. If you register with one of these e-procurement sites, your company will immediately be visible to buyers and specifiers within some of the world's largest companies.
2. Use keyword-targeted marketing.
B2B businesses prioritize high-quality websites and high-ranking search engine results. To maximize your website's ranking potential, use targeted keywords that your competition may be overlooking.
For example, if you're a broker competing for the term "business loan," according to SEO marketing platform Ahrefs, your site would need 202 backlinks from third-party sites to have a chance of getting onto the first page of search results.
There are more than 640 associated "business loan" keywords that might work for you, such as "small business loan," "business loan calculator," and "startup business loan." Try using effective terms with less competition to draw traffic to your site and build your site's status with Google over time.
3. Try direct marketing campaigns.
To help your sales team generate leads, consider building or purchasing email lists of decision-makers in the types of companies you target.
CRM software can make email marketing campaigns and follow-up seamless. Stay in touch with decision-makers once a month so they become familiar with your company and how it's helped other clients. Over time, you'll create familiarity and trust, and these campaigns will start to generate strong, closeable, inbound leads.
Did you know? Many SEO and pay-per-click ads focus on Google, but businesses shouldn't overlook Bing, which has a 10% market share in the U.S. Bing's click-through rates are often much higher than Google's, with a lower cost per click.
4. Use lead-generation websites.
Although not suitable for every type of B2B company, lead-generation websites create detailed buyers' guides on a wide range of business goods and services.
These sites let visitors get two or more quotes from suppliers and then sell these leads to fully qualified B2B companies. When a sales rep reaches out to these prospects, they already know the client's budget, needs and timeframe.
Lead-generation sites offer two lead types: exclusive leads that only you receive, and shared leads that you and other companies have the chance to pitch.
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.