Business model vs business plan: What’s the difference between them
06 November 2019
If you aspire to be an entrepreneur, that means you already have some ideas in mind. Knowing what the difference is between a business model and a business plan is going to help you. Each has its own use, so understanding them is important.
Any successful business owner will have to do some business planning. There are a lot of benefits to doing this, and the more organized you get, the better it is going to be for you. In the digital era, you don’t have to do it on paper – you can do it much more efficient using IdeaBuddy, for example, but the better you understand the essence, the higher chance for building a successful plan you have.
Learn below more about this topic in this article created by our team at TMS.
The differences between business model vs business plan
The business model is the foundation of a company, while the business plan is the structure. So, a business model is the main idea of the business together with the description of how it is working.
The business plan goes into detail to show how this idea could work. A business model can also be considered the mechanism that a company has in order to generate profits. At the same time, the business plan also does its part being the way a company can present its strategy.It is also used to show the financial performance that is expected for the near future.
Comparing how business models and business plans work to help you in different ways is important. A business model can help you be sure that the company is making money. It helps to identify services that customers value. It also shows the reciprocation of funds for the activity that a business renders to its customers.
Any business can have different ways of generating income, but the goals of the business model should aim to simplify the money process. It does this by focusing on the large income generators.
So, we now understood that a basic business model is a gateway to show how an organization is functioning. A business plan is a document that shows the strategy of an organization together with the expected performance details.
We can find the details of a company when we check its business plan. What it does is offer more info about the business model. It does this by explaining teams needed to meet the demand of the business model. It explains the equipment needed, as well as resources that need to be obtained in order to start creating. Explaining the marketing steps, and how the business is going to attract and retain more customers over the competition, will be part of a model.
Another interesting thing when it comes to comparing business models and business plans is that they cannot function without each other. Just remember this, the business model is going to be the center of the business plan.
When comparing using a business model versus a business plan, we also need to understand each one better in order to draw some final conclusions. One of the first goals of a company could be to define your business model.
The business plan is going to be the detailed part that includes all the information and steps like a marketing plan, organization, products or services, sales plan, and so on. Some useful questions that you can use when developing your business plan are:
- What do we have now?
- What do we want to have in the future?
- What do we need in order to be there?
The business model is a structure that a company uses in order to build its value. It simplifies the organization down the essence and helps in achieving success or managing any kind of challenges that can appear.
In simple terms, business models and business plans are really connected. A business model is a way you make money. Maybe you are selling products, or maybe you are selling services. In the end, what you are doing is to add some value and sell it for a certain price. The goal behind this is to obtain a profit of the sale of that particular product or service.
Any business model has these elements:
- The business concept is given by the opportunity you attack. It usually has the ideal customer described, the added benefits that your product or service brings, the product or service and how you are going to get them to the end consumer.
- The value chain position refers to the activities that need to be done to get from you until the end-user.
- The customer value is an estimate of the benefits that your customers receive when they purchase your service or product.
- The revenue sources together with the cost drivers that are showing all the activities costs.
- The competitive advantage that shows the state when a customer is perceiving your products or services as better than the competition.
Business Models Examples
Understanding what business models and business plans have in common means that we need to see some examples. Every company should have a document that shows how they are approaching customers and what real value that they bring. This is why seeing some business models can be a good thing in order to understand it better. See the business model strategy that can be used by different companies in the following.
The business model of production
This is one of the simplest models. It relates to the idea that the company sales the products and the services it produces. The company must make enough sales in order to cover all its costs.
This is another old business model that has been used for quite some time. The basis of this model focuses on creating content that people want to check and then displaying it in front of them.
Recommendations are some of the most powerful sales performers. They work great with products that need recommendation in order to be sold.
A business model based on commission (or distribution):
The company becomes the middle man between a seller and a buyer. It works by getting a cut of every sale that it helps generate. This business model does not have many risks, so, therefore, it is also less profitable.
Razor and blades
This business model focuses on products that need to be replaced often. From razors to paper, and so on. In general, we are talking about products that are sold at a very high markup.
This affiliate business model relates to the advertising model. It has some differences and is used mainly online. It uses links that are embedded in content forms that act as advertising visuals.
Another old and popular business model is the franchise model. You can sell the right to use your business model in exchange for some percentage of the revenues.
Ending thoughts on business model vs business plan
In conclusion, business models and business plans are subjects that any entrepreneur should consider and take the time to understand. They both help a business to grow. Using the right one means that your company can have a clearer process and better products and services.
If you enjoyed reading this article on business model vs business plan, you should check out this one about Steve Jobs leadership style.
We also wrote about a few related subjects like accelerator vs incubator, startup funding stages, how to value a startup, IPO process, IPO lockup period, risk assessment matrix, business process modelling and business model innovation.