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Who is your target market: individuals or businesses? If you can’t answer that question instantly, a lack of focus could be hindering your success. Let’s look at common ecommerce business models, so you can see which is best for your business.
Business Model Options
As a business, you have three basic ecommerce business model options to choose from. They’re based around the buyer you’re trying to reach.
- Business-to-consumer (B2C)
- Business-to-business (B2B)
- Business-to-government or organization (B2G)
Many experts lump B2B and B2G together, calling them B2B as a group. So really, your choice is between B2C and B2B: selling to individual people or selling to businesses.
You may be wondering: Do I have to choose? Can’t I sell to both?
Yes, you can sell to both individuals and businesses as a long-term strategy, but early on it’s more important to have focus. Instead of struggling to manage two models, zone in on developing success with one model first.
Business-to-Consumer Ecommerce Model
In the B2C model, your business sells directly to the end consumer. So if you sell subscriptions, each subscription is purchased by one person who uses it exclusively. B2C is the most common model for small and startup ecommerce businesses.
B2C Model Characteristics:
- Easy to understand
- Clear target market
- Short sales cycle
- Potential for emotional and impulse purchases
- Lower risk and costs of entry
- Mass/consumer media marketing strategy
- Price-sensitive customers
One reason B2C is so popular as a business model is that it’s easy to understand and explain. For example, when people ask what your SaaS business does, you can simply state: “We sell design software to interior decorators.”
B2C companies may find it fairly easy to understand their target markets because their customer profiles provide very clear insight on who is purchasing their products. Perhaps you’ve started a subscription SaaS business selling interior design software because you know several interior decorators are in-market for a tool that helps them mock up a 3D layout of a room. Or maybe you sell a fitness app that allows athletes to log their workouts. In both cases, your buyer personas are very specific and help define the overall size of your market.
A classic characteristic of the B2C model is a short sales cycle. Unlike the B2B model – where businesses take a long time to make decisions and allot budget – in the B2C model, customers can buy quickly. The consumer decision journey might go from interest to purchase within a few minutes.
Thanks to the shorter sales cycle, your company must be prepared to handle rapid-fire issues like customer questions, billing issues, and refunds. It’s crucial to have an ecommerce platform that can handle this level of customer support.
As a B2C business, your marketing strategy should also focus on understanding consumer behavior. Compared to B2B, B2C businesses typically spend more time and effort on social media marketing because their target market spends more time on social channels than enterprise-level customers.
It’s important to keep in mind that consumer preferences can also vary between B2B and B2C. Consider price-sensitivity as a prime example. While most big companies can swallow the cost of an expensive subscription; individual people will balk at high prices and may abandon their shopping cart altogether.
Business-to-Business Ecommerce Model
In the B2B model, you sell to businesses instead of individuals. Each business customer must make a company-authorized decision to purchase from you. Selling to businesses – especially governments and nonprofit organizations – comes with some additional challenges.
B2B Model Characteristics:
- More complex model and target market
- Long sales cycle
- Few purchases based on emotion or impulse buying
- Niche marketing strategy focused on trade channels
- Less price sensitivity
- More revenue per sale
- Customers demand more data
- Multiple users and user IDs
Foremost, it’s a bit more difficult to identify your target audience when you’re a B2B seller. Often times companies are made up of many people with different titles and responsibilities that it can be hard to pinpoint who is actually making the purchasing decision. Who should you be pitching your software or service to? Is it the finance team? A key engineer or maybe the CEO?
The B2B sales and marketing cycle is long. Let’s say you decide to focus on selling software to car dealerships. You’ve identified the IT manager as the correct buyer to go after since she’s responsible for making the purchasing decision. But she later tells you that she’ll need to consult with the dealership’s owner and finance managers before making the decision. In this case, selling just one subscription can take a lot longer since there are additional stakeholders who have to approve the purchase.
Can your SaaS business handle this lengthy process? You may need a sales specialist or customer support rep to keep things moving and resolve any issues. Like your clients requesting detailed data, both before and after the sale or requiring multiple login IDs to demo the software.
Of course, a big advantage of B2B selling is higher revenue per sale. Instead of making a few dollars per subscription, you could bill hundreds or thousands of dollars per transaction.
Maximize your Revenue Potential
Whichever model you choose, a subscription billing model is a good choice for consistent, predictable revenue. FastSpring’s powerful ecommerce and subscription management solution is built for both small businesses and enterprise-grade companies looking to increase the lifetime value of each customer.
Want to start making recurring income? Download our free Ebook, 8 Essential Subscription Management Features to learn how a truly great subscription management system can benefit your digital business.