B2B, B2C, and D2C Explained

When starting a business, there’s so much to consider. One of those things is what business model you should pursue. There are many different types of business models, but in this blog, we’re exploring three of the most common: B2B, B2C, and D2C.

Learn all about what they are, how they work, and which one you should choose.

What are business models?

A business model is essentially how a company plans on making money. Are you selling business services to other businesses? Or maybe you're a company selling products to consumers?

You usually outline your business model before creating your business plan. The business model serves as the ‘what’ and ‘why’, and the business plan is more the ‘how’ and ‘when’.

Elements of a business model include:

• Value proposition
• Operational strategy
• Target market
• Revenue streams
• Cost structure

What are business models?

B2B stands for business-to-business. In this business model, the company sells to other companies. Think business consultants or commercial software providers. Basically, any company selling something made for businesses to help them operate.

An example of a B2B company: Salesforce

Salesforce is a SaaS business (software-as-a-service). They only serve business customers with their customer relationship management (CRM) product, helping business customers enhance productivity across the organisation while improving customer engagement.

What is B2C?

In complete contrast to B2B, B2C stands for business-to-consumer. This business model is where companies sell their products to consumers. These businesses can sell directly to the consumer (D2C), through online intermediaries including online marketplaces like Etsy, eBay, Amazon, etc., advertising-based through monetising content using YouTube, for example, or subscription-based businesses.

An example of a B2C company: New Look

Retail giant New Look has retail stores across the country and an online D2C website, but also sells through intermediary apps like ASOS. This broad-scale B2C business model approach helps them access new customers who aren’t just shopping online through their e-commerce store.

What is a D2C business model?

Direct-to-consumer is where you directly sell your products to the consumer rather than using an intermediary. D2C is a subset of the B2C business model, in that you’re dealing with consumers rather than businesses. But it’s a really specific type of B2C model.

The direct-to-consumer (D2C) business model is a popular one, but the road to success might be slightly longer with a D2C brand. For this type of business to thrive, you need to build a loyal customer base and a reliable means of selling your product or service, i.e. your own website.

Many companies that are solely D2C started off selling through online marketplaces to prove their product has a market, and then, once they have built a presence in the market, they can set up on their own.

An example of a D2C business: Bloom & Wild

Flower company Bloom & Wild sell ‘letterbox’ flowers to consumers directly through their e-commerce website. The brand appeals to two types of consumers, the ones purchasing flowers as a one-off event (which takes advantage of seasonal peaks i.e. Valentine’s Day or Mother’s Day), or those who are looking for a flower subscription (recurring revenue). This approach helps them expand their share of the online flower delivery market while increasing revenue and controlling customer data themselves.

Can a company be B2B and B2C?

Yes, many companies combine both B2B and B2C business models. Serving both consumer and business markets diversifies revenue streams and gives companies a large share of the market, giving them greater opportunities to cross-sell products and services.

Although there are plenty of rewards to serving both markets, it’s important to realise there are some challenges, too. Because you’re serving two large markets, you’ll likely need to create two separate teams, but correctly allocating the necessary resources can be a balancing act, and you must dedicate time to building a brand that appeals to both markets to ensure both sides of the business are successful.

An example of a hybrid B2C and B2C company: Microsoft

Microsoft offers many products and services that serve both the consumer and business markets separately. From Windows Operating Systems for home computer use to Azure Cloud Systems for business customers. Xbox video consoles serve mostly the consumer market, while business customers purchase Microsoft Dynamics CRM and ERP solutions.

With Microsoft products, there is a lot of opportunity for cross-selling, as business customers might also use consumer-focused products at home. This strengthens their offering and helps them build brand loyalty and expand brand recognition across both markets.

Which business model best suits my business?

Here are some things to consider when choosing the best business model for you: B2B, B2C or D2C?

Sales cycle, volume, and customer relationships

In the B2B market, customers can take a long time to decide whether to purchase or not. There are usually multiple decision-makers involved in the final purchasing decision. But if you have the patience and the strategic approach to capture their attention, the sales volume could be more substantial than in the B2C market.

In the B2C market, although sales volumes are lower, sales cycles are usually shorter, with customers buying based on personal preference or emotion.

If you're looking for more control over customer data and the ability to build tailored marketing campaigns, the D2C model could be a better fit for you. As you're selling directly to customers, you have better insights into customer buying behaviour.

Using intermediaries

Whether you use an intermediary or not completely depends on how you want to enter the market. If you wanted to trial a product first before going to the trouble of building an e-commerce website, for example, it could be a good idea to set up with an Etsy business store or an Amazon Storefront.

Be aware that using an intermediary usually comes with some high fees (for the convenience). With the Etsy platform, sellers pay processing fees, listing fees, and transaction fees, which all eat into their profits.

Don’t rush to choose a business model

By choosing a business model, you’re essentially laying the foundations you’ll build your business on top of. Although you can of course change which market you serve down the line, it’s not a decision that is easily reversed, plus by rushing the decision, you could miss out on serving a market that generates a lot more revenue.

So take your time to understand the market you want to enter, weigh up its pros and cons, understand your current competition, and nail down your product or service offering and why it’s different from others.

Regardless of your business model, we help all kinds of businesses compare and access affordable, flexible business finance to help them grow quickly. Find and compare eligible business finance options today.