A Complete Guide to B2B Business: How Firms Sell to Other Companies
Business-to-business (B2B) commerce refers to any transactions or sales conducted between businesses, such as between a manufacturer and distributor or wholesaler and retailer. It’s one of the most common models for selling products and services globally. This comprehensive guide explores what B2B is, major B2B business types, benefits and considerations, and trends shaping the future of B2B.
Defining Business-to-Business Transactions
B2B simply refers to commerce transactions taking place between businesses rather than between businesses and individual consumers (known as B2C, or business-to-consumer). B2B can involve tangible goods, services, software, raw materials, or components being sold.
For example, a clothing manufacturer securing a large contract to supply shirts to a department store chain represents a typical B2B relationship. The shirts are sold from one business to another further up the supply chain, not directly to shoppers.
Key Types of Businesses in B2B Commerce
There are several core business types that participate in the B2B landscape:
- Manufacturers: Producers of raw materials, components, and finished products that are sold to other companies.
- Wholesalers: Firms that purchase large volumes of goods from manufacturers to sell to distributors and retailers.
- Distributors: Act as supply chain intermediaries between manufacturers and retailers/wholesalers. May provide warehousing, delivery, and inventory management.
- Retailers: Brick-and-mortar stores and ecommerce sites selling products directly to end consumers after procuring them from wholesalers.
- Service Providers: Companies that sell services like HR, marketing, consulting, and technology services to other businesses.
These players comprise the core of most B2B supply chains. Manufacturers sell goods to wholesalers, distributors, or directly to retailers, who then sell to consumers. But there are also direct B2B dealings between suppliers, producers, and service firms.
Major Benefits and Considerations of B2B Models
Deciding whether to build a B2B or B2C company comes down to weighing factors like:
Benefits of B2B
- Large order values and revenues
- Steady demand and sales opportunities
- Institutional clients and contracts
- Lower customer acquisition costs
- Data-driven decision making
Considerations for B2B
- Longer sales cycles for deals
- Customization requirements
- Volume price discounts
- High customer service expectations
- Relationship-based sales process
For firms that produce commodities, specialized products, or business services, the B2B model provides major opportunities to sustainably scale revenues. But the sales process also tends to be longer and more complex than B2C.
Trends Reshaping the B2B Landscape
While core aspects remain unchanged, emerging developments are impacting B2B, including:
- B2B Ecommerce: More companies implementing dedicated digital sales channels and e-procurement systems.
- Data Analytics: Using customer insights, CRM systems and predictive modeling to enable more strategic sales and marketing.
- Process Automation: Adopting order management software, fulfillment robots, and AI to improve efficiency.
- Customization: Offering flexible solutions and tailored products and service bundles for institutional clients.
- Globalization: Sourcing goods, services and materials from overseas markets and expanding into new countries.
- Sustainability: Eco-friendly production, transparent supplier relationships, and renewable operations growing in importance.
B2B commerce represents a major pillar of domestic and international trade. Understanding how enterprises sell products and services to other businesses provides perspective on the foundations of the global economy. With the right business model and strategy, firms can leverage B2B to sustainably scale and diversify revenue streams.
Growth of Global B2B Ecommerce Sales
B2B ecommerce has seen strong growth worldwide in recent years. According to Digital Commerce 360, global B2B ecommerce sales reached $12.2 trillion in 2021, up from $5.83 trillion in 2017. This represent an average annual growth rate of 15.8%. By 2027, total B2B ecommerce sales could surpass $20 trillion globally as more businesses adopt digital channels, according to Juniper Research.
Expansion of B2B Operations in the US
In the US, B2B sales make up a significant portion of economic activity. The US Census Bureau estimates there was over $9 trillion in B2B trade in the US in 2019. This accounts for over 50% of total US commerce. From 2015 to 2019, US B2B trade grew at an average annual rate of 2.4%, showing steady expansion. As per Fortune Business Insights, the US B2B ecommerce market alone is projected to reach $1.8 trillion by 2028.
B2B Market Growth in Developing Countries
Rapid development and business investments are fueling B2B market growth in emerging economies. In India, the B2B ecommerce industry grown from $300 billion in 2018 to over $700 billion in 2022, according to IBEF. The China B2B ecommerce market is estimated to reach $13.5 trillion by 2027, up from $4.6 trillion in 2017, reports Frost & Sullivan. B2B enables procurement and supply chain efficiencies to support growth.
References:
https://www.infosys.com/about/knowledge-institute/insights/Documents/future-customer-engagement.pdf
https://www.census.gov/data/tables/2015/econ/susb/2015-susb-annual.html
https://archive.org/details/ecommerceformula00plan/page/26
https://www.digitalcommerce360.com/article/global-ecommerce-sales/
https://www.census.gov/data/tables/2020/econ/arts/annual-report.html
https://www.ibef.org/industry/e-commerce-india.aspx
