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.
3 Basic Models
As a business, you have three basic selling models to choose from. They’re based around the customer groups 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 success with one model.
Business to Consumer 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. When people ask what your SaaS business does, you can state it simply: “We sell design software to interior decorators.”
B2C companies may find it fairly easy to understand their target markets. Maybe you started a SaaS business selling interior design software because you know several interior decorators. Maybe you sell to athletes because of a background in sports.
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. They might go from interest to purchase within a few minutes.
This means your total sales cycle is very rapid. 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 focus on consumer channels. In a broad sense, your target market does things like post on social media, read the news, and visit retail websites.
It’s important to keep in mind that consumers are very price-sensitive. Big companies can swallow the cost of an expensive subscription; individual people will balk at high prices. Remember this as you set SaaS package prices.
Business to Business 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
It’s a bit more difficult to identify your target market when you’re a B2B seller. Companies are made up of many types of people. Who are you trying to reach in the organization? The purchasing manager? The HR director? The CEO?
The B2B sales and marketing cycle is long. Let’s say you decide to focus on selling to car dealerships. You discover that IT managers make buying decisions. But IT managers always tell you they need to consult with their finance managers and dealership owners. Selling one subscription can take months.
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Can your SaaS business handle this cumbersome process? You may need a sales specialist or customer support rep to keep things moving. Clients might request detailed data, both before and after the sale. Your users will need multiple login IDs.
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.
Whichever model you choose, a subscription billing model is a good choice for consistent, predictable revenue. Download our free checklist that gives an overview of 8 essential features that every subscription management system should include.