If you’ve ever started or considered starting a business, you’ve likely heard of the terms “business model” and “business plan.” Nearly everyone uses these two phrases, interchangeably. What they may not realize is that a business model and a business plan refer to two completely different concepts.
In this article, we’ll define each concept in terms you can understand, illustrate the key differences, and provide a few examples of each concept to help you remember. By the end, you should be able to apply each concept as it relates to your own business.
The Difference between “Business Model” & “Business Plan”
Put simply, a business plan is a roadmap, detailing its specific vision, goals, and overarching strategies. It’s about what a business intends to accomplish in the near and long-term future, and the steps it will take to reach those ends.
A business model is about the strategy a business employs in creating, delivering, and capturing value. It’s about how the company turns a profit through its latest and greatest offerings.
So remember the main difference between a business model versus a business plan: a business plan is a roadmap, detailing a business’s journey and direction in the coming years. A business model is the engine or design of the car that will push that business towards profitability.
Definition of Business Model
What is a business model? It’s a company’s strategy for creating, delivering, and capturing value.
How to choose a specific business model
In identifying a business model, it’s important to not only look at what makes a business profitable, but what makes a company’s offerings valuable to a customer, and how that company’s value may differ from its competitors. Ask yourself how your company can best deliver to customers, and which business model may support that plan.
Business model example
Netflix employs a subscription-based business model. Users choose from three streaming plans (Basic, Standard, and Premium), then pay for digital access to Netflix’s library of movies and TV shows each month. Netflix is able to analyze data from an aggregate standpoint, and ultimately make decisions on which type of content to license based on user preferences.
Definition of a Business Plan
What is a business plan? It’s a document or description of a business’s future goals and strategies. When entrepreneurs pitch a startup idea to investors, they usually provide a business plan, because it outlines what a business will do, when, and how it will do those things.
How to build a business plan
Business plans typically involve:
- An executive summary – What the company is and how it will become successful
- Company description – A brief introduction of your company
- Market analysis – An evaluation of the industry and competitive landscape
- Organization and management – How your company will be structured
- Service or product line – A description of your company’s offerings
- Marketing and sales – A general overview of your marketing strategy
- Funding request – The requirements for funding your venture
- Financial projections – Statements that illustrate your past, present, and future financial performance.
- Appendix – A section for providing documents and relevant materials.
For more information about writing your own business plan, check out the U.S. Small Business Administration guide here.
Business plan example
Identifying the types of business plans that are likely to bring a company success can be rather difficult, particularly since companies are not likely to share such proprietary information.
We recommend exploring Bplans for a wide range of business plan examples, from e-commerce internet companies to sport clothing retail shops. You will start to notice that there is no one way to build a business plan: each company articulates their offerings in their own way.
Types of Business Models
Below are just a few of the more popular types of business models adopted by companies around the world, from Amazon to Zoho.
Manufacturers take some raw input and turn it into a finished product. They then sell to a middleman who will distribute for them, or directly to the end customer.
Examples: Tesla, 3M, Cisco
Distributors take a finished product from a manufacturer then resell it to another company or directly to the customer.
Examples: Apple Authorized resellers, auto dealerships
Retailers take finished products from a manufacturer or distributor and sell it directly to the public.
Examples: Target, Best Buy, Walmart
If you’ve ever downloaded an app or used a service online, you’ve likely dealt with a freemium model. Freemium is the offering of certain services or features for free while charging additional for premium features. Typically the free (often referred to as Basic) service has other limitations, such as ads or finite storage. Freemium has become so popular in the modern internet era because of its ability to help companies scale quickly.
Examples: YouTube, Dropbox, Evernote
Subscription models allow companies to charge customers for their services (such as a streaming platform) or products (such as a subscription box). This model is best suited for companies that have high customer acquisition costs, as subscriptions can secure a more reliable and continuous revenue stream.
Examples: Netflix, Dollar Shave Club, HelloFresh
eCommerce companies typically refer to any business that conducts online transactions. These typically involve online marketplaces, which sell a variety of products or services through a single platform.
Examples: Amazon, eBay
Companies always need to drum up hype and desire for their latest offering, which is where advertising agencies and marketing firms come in. Advertising agencies are strictly concerned with promoting and selling products, through print or digital. Marketing firms, on the other hand, provide other services related to the market of a product, such as customer service, service management, or market research.
Examples: Ogilvy, BBDO, Google
Types of Business Plans
Now let’s take a look at the various types of business plans commonly used today.
Startup Business Plan
Startups and other entrepreneurial ventures need to demonstrate value to potential investors and clients. Startup business plans can be helpful documents that illustrate the importance and long-term profitability of the founder’s pitch. These plans may involve product or service descriptions, market analyses, and financial projections. Today it’s not uncommon for businesses to condense these plans into a single page for readability and clarity.
Internal Business Plan
In some companies, the organizational structure is so vast that communicating any major initiative can be easily lost in translation. Internal business plans can help different sectors or departments of an organization better understand the scope of a project proposal. These plans would include the various goals and objectives, financial considerations (particularly the ROI), market analysis, and other relevant information.
Growth Business Plan
While growth is not on every company’s priority list, it can still be a requirement for continued success. As a result, companies that are seeking to grow in a particular field or industry should come prepared with their own plan. Most of these will involve research to support their theories, and the financial information to assure a steady ROI.
Operations Business Plan
Company operations can be a funhouse of varying initiatives and ideas. Operations business plans can assist managers in measuring progress and directing actions towards their more important business goals. They can also help to update certain processes.
Understanding the difference between a business plan and a business model at first appears trivial. But within context, it can help new startups more clearly articulate their strategy for success. It can empower more mature businesses with more direct communication across its disparate parts. The one value shared by both concepts: a company with quick, clear, and direct communication can become far more productive.