There are several business models that business-to-business (B2B) organizations can adopt.
The most common include product/service provision, subscription, and commission.
Each of these models has its own advantages and disadvantages.
Product/service provision is the simplest business model for B2B organizations.
In this model, businesses provide products or services to other businesses.
The main advantage of this model is that it is easy to understand and implementation is straightforward.
The main disadvantage of this model is that it is difficult to scale.
Subscription models are more complex than product/service provision models.
In this model, businesses offer subscriptions to other businesses.
The main advantage of this model is that it is easier to scale than product/service provision models.
The main disadvantage of this model is that it requires more systems and customer service requirements which can include its own set of challenges.
Commission models are the most complex business model for B2B organizations.
In this model, businesses earn commissions from sales made by other businesses.
The main advantage of this model is that it offers the potential for high earnings.
The main disadvantage of this model is that it is very complex and can be challenging to understand and implement.
Now we’ll dive deeper into some universal pros and cons of B2B business models.
Pros of b2b
There are many benefits to starting a b2b business.
Depending on your business model, b2b businesses can be easy to set up and manage.
Some advantages to starting a b2b business include:
More potential for larger sales
Since you are working with other businesses, you have the potential to make larger sales than if you were working with individual consumers.
This is because businesses tend to have larger budgets than individuals.
With B2B, you can have fewer customers but much higher revenue.
B2b businesses often have recurring revenue streams.
This means that you can expect regular payments from your business customers, which can provide stability for your business.
Setting up your own marketplace can be a great way to generate recurring revenue and build a scalable business.
Increased customer lifetime value
The increased lifetime value of b2b existing customers can be another significant advantage of this business model.
Since businesses tend to have longer lifespans than individuals, they can provide a steadier stream of revenue for your business over time.
Once a buyer goes through the entire customer journey, there’s more potential for them to stick around as long as you deliver.
Customer loyalty is often higher in b2b relationships with more at stake.
With b2b contracts, you often have more flexibility in terms than with b2c contracts.
This can be helpful if you need to tailor your products or services to fit the needs of your business customers.
You can also negotiate longer payment terms, which can give you more time to provide your products or services before you need to be paid.
Your core commerce capabilities can become a competitive advantage depending on the industry.
For example, if you have a business selling software to other businesses, your intellectual property can propel your business deals and be a differentiator in the sales process.
Higher profit potential
Since businesses have higher budgets, they can also buy larger quantities bringing costs per unit lower.
This can lead to increased profit margins for your business.
Huge market potential
B2B sellers have a much larger potential market than B2C sellers.
There are 31.7 million small businesses in the U.S. alone.
You have the potential to sell to a wide range of businesses, from small businesses to large enterprises.
Regardless of industry, you have the potential to tap into a large number of businesses that can use your service.
Cons of b2b
There are some potential drawbacks to starting a b2b business as well.
Some challenges you may face include the following:
It takes longer to make a buying decision
More people are typically involved in the decision-making process when dealing with larger budgets.
This can take longer to close a deal, which can lengthen your sales cycle.
You need to build trust
B2b business relationships are often based on trust.
You need to build trust with your business customers before they will do business with you.
Someone is trying to sell them something and making promises every day.
You need to stand out and prove that you can be trusted in order to win business deals.
It can be difficult to scale
The b2b business model can take much work to scale.
As your business grows, you may need to hire more people for your sales teams to reach new business customers to more machinery or inventory to keep up with demand.
This can be a challenge for small businesses trying to grow quickly.
A larger budget for marketing, advertising, and sales
Since b2b customers can be challenging to reach, you may need to spend more on marketing, advertising, and sales in order to reach them.
This can be a challenge for small businesses that don’t have a large budget for marketing and sales.
The sales process has much friction
Since the b2b process is longer, there is much friction.
You have to try to stay top of mind, follow up, wait for meetings to be scheduled on their calendar, and so on.
It can be easy to get discouraged in the b2b sales process.
Building brand and product awareness can be difficult
When selling to businesses, they may need to be more familiar with your brand or product.
You may need to spend more time and effort on building brand and product awareness before you can start winning business deals.
What makes you stand out from all the other businesses using an online marketplace or e-commerce platforms to reach business customers?
It can take longer to open for business
Depending on your business, there can be a more complex setup process over a b2b eCommerce site for business customers.
You need to have the right products or services, business licenses, permits, and so on before you can start doing business.
This can take longer than a typical B2C business.
The market can be limited
The market can be limited depending on your business and industry if you are offering a business-to-business service.
For example, your market potential could be limited if you’re selling a business-to-business service that helps businesses with their taxes for a specific niche industry.
A limited market can be an advantage, but without careful planning can also be a disadvantage.
B2B pros and cons final thoughts
As you can see, there are some potential challenges you may face when starting a b2b business.
However, there are also many potential benefits, such as the ability to tap into a large market, higher profit potential, and more flexible terms.
If you’re considering starting a business-to-business company, weigh the pros and cons carefully to decide if it’s the right decision for you.