Business to Business - B2B
Business-to-business sales are sales between companies. This can include the materials or components that go directly into the products that a company manufactures, or all of the other products and services that a company needs as part of its operations. The purchase of final products by retailers (to be resold to customers in B2C transactions) is another example of a B2B purchase.
Business to Consumer - B2C
In comparison, business-to-consumer transitions are where sales are made to customers. Purchases that you make of groceries or via online stores are all examples of B2C sales. In such cases, the customer will go on to use the final product themselves.
Typical differences between B2B and B2C
Although there are some overlaps in approaches, there are some characteristic differences between the two different sales channels.
- Sales volumes: One of the primary differences that can exist between sales between businesses and those to end-customers, is the volume and value of the sales. While the total annual sales to anyone end customer may be a few hundred or potentially thousand (depending on the items being sold), businesses 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.
- Decision-makers: Another distinction between B2B and B2C is the number of decision-makers that are involved. In a B2C setting, decisions are likely made by either the person buying the good independently or in conjunction with their partner. For B2B in comparison, there may be multiple decision-makers, that each has different needs that you need to be aware of and take into account.
- Advertising: 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.
- Payment terms: A final difference between B2C and B2B sales is often the payment terms. While it is typical that consumers will pay for the goods when they order them, in B2B transactions purchase terms can give credit for potentially several months. This can cause problems with cash flow if you incur your costs in advance of the sales but do not receive payment until several months afterward.
Naturally, the distinctions above vary depending on the purchase quantities. 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). Similarly, if the purchase sizes are particularly large, sales to consumers may start to look more like B2B transactions, potentially with negotiations and a contract.
Other potential combinations: Customer to Customer (C2C), and Customer to Business (C2B)
While not as common phrases as B2B and B2C, it is also possible for individuals to sell to other individuals (C2C) or businesses (C2B). For example, individuals selling via eBay or Craigslist may be an example of a C2C. Although less common, businesses may also purchase items from these channels, again direct from individuals.
These sales combinations are however not typical approaches – indeed, you may regard sales made from a ‘customer’ as an oxymoron. While you would not typically regard an individual selling a single item on eBay as a business, if that person increases their sales volumes it quickly blurs into looking more and more like a small business (i.e., falling under B2B or B2C sales above).
A key thing to recognize though is that increasingly in the ‘gig-economy’, there are situations where individuals are selling items or renting properties – competing directly with more established companies.