business-to-business

What are Business-To-Business (B2B) Transactions?

To put it simply, B2B companies sell to other businesses, while B2C companies sell to consumers.

What Is a Business-to-Business (B2B) Transaction?

Of course, just because it’s simple doesn’t mean it’s easy to understand. B2B transactions come with their own set of challenges—and opportunities.

Below, we’ll take a look at some of the most important things to know about doing business with other businesses.

When you make a purchase as a consumer, there’s a good chance that the product or service you’re buying is for your personal use.

But sometimes, businesses need to make purchases for the sake of their business. This is what’s known as a business-to-business (B2B) transaction.

In a B2B transaction, two businesses are involved in the sale. Typically, one business is the purchaser—the one buying the product or service—and the other is the seller.

B2B transactions can involve a wide range of products and services, from office supplies and software to manufacturing equipment and commercial real estate.

One of the benefits of a B2B transaction is that both businesses can save money.

The purchaser gets a better price because they’re buying in bulk, and the seller gets to move their products or services faster than they would through individual sales.

Types of B2B Transaction Models

There are three common types of B2B transaction models:

One-time purchase

In this model, one company buys a product or service from another company one time.

There’s no ongoing relationship between the two businesses.

Consignment

In this model, the selling company sends products to the buying company, which then sells them to its customers.

The buying company pays for the products once they’ve been sold.

Agency

In this model, the selling company hires the buying company to represent them in negotiations with other businesses.

The buying company gets a commission for every sale they make.

Implementing the Right Model for Your Business

Once you’re comfortable with what B2B transactions are and have figured out which type is best for you, it’s time to start implementing the model.

To do this, you’ll need to analyze your company’s capabilities and resources.

This will help you understand what tangible benefits your company may offer that can be used as a bargaining chip in sales negotiations.

From there, you’ll need to develop an effective pricing strategy.

Consider volume discounts, seasonal discounts, early payment discounts, and other incentives that could lead to repeat business.

It’s also vital to examine your competitors and their pricing models to ensure your prices are competitive within the market.

Finally, think about how you want to structure the payment process for B2B transactions. Are you willing to accept credit cards?

Will customers have an online account?

How soon do you expect payment after an order has been placed?

Answering these questions will help lay the groundwork for smooth B2B transactions.

The Importance of Data and Analytics in B2B Transactions

Data and analytics are essential components of B2B transactions.

With data and analytics, you can gain insight into customer behaviors and preferences and determine the most effective marketing tactics for your business.

You can also use data to optimize pricing, track trends, measure customer satisfaction, and more.

Using data-backed decision-making allows you to act quickly on customer feedback or spot opportunities for growth.

Additionally, data can automate certain processes, like billing and invoicing, drastically reducing overhead costs.

With the help of data and analytics, you can identify areas for improvement in both customer experience and operational efficiency that will help you become a more successful business in the long run.

Benefits of Good B2B Transaction Management

A well-managed B2B transaction can offer multiple benefits for all parties involved.

For starters, it saves time and effort by streamlining the processes while reducing manual labor.

Efficiency is always at the forefront with B2B transactions, leaving companies more time to focus on other aspects of their operations.

Moreover, it simplifies payments and leads to better cash flow and accurate records, which can be beneficial when tax season rolls around.

Furthermore, good B2B transaction management can strengthen customer relationships with reliable service quality.

Since the transactions are recorded and tracked electronically, there’s an added level of transparency that ensures accuracy in payments and increases trust between companies and customers.

This could lead to referrals or even repeat orders down the road.

In short—a well-managed B2B transaction makes for an excellent foundation for long-term success in any business.

Key takeaways

  • When it comes to business-to-business transactions, it’s essential to understand the basics.
  • B2B transactions are when one business sells goods or services to another business.
  • These transactions can take many different forms, but they all have one thing in common: they’re between businesses, not consumers.

Read Next: B2B2C, B2B vs B2C.

Connected Business Model Types And Frameworks

What’s A Business Model

fourweekmba-business-model-framework
An effective business model has to focus on two dimensions: the people dimension and the financial dimension. The people dimension will allow you to build a product or service that is 10X better than existing ones and a solid brand. The financial dimension will help you develop proper distribution channels by identifying the people that are willing to pay for your product or service and make it financially sustainable in the long run.

Business Model Innovation

business-model-innovation
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.

Level of Digitalization

stages-of-digital-transformation
Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.

Digital Business Model

digital-business-models
A digital business model might be defined as a model that leverages digital technologies to improve several aspects of an organization. From how the company acquires customers, to what product/service it provides. A digital business model is such when digital technology helps enhance its value proposition.

Tech Business Model

business-model-template
A tech business model is made of four main components: value model (value propositions, mission, vision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.

Platform Business Model

platform-business-models
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.

AI Business Model

ai-business-models

Blockchain Business Model

blockchain-business-models
A Blockchain Business Model is made of four main components: Value Model (Core Philosophy, Core Value and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Open-Core Business Model

open-core
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Cloud Business Models

cloud-business-models
Cloud business models are all built on top of cloud computing, a concept that took over around 2006 when former Google’s CEO Eric Schmit mentioned it. Most cloud-based business models can be classified as IaaS (Infrastructure as a Service), PaaS (Platform as a Service), or SaaS (Software as a Service). While those models are primarily monetized via subscriptions, they are monetized via pay-as-you-go revenue models and hybrid models (subscriptions + pay-as-you-go).

Open Source Business Model

open-source-business-model
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

freeterprise-business-model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Marketplace Business Models

marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

B2B vs B2C Business Model

b2b-vs-b2c
B2B, which stands for business-to-business, is a process for selling products or services to other businesses. On the other hand, a B2C sells directly to its consumers.

B2B2C Business Model

b2b2c
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

D2C Business Model

direct-to-consumer
Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.

C2C Business Model

C2C-business-model
The C2C business model describes a market environment where one customer purchases from another on a third-party platform that may also handle the transaction. Under the C2C model, both the seller and the buyer are considered consumers. Customer to customer (C2C) is, therefore, a business model where consumers buy and sell directly between themselves. Consumer-to-consumer has become a prevalent business model especially as the web helped disintermediate various industries.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Crowdsourcing Business Model

crowdsourcing
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Franchising Business Model

franchained-business-model
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

Brokerage Business Model

brokerage-business
Businesses employing the brokerage business model make money via brokerage services. This means they are involved with the facilitation, negotiation, or arbitration of a transaction between a buyer and a seller. The brokerage business model involves a business connecting buyers with sellers to collect a commission on the resultant transaction. Therefore, acting as a middleman within a transaction.

Dropshipping Business Model

dropshipping-business-model
Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.

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About The Author

Business-to-business

Business-to-business (B2B) describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer. Contrasting terms are business-to-consumer and business-to-government. B2B (Business to Business) Branding is a term used in marketing. The volume of B2B (Business-to-Business) transactions is much higher than the volume of B2C transactions.

About The Author

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