Business to Business (B2B)

Updated on March 20, 2024
Article byWallstreetmojo Team
Edited byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

Business to Business (B2B) Meaning

B2B or business to business is one organization selling to another, in contrast to a business selling to a consumer, which is B2C. In other words, it is simply a business selling to or supplying another business. Business to business examples can include the transactions between a wholesaler and a retailer.

B2B transactions often occur between manufacturers who purchase materials from another manufacturer to produce their own goods. As much as being used as a description of business styles on the internet or web, this is true of the economy and world out there in general.

Key Takeaways

  • B2B, or business to business, is when one business sells to another business. The output of the seller becomes an input for the processes of the buyer. B2B comprises intermediate goods and services between raw materials and finished products.
  • B2B plays a huge role in the world’s economy. All the B2B transaction makes up the final things we buy as consumers.
  • B2B can be goods or services, raw materials, finished items, etc. It can also happen in physical, software, virtual, and services formats.  

Business to Business (B2B)

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How does B2B work? 

Business-to-business transactions happen around us all day in different forms. For example, B2B can be in the form of sales, communication, or transactions online or offline.

We all know how regular retail works – we go to the store. However, a business tends not to do that; the store comes to them. That might be through a catalog or a website, the second more likely these days, or even a salesman coming in to see what is needed. The big difference, though, is that it’s more likely to be a push than a pull. 

The people who do the B2B selling knock on the door of potential buyers to see what they want. Once an order is agreed upon and made, the goods or the service are usually delivered to the business. One thing to understand is that B2B is much more competitive than other selling forms. Partly because the buyers are themselves trying to make a profit, but mostly because many people are trying to make that sale.

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B2B vs. B2C – Video Explanation

 

Intermediate goods

A normal relationship between producers and consumers starts with raw materialsRaw MaterialsRaw materials refer to unfinished substances or unrefined natural resources used to manufacture finished goods.read more found in nature and the final good that is directly consumable. Then, there’s that whole chain of the business world in between those two endpoints. The farmer grows the wheat sells it to the miller, the miller makes the flour and sells it to the baker, the baker makes the bread, and we buy it and eat it. Maybe there’re a few shops along the way, a wholesaler or two, but that whole process between the farmer and us is business-to-business transactions – B2B or intermediate goods.

The vast majority of the world economyEconomyAn economy comprises individuals, commercial entities, and the government involved in the production, distribution, exchange, and consumption of products and services in a society.read more is B2B exchanging intermediate goods with each other. When we buy some shampoo to wash our hair, there have been all those people trading chemicals, water, bottles, etc., with each other. The ad agency that lets us know about it, the trucking company that brings the product to us, the store we bought it at, etc., are some examples of B2B transactions in this case.

Types of B2B Companies

Given that it is the major part of the world’s economic activities, one can imagine that B2B comes in many different flavors. 

#1 – Product-Based B2B Business

These are the businesses that sell physical products that can be touched and held. A company that sells steel is an example. A steel stockist is the B2B company that supplies them. They will have stores of many different types of steel, different alloys, different shapes, sizes, etc. A business can call them up and ask for exactly what they want, and it gets delivered. A furniture supplier selling office furniture can also be quoted as an example. 

#2 – Service-Based B2B Companies

Similar to products, there are B2B companies that supply services too. An accountingAccountingAccounting is the process of processing and recording financial information on behalf of a business, and it serves as the foundation for all subsequent financial statements.read more company is an example for business to business services. For a large corporation, the accounting process costs tens of millions of dollars a year and is a service sold to a B2B company. In addition, there are a number of other business-to-business services such as telemarketing, advertising, consulting, law, graphic designing, etc. These services can be both online and offline.

#3 – Software-Based B2B Companies 

Then there are the more modern companies which sell software. It can include companies that sell software exclusively developed to fulfill a certain task or need. Examples may include Invoicing softwares, CRMs, accounting softwares, databases, etc. Software-based B2B businesses involve hosting, security, maintenance, and customer support

B2B incorporates all of these different things being sold, i.e., goods, services, software, and digital products, and also the different ways they can be sold, i.e., physically, online, and so on. The defining characteristic of business-to-business sales is that one organization is buying from another.

B2B Ecommerce

Business-to-business ecommerce refers to the exchange of products and services through online mediums. With the advancement in technology, B2B ecommerce, and ecommerce, in general, get more and more popular every day. Amazon, the online marketplace for commercial goods, and Upwork, the job search platform for freelancers, are two examples of B2B ecommerce.

Frequently Ask Questions (FAQs)

How does business to business work?

In B2B, a business that manufactures products, services, or software sells to another business that can use them as raw materials. Retailers selling to wholesalers are one of the business-to-business examples. A company that produces and sells automobile parts is also part of business-to-business sales.

What is the business to business marketing?

B2B marketing includes all the strategies that are engineered to increase the brand awareness of a product or business among consumers. A marketing agency promoting a product through various advertising channels and social media is an example of B2B marketing.

What is the business to business communication?

A B2B communication involves exchanging information between two entities related to a transaction or business. It can be operational communication between two people inside the same organization or between a buyer and seller business. It can also be the personal or less formal form of communication intended to maintain the relationship between two organizations. Communication can take place both in the virtual and physical worlds.

This has been a guide to Business to Business (B2B) and its meaning. Here we discuss the types of B2B companies, how it works, examples, and B2B ecommerce. You may also have a look at the following articles to learn more –

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Comments

  1. Theresa says

    This article is very impressive, especially for me, wanting to start a SME.

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