Understanding B2B ecommerce pricing models
As you’re evaluating B2B ecommerce solutions, you’ll encounter different pricing models. Since ecommerce technology has historically been built around the needs of the B2C market, not every vendor has taken the needs of B2B companies to heart. That has started to change in the last few years, but it hasn’t affected every aspect of B2B ecommerce. In fact, B2B ecommerce solution pricing is a prime example of B2C-type thinking that really doesn’t carry over to B2B.
In this article, we’ll talk about the two most common ecommerce solution pricing models in B2B. We’ll look at the philosophy behind each one and what it means for your business.
Let’s get started!
A tale of two pricing models
B2B ecommerce software generally falls under 2 pricing models.
- Model 1 – pricing is tied to revenue processed.
- Model 2 – pricing is tied to resources consumed.
Vendors start from different places to arrive at each of these models. It’s important to understand the thinking behind each model. Once you see how a vendor arrives at their pricing model, you can map the value which a vendor believes they’re providing against the value you’re actually looking for.
Hint: Vendor values and your values may not always line up.
Pricing model 1: Percentage of revenue processed
The granddaddy in the industry is Demandware, which went public and was purchased by Salesforce in 2016. Demandware’s business model was predicated on extracting a percentage of the revenue that they attracted and processed on behalf of retailers. The thinking was, “We helped you get that revenue, so it’s only fair that we take a fraction of it.”
Essentially, this is a commission-based model, similar to transaction fees charged by credit card companies. Transaction fees make sense, because the retailer figures they wouldn’t get the sale if they didn’t take credit cards. Paying “commission” to the credit card companies is the price of capturing revenue that the merchant wouldn’t capture otherwise.
In that regard, this pricing model as old as business itself—and it makes perfect sense in a retail/B2C scenario. Without that ecommerce website attracting customers and upselling to get more value out of them, the merchant wouldn’t get the sale. It’s only fair that the merchant pay a small percentage of the sale to the ecommerce software vendor.
But a lot of B2B decision makers don’t like this model. Here’s why.
Why this model doesn’t work for large B2B organizations
The industrial manufacturer has a totally different mindset when it comes to ecommerce solution pricing. When they hear about transaction fees, they tend to respond with something like, “Excuse me, I’m already doing business with these people! I’m already cashing their checks! You’re not finding me new customers, so help me understand why you should take a percentage of my revenue.”
It’s a fair question, and it highlights a mismatch between value provided and value needed.
In the B2B world, that’s where the friction is nowadays. In many cases, B2B manufacturers feel first and foremost as if ecommerce software firms are providing infrastructure. They’re not providing a new source of revenue, but rather a new way of processing revenue that the manufacturer would have received anyway.
That’s a huge difference. It calls for a pricing model that starts with a full understanding of the B2B scenario and the relationships that already exist between manufacturer and customers.
That’s why Pricing Model 2 exists.
Pricing model 2: Cost of resources consumed
B2B ecommerce pricing should start with an understanding of the B2B world. That means pricing the solution fairly based on the value it’s providing. While many manufacturers pursue ecommerce as a way to drive new revenue, others have a different goal: becoming easier to do business with and increasing internal efficiency.
For those companies, transaction fees don’t quite map with value provided. A solution that charges transaction fees essentially asks for a commission on a sale that was already going to take place.
Ecommerce solutions that are designed for B2B companies take a different view on pricing. A good B2B solution provider recognizes that they’re often providing infrastructure to service existing customers, as opposed to a net for catching new customers. Consequently, a good B2B solution provider will price their solution as infrastructure.
Why this model works for B2B companies
B2B companies don’t want to pay commission for using infrastructure. They want to invest in infrastructure as a foundation for the digital transition. That’s why resource-based pricing works best. It allows B2B companies to take advantage of economies of scale (the ecommerce store can process massive amounts of revenue) without getting taxed for their ecommerce success.
Think of it like this. In the case of brick-and-mortar retail, the construction firm charges for the construction of the building—but they would get laughed out of town if they wanted a percentage of every sale that happens inside the building. There may be ongoing building maintenance, but that pricing is tied to the resources consumed in maintenance, not to the revenue generated inside the building.
This is the model we recommend for manufacturers who are looking for an ecommerce solution. (Hint: it’s also our pricing model!)
Moving forward: Case study
Relationships are already in place when you choose to launch B2B ecommerce. What does this look like in real life? Download this case study on Blount International to find out. Blount’s distributors, dealers, and division managers all wanted ecommerce. Within 90 days of launching their Corevist Commerce project, Blount had the solution that everyone wanted.