B2B vs. B2C: meaning, differences, and which is better
If you’re starting a business, no matter what industry you’re in, you’ve probably heard the terms B2B and B2C being thrown around. In the likely case that there’s some confusion, let us first state that we’re not talking about a couple of droids from a galaxy far, far away. Instead, these are two business models pointing to potential customer bases.
In plain English, please?
B2B stands for business-to-business and refers to businesses selling products or services to other businesses. Melio, for example, is a B2B payments system, which means we only facilitate payments where both parties are businesses.
B2C stands for business-to-consumer, indicating a business is targeting private consumers. It is sometimes also referred to as D2C (direct-to-consumer). An example of a B2C business is a supermarket where private individuals typically come to purchase goods and products for personal or household use.
In most cases, especially with small and medium-sized businesses (SMBs), either a B2B or a B2C model is used. This is mainly because the two models require different strategies for marketing, customer service, and payment processing. Larger companies, however, sometimes choose to address both types of customers, normally creating different business divisions for B2B and B2C.
Is B2B better than B2C?
Not necessarily. Both business models are valid choices for almost every industry. Choose the one that works better for your business by considering the differences between them, alongside your own goals and, not any less important, your personality.
If you’re an outgoing person who enjoys meeting dozens of people a day, you may prefer to run a B2C business with a more extensive customer base. On the other hand, if you prefer to have deeper relationships with fewer customers, B2C may be a better choice.
The difference between B2B and B2C
To choose a business model that’s right for you, it’s important to understand some of the main differences between B2B and B2C and how they may affect your strategy.
B2B businesses typically operate in higher volumes and wholesale, which means transactions are much larger, but each item is sold at a lower price than in B2C deals.
Number of customers
A B2C business needs more customers to move the same amount of goods.
Imagine, for example, that you have a stock of 1,000 T-shirts. If you’re selling to businesses, you’ll need 10 retailers to buy 100 items each and then sell them to consumers at their own pace.
On the other hand, consumers typically purchase one or two items at a time, which means you’ll need 500-1,000 individual customers to take it off your hands and make room for new merchandise.
Potential customer base
While it’s true you’ll need more customers, it’s worth noting that every person in the geographical area you serve can be a potential B2C customer.
B2B, however, is limited to those who have a business or are operating on behalf of one. Also, different types of businesses in various industries need different products, so the result is a smaller niche audience.
B2B sales are a longer and more complex process than B2C. There’s more than one decision-maker, and B2B customers aren’t prone to spontaneous impulse or emotion-driven purchases.
B2C deals are paid for instantly, typically with cash or a credit card. But business customers are used to paying by check or bank transfer. Because of the high volume of transactions, they also often expect to be able to pay in installments, per stage, or with net terms.
A B2B business creates long-term relationships with customers who value trust, loyalty, expertise, and connections over price or shipping time. B2B relationships also require more support and attention to maintain and secure additional sales.
B2C customers are typically not looking for a personal connection, and the relationship often remains solely transactional, with less commitment and more emphasis on low cost or convenience.
Since B2B deals tend to be bigger, they also have much higher stakes. When a consumer doesn’t receive their T-shirt order, they will just get a refund and move on with their lives, almost completely unaffected.
However, when something goes wrong with a retailer’s shipment, this could have a serious long-term impact on their operation and their willingness to do business with you in the future.
So, what’s right for your business?
Choosing the right business model is one of the first steps every entrepreneur needs to take. Now that you know the difference between B2B and B2C, you can make the right decision based on your company’s strengths, goals, and needs, and let it guide you in choosing your marketing strategy.
Oh, and if you’re starting a business, you’ll also need a reliable and secure way to send and receive payments, so check out Melio. It’s free and only takes a few minutes to set up.