I’ve struggled with this same question everytime I’ve wanted to start a new business, so in this article I’m going to define exactly what B2B and B2C startups actually look like and help you to determine which target audience you should go after.
If you’d prefer to watch rather than read, check out Rob Walling’s excellent video breaking down his opinions of B2B B2C SaaS companies.
What Is A SaaS?
Before we get started, let’s get some basic definitions out of the way.
SaaS stands for Software as a Service. It’s a type of business where software is delivered to users online through a web browser or a mobile app.
The provider maintains and hosts the app and normally charges a monthly fee to keep a user’s subscription active.
What Is A B2C SaaS?
B2C stands for Business-to-Consumer, which is where a product is targetted at an individual consumer.
Some good examples of B2C companies are Netflix and Spotify.
What Are The Pros and Cons of Starting a B2C SaaS Company?
In my experience, creating a B2C company is great as it’s:
- Better for Beginners: B2C SaaS offers more room for trial and error, making it suitable for newcomers.
- Larger User Base: You can attract a more extensive user base in the consumer market.
- Easier Marketing: Marketing to consumers can be less targeted, and your product can have a broader appeal.
However, while B2C companies are easier to get started, they often provide lower financial returns as you have:
- Lower Pricing: Consumers are typically price-sensitive, which means you may need to charge less for your product.
- Higher Chargebacks: Dealing with chargebacks and fraudulent activities is more common in the consumer market.
- Reliant on Organic Growth: B2C SaaS often relies heavily on organic growth, making long-term outbound marketing challenging.
Therefore, if you’re just starting out creating your own business, I’d recommend that you start by creating a B2C SaaS startup as you’ll be able to quickly find your feet and are more likely to be successful.
Once you’ve launched a successful B2C business, it might be time to look into creating a new B2B business, as that’s where the real money lies.
What Is A B2B SaaS?
B2B stands for Business-to-Business, which means that the product is designed to server business needs rather than individual consumers.
B2B products often need to offer more complex and feature-rich solutions than B2C, as they’re built to meet the unique needs of enterprise customers.
Examples of B2B SaaS products include customer relationship management (CRM) platforms like Salesforce, project management tools like Asana, and communication tools like Slack.
What Are The Pros and Cons of Launching a B2B SaaS Business?
B2B businesses largely have the complete reverse advantages and disadvantages of a B2C business. Namely, if you start a B2B business, you can expect:
- Higher Pricing: B2B SaaS can command higher prices, allowing for potentially greater revenue per customer.
- Fewer Chargebacks: Businesses are less likely to initiate chargebacks or engage in fraudulent activities.
- Smaller User Base: You can achieve profitability with a smaller user base since businesses are willing to pay more.
- Less Bug-Prone: Serving a smaller user base often leads to fewer technical issues.
However, with these increased prices comes increased expectations, which means:
- Higher Conversion Effort: Convincing businesses to adopt your SaaS solution may require more effort and follow-up.
- Less Room for Error: B2B products need to be robust and reliable; subpar solutions won’t be well-received.
- Heavy Outbound Efforts: Effective outbound marketing and lead generation are crucial in the B2B space.
As a result, I’d only really recommend you to get started with a B2B business if you already have some great connections or experience with selling to businesses, as you are much more likely to see failure otherwise.
B2B vs B2C SaaS
So which is better, B2C or B2B?
As always in business, the answer massively depends on your specific situation and preference for your business.
If you’ve got a lot of experience with business or you’ve got some great connections in a particular niche, then a B2B business is the way to go as it will provide you with much more stability and easier profits. This is because B2B companies can charge a lot more per customer and generally have a lower churn rate. This means that the business needs a lot fewer customers to become profitable and needs fewer new customers per month to replace churning customers.
Otherwise, I’d recommend that you get started with a B2C business. They can be incredibly lucrative if you find the right target market and tap into a pain point that they have. Generally, B2C companies need to build up a large user base as quickly as possible and focus their sales pipeline on getting as many people to view their product as they can.
What About Both?
So far in this article, I’ve talked about B2B and B2C businesses as if they’re completely separate. That’s not always the case!
Some companies manage to combine B2C and B2B models into a single product, which allows them to target a much larger segment of the market.
By offering multiple plans at varying price points, they are able to gain a much higher segment of the market and increase their profits even further. While this won’t work for all business types, it’s definitely worth looking into if you’re looking to expand your business’s potential.
What this means, is that if you’re just starting out with business, you can start by creating a company that targets B2C clients. As your business grows, you might find that you can expand your product lineup to include a more expensive enterprise plan with extra functionality, unlocking the higher paid and more reliable income stream for your business.
- SaaS (Software as a Service) delivers software online through web browsers or mobile apps, typically on a subscription basis.
- B2C SaaS is beginner-friendly, with room for trial and error, a larger user base, and easier marketing. However, it often involves lower pricing, higher chargebacks, and relies heavily on organic growth.
- B2B SaaS offers higher pricing, fewer chargebacks, and a more forgiving user base. It requires feature-rich solutions for enterprise customers, involves higher conversion efforts, and demands robust outbound marketing.
- Choosing between B2B and B2C depends on your experience, connections, and preferences. B2B is suitable if you have relevant experience or connections, while B2C can be lucrative with the right target market.
- Some companies successfully combine B2B and B2C models within a single product, offering multiple plans at different price points to reach a wider audience.
- Evolutionary growth involves starting with a B2C focus when new to business and expanding to include B2B offerings as your business grows.
- Adaptability and a deep understanding of your target audience are key to success in the dynamic world of SaaS entrepreneurship. Explore further resources to refine your strategy and maximize your SaaS startup’s potential.
Now that we’ve covered the advantages and disadvantages of B2B and B2C businesses, check out our guide to creating a Micro-SaaS, or find out how to create a great go-to-market plan for your business.