Business to business (B2B) sales are sales that are made between one company and another (as opposed to the final customer). This can include sales of raw materials, services to another firm, end products that are used within another company’s operations (such as computers, machinery, and office equipment), as well as finished goods that are sold to a retailer, which in turn sells them on the final consumers. The key distinction between B2B and B2C is who the customer is – in B2C it is consumers (i.e., individual people), while in B2B transitions it is another business.
This article explores some of the key characteristics common in business-to-business sales.
The value of sales in Business to Business transactions can be substantial. This is one of the primary differences that can exist between sales between businesses and those to end-customers. While the total annual sales to any particular end customer may be a few hundred of potentially thousand (depending on the items being sold), a business may purchase many times that volume.
Concentration of customers
Connected to the differences in sales volumes is differences in the concentration and the total number of customers. While B2C is typically not dependent on any particular customer, in B2B, one customer can sometimes be profoundly important – potentially accounting for a large percentage of overall sales.
Negotiations and contract
Deriving from differences in the relative importance of any particular sale in B2B transactions vs. B2C, the negotiation process can be profoundly different. While many purchases in a B2C setting are often made without any formal contract (potentially even as an impulse buy), in a B2B setting orders are much more likely to be negotiated, with a contract specifying key terms of the agreements.
In B2B transactions there may be multiple decision-makers. Especially for large or continuing purchases, the agreements may need to be signed off by a group, that each have different needs that you need to be aware of and take into account. This is distinct from a B2C setting, where decisions are likely made by either the person buying the good independently or in conjunction with their partner.
Since business-to-business sales often have a much narrower number of customers, the approach to advertising is quite different from B2C sales. For B2C businesses, advertising may take the form of mass media advertisements, increasing brand awareness among the general population. For B2B, it is more likely that there will be a much smaller number of possible clients, each of which the company may develop specific long-term relationships with.
In B2B transactions, it is common for payment terms that give clients several months to pay after they have received the goods. This can cause problems with cash flow, since you much incur your costs in advance of the sale, but not receive payment until several months afterward.
Final note: It is important to be aware of the differences, especially if you are moving from B2C to B2B
Naturally, not all B2B transactions look the same. If the purchase volumes are small or one-off, business-to-business transactions may look more like the properties associated with business-to-consumer (such as regular purchases without contracts or negotiations). It is however important to be aware of the typical characteristics of B2B transactions, especially if you are moving from a B2C environment towards selling directly to companies.