Jack Ma of Alibaba once said:
“B2B does not stand for ‘Business to Business’ but ‘Business people to Business people.”
In B2B, whether it is product or service that we’re providing, the first thing we must think about is how to satisfy the needs of other companies, and the needs of companies; be it product or service, are fundamentally the needs of the businessman behind it.
Here are 8 common core areas that SMEs in B2B industry must master.
1. Multi-person decision-making and multi-account settings
The first challenge is the most critical one in B2B.
The biggest difference between B2B and B2C is that it is a multi-person decision making sales process for the former.
Even the smallest B2B – the family store, is still a multi-person decision making and teamwork operation. And exactly because of this multi-person decision making attribute of the company, the first thing a B2B must consider is setting up a multi-account system.
Transaction accounts are relatively easy to set up, we normally set up main and sub-accounts, which means there are accounts for operators, as well as accounts for the management.
Why? Because these two account types address unique needs of the users. Other than the sub-accounts, there needs to be a parallel account. Such accounts are for the procurement department that is linked to the accounting department and these individual departments have their own unique requirements.
2. Four Ratios in B2B direct marketing
Whether the B2B is a product or service provider, it needs on-the-ground marketing. This is determined by the multi-person decision making attribute. B2Cs often identify their target market through demographics, which is hard for B2Bs. So, the on-the-ground marketing is a must.
On-the-ground marketing is the key to a B2B’s success, but it doesn’t mean that you should blindly invest in on-the-ground marketing only.
How do you evaluate your direct marketing campaigns? It’s simple, just look at the four different ratios in various stages: coverage rate, conversion rate, purchase rate, penetration rate.
Whether the product or service has a strong unique proposition that is difficult to replace? The key is the penetration rate, once you have a high penetration rate, it would be unlikely for the customers to replace your products or service.
3. B2B transactions are unique, which makes it hard to achieve price transparency
The unique characteristics of B2B transactions also mean that it is hard to provide price transparency, in fact, there shouldn’t be price transparency at all.
First of all, different purchasing volumes lead to different prices; secondly, different terms of payment also lead to different prices.
Even the delivery location would affect the prices. Furthermore, prices and costs are proprietary information, which means they’re not to be disclosed to the public or third party.
These are all unique characteristics of B2B, therefore they’re also not to be changed, not even in the age of internet. Many B2B companies tell their clients that they’re making their prices transparent because they’re eliminating the middleman, which is not only impossible, but also, illogical.
SMEs should compete on value, not purely on price as the chase to be the lowest priced provider typically does not allow the company to re-invest profits into product development and improving service standards.
4. The key focuses on the B2B experience – “More, fast, quality, saving”
B2B and B2C customers both have the same user experience, which revolves around four words — “More volume, Faster Delivery, Quality Product, Cost Savings”. However, it is impossible to achieve all four, either for B2C or B2B, so you must prioritize.
Companies like China’s Xiaomi focuses on “volume” and “savings”, as for Apple, they’re direction is on “Fast” and “Quality”. The pursuit of “Volume, Fast, Quality, Saving” hasn’t changed at all since the age of merchants. You still have to make the choice among them.
Even two companies in the same industry often have different needs, because the needs of the businessmen behind it are different. There is no need to talk about how “fast” you can deliver the service to small and medium businesses, because they typically have plenty of time, but not a lot of capital nor access to SME Working Capital Loans, and even less business opportunities.
With that said, small and medium businesses tend to prefer to pay by results. Does your product or service make a difference? Does it bring in more business opportunity to your customers?
5. Breakdown of information flow, logistics, and capital flow
Traditional B2Bs often blend in all costs, such as information, logistics, and capital costs, and then reflect it on the final prices. For example, the pricing for frozen poultry that are air flown from Brazil to Singapore would also cover all the costs mentioned above.
In the age of internet, B2B transactions must find a way to clearly calculate these three costs. The information flow refers to the profit one can make out of the uneven distribution and arbitrage of information, capital flow refers to the profit from financing activities, and there are also logistics costs.
Loans such as Temporary Bridging Loan taken out to fund the business might not necessary be a bad option to take, if the injection of capital brings positive ROI.
You must calculate all three, and then break down each of them separately; the goal is not to make money on all three, but to make a profit from one or two of them.
By managing the business process, you can then identify the correlation between costs and pricing, and therefore offer free services where others charge for it.
6. The financial core of B2B supply chain is “chain” and “credit”
To be in B2B, you must also think about your financing options. In reality, unless your business is 100% cash on delivery, you probably have financing needs. How? There are two suitable types of business loan in Singapore to finance B2B supply chain.
One is “Supply chain financing”. What does a “chain” mean? There must be two parts that are linked together. Supply chain financing must involve at least two transactions, two trades.
Take the small business sugar manufacturer for example; the capital runs low whenever it’s time for the manufacturer to take in the sugarcane, but the financier can’t just give them a SME loan, because what if the manufacturer uses the money on properties or stocks, instead of sugarcane? So, what financiers will do is to provide a loan on the condition of the ownership of the sugarcane, and the amount of the loan should be exactly the cost of the sugarcane. So the financiers are actually purchasing the sugarcane for the manufacturer.
There’s also “trade financing”. Trade financing is a form of import financing where banks will finance the purchases of inventory for the borrower. The borrower can then receive credit terms of typically 90 days from the banks to make payment. There are many other creative ways to structure financing in a B2B deal, so do think out of the box.
7. B2B must be managed in distinct categories and levels.
The 80/20 principle states that 80% of your revenue is derived from 20% of your customers. If you look at your revenue breakdown in detail, you might see some semblance of 80/20 in display.
If your business model is mainly acquisition based with a good spread of customers contributing pretty evenly to your revenue, look at your product mix or your sales team.
You might find 80/20 in action here where 20% of your product/service mix contributes to 80% of your sales. Or the top 20% of your sales team netting 80% of your total sales.
It is therefore important to segment your customers or products/services and manage them in different categories. Of course, it’s important to channel more resources into the core 20% of your product mix that is generating most of the sales.
You might also want to axe away the 80% product lines that are a laggard to total revenue.
Segment your best and biggest customers and focus your customer service team on them. There are various levels of buyers and sellers. You must offer your best customers the greatest value in every transaction with your company. B2B sales are more complicated in structure than selling to an individual.
There must be labels; various levels of customers with various levels of privileges. The more a particular customer contributes to your bottom line and the faster he makes payment, the more privileges, value and better prices he should be entitled to.