B2B and B2C are very different markets: B2B sales are made to businesses, while in B2C the buyer is the end consumer.
Who you sell to is the first major difference between the two, but it is far from the only one.
In this article we look at several aspects of the B2B market, compare it with B2C and cover the differences in:
- target audience;
- metrics such as customer acquisition cost (CAC) and customer lifetime value (LTV);
- types of product (or service) and pricing model.
We then go through different types of B2B business (with examples) and the new trends to watch.
B2B and B2C definitions
When a product or service is sold by one business to another, it is B2B (business to business). In this kind of sale, a company sells services or products to another company (or to a professional).
Whenever a company sells to the end consumer, it is a B2C (business to consumer) sale.
What changes between B2B and B2C
B2B and B2C markets differ on several key points, such as who the offer is aimed at and how long the sales cycle is. Because of these differences, the B2B and B2C sales processes are different, as we have covered before.
Here we want to focus on the differences in the business model.
Target audience
In B2B the main customers are other businesses, so the offer has to be aimed at a company and, in particular, at that company's decision makers.
In practice, decision makers can be:
- company managers;
- the head of a specific department (e.g. marketing director);
- the IT manager;
- the finance director (CFO).
In B2C, by contrast, the audience is made up of individual consumers. Here, what matters is less their role in a company and more their personal preferences and wants.
Take a B2C fitness brand: two distinct target audiences could be:
- professional athletes who want to improve their performance;
- fitness enthusiasts who want to stay in shape and improve their health.
Customer acquisition cost and lifetime value
One of the key figures in sales is LTV (customer lifetime value). LTV is the total value a single customer generates for a company.
Put simply, it adds up every purchase made by one customer (or, in B2B, one company). It is one of the most important metrics to track in businesses with repeat purchases, and for understanding how the business is doing overall. It should also be compared with CAC, the cost of acquisition.
CAC and LTV are two of the most important metrics for any business. CAC (Customer Acquisition Cost) tells you how much it costs, in money terms, to acquire a new customer.
A company's goal should be to keep CAC as low as possible and to increase LTV.
On both figures, B2B and B2C differ considerably.
In B2B, customer acquisition cost (CAC) is often much higher, mainly because:
- the sales cycle is longer;
- buying decisions are made by several people;
- more effort is needed in content marketing and outreach.
According to this research by Winsavvy, the average CAC in B2B is between $500 and $2,000, while in B2C it is between $10 and $500.
What about LTV? In general, B2B customers tend to be more loyal to the companies they buy from. This is helped by recurring contracts, upselling to more complete products or services, and renewals of licences or platforms. Average LTV can therefore range from $25,000 to $250,000.
B2C, on the other hand, has far more one-off customers who buy once and never come back to the same company. The result is an average LTV of $100 to $10,000.
Product types and pricing structure
B2B covers a wide range of products, including:
- raw materials sold to manufacturers to make other products;
- semi-finished products sold on to other manufacturers;
- finished products sold to distributors or retailers;
- on the services side, licensed software, one-off services and recurring services.
B2C, by contrast, usually sells the finished product.
And pricing?
Compared with B2C, B2B uses different models, including wholesale with prices that vary by quantity.
Subscription sales are spreading in both markets. A few years ago, for example, you could buy software such as the Adobe suite with a one-off payment and keep it until you wanted to move to the next version. Today you need a subscription plan to use the suite: lifetime licences, so to speak, have gone.
Business models that bring in recurring revenue include:
- subscription: the customer pays a regular monthly or annual fee to use a platform. Netflix is the classic example.
- usage-based: any system where you pay according to how much you use a service. This is common in SaaS. Google Cloud, for example, charges for storage according to the amount of data used.
- per user: in some cases access is limited to a certain number of people, and the price depends on how many users you want to give access to. ClickUp (paid plans), for example, charges a monthly fee per user.
- tiered: products or services are often offered in several plans or tiers, with the price depending on the features included. Brevo, an email marketing tool, uses a tiered model.
B2B: market and customers
Let's look in more detail at how the B2B market works, what types of audience there are and some examples of B2B companies.
Types of B2B business
Here are some examples of B2B business models.
- Manufacturer, targeting suppliers and producers.
- Manufacturers in turn buy raw materials from other companies. These purchases are often made wholesale, which brings the unit cost down according to the quantity ordered.
- Manufacturer, targeting distributors and retailers.
- Companies that make finished products sell them through distributors or retailers. Distributors sit between the manufacturer and the retailer. Retailers then deal with the end customer.
- SaaS, targeting businesses.
- The SaaS model delivers software as a service. It includes many services you will know, such as Zoom, Slack, Zendesk and Salesforce. This type of business runs on subscriptions, so it has to focus closely on customer management and on metrics such as churn rate.
In all these models, the customer is always a company (or a professional) buying products or services.
Examples of B2B companies
To see how B2B works in practice, here are some well-known examples from different sectors. You can find more in our guide to B2B ecommerce.
Microsoft
Microsoft sells both to consumers (B2C) and to other businesses (B2B). On the business side, one example is Office 365, the package of cloud services and office applications for companies (including small ones).
Microsoft also has Azure, a cloud platform that lets companies use cloud computing. Azure uses a usage-based pricing model: for data storage, for example, you pay according to how much you store and how often you access it.
Shipping companies: FedEx and UPS
FedEx is a transport company that offers shipping services to businesses. Together with UPS, it is one of the most widely used providers for company logistics.
Businesses that use these services do not need their own logistics operation and can get better rates by relying on an outside provider. These companies' business model is based on the rates they charge.
Payment systems: Stripe and PayPal
Stripe and PayPal are B2B companies in the same sector. The service they offer is a payment system for receiving and sending payments online and by card terminal. Their business model is based on the fees charged on transactions.
New trends in B2B
The B2B market keeps changing. Company decision makers, like B2C customers, keep finding new channels and new ways to stay informed and learn. So companies that want to stand out in B2B should try new methods to reach the right customers.
At Visilay, when we handle lead generation for clients, we always study the target market to decide which strategies suit the sector. We know it pays to adapt to change without chasing every trend, and to know which tool to use at the right moment.
To help you find your way, we have picked the three emerging trends we think you should not miss.
Use LinkedIn, the business social network
Interest in LinkedIn has grown over the years, helped by its good organic reach and new formats (such as video posts). And it has an ace up its sleeve: LinkedIn Sales Navigator, which can be a very good lead generation tool.
Invest in content marketing
More and more marketing departments are putting resources and budget into content. The Content Marketing Institute found that 49% of companies use content specifically to increase sales.
Does content creation seem hard to get into? Start with our guide to building a B2B content marketing strategy.
Adopt automation
Automation can speed up repetitive tasks, save time and improve processes. The biggest obstacle is getting started: setting up an automation system that works can be complicated.
So it will not surprise you that 41% of B2B companies say they cannot get what they want from automation.
How do you make it simpler? Get in touch and tell us about your goals and the problems you are facing: we will help you work out an effective strategy and put the automated processes in place.
