Do you want to know the difference between a business model and a business plan? If YES, here is a detailed comparison and analysis and how each is used.
A business plan and a business model look amazingly similar like two peas in a pod, but they are equally different, just like two peas in a pod. They are both part of each other but play different roles thus making the line between them seem dim.
A business plan and a business model both contain marketing strategies, customer retention strategy, revenue generation strategies, and overall, they are used to outline the vision of the company. So what then differentiates a business plan from a business model and how can you make a clear distinction of both?
Business Model Vs Business Plan
What is a BUSINESS MODEL
A business model is a company’s outlined plan for making profit. It identifies the products or services the business will sell, the target market it has identified, and the expenses it anticipates. A business model also shows the destination of the business, how it is meant to work, and what it is meant to become.
A business model ascertains how your business makes money. It identifies the services that your customers value and shows how funds are generated for the services your business renders to your customers. A small business can have more than one method of generating income, and it is the duty of the business model to simplify the money process by focusing on the largest income generator.
For instance, a gas station sells gas to customers, but it also provides other services such as a car wash, lube station, etc. The business model only recognizes the majority income generator, which is the sale of gas. Therefore, the business model will reflect the sale of gas to the customer, which generates income at the time of the customer’s purchase.
The business model summarily simplifies and makes revenue-generation easy to understand by focusing on the key generator, highlights exactly how you intend to acquire, retain, and service your customers. The business model can come in different distinct models like:
- Franchise model
- Direct sales model
- Advertising model
- Subscription based model
- Lowcost model
- Freemium model
- Affiliate model
- Production model
The business model is basically at the center of the business plan, as it describes how the company is positioned within its industry’s value chain, and how it organises its relations with its suppliers, clients, and partners in order to generate profits. The business plan translates this positioning in a series of strategic actions and quantifies their financial impact.
What is a BUSINESS PLAN
A business plan is a formal written document that contains business goals, the methods on how these goals can be attained, and the time frame within which these goals need to be achieved. A business plan acts like a GPS. It shows you the roadmap of how you intend to get to your destination as a business person. It highlights the market opportunities you want to take advantage of, the existing competition, the strength and experience of your team, a detailed description of the products and services you intend to offer, and a roadmap that shows exactly how you intend to execute your plans in the market.
A business plan is a document presenting the company’s strategy and expected financial performance for the years to come.
The business plan provides the details of your business. It takes the focus of the business model and builds upon it. It explains the equipment and staff needed to meet the details of the business model. It also explains the marketing strategy of your small business, or how your business will attract and retain customers, and deal with the competition.
Furthermore, the business plan explains the financial stability of your small business at a particular point in time, as well as in the forecasted future. Overall, the business plan supports the business model and explains the steps needed to achieve the goals of that model
The business plan pays close attention to your goals, projects the cash flow, profits or losses, and ultimately shows how long and what would be required to enable the business break-even.
A sample structure of a business plan is seen below:
- Executive Summary
- Business Description
- Service or Product Line
- Market Analysis & Strategies
- Organization & Management
- Funding Request
- Financial Assumptions
- Financial Projections
Differences Between a Business Plan and a Business Model
Some of the major differences between a business plan and a business model are outlined thus;
- A business model aims at highlighting the profit making potentials of a business, while a business plan highlights every aspect of the business.
- The business plan explains in details the steps needed to achieve the goals of your business model.
- Another difference is that business plans are usually written at the beginning of a business or a business initiative, while a business model is relevant at any time, and can be written at any time.
- Again, business models are less expensive to put together, and may represent a fictional future goal. As a goal, they may be both complete and entirely unprofitable or even infeasible, quite unlike your business plan.
- A business model is centered around Value; while business plan is centered around Resources. The business plan thus lays out how to manage these resources over time to materialize the business model, grow and scale the business.
- A model explains how you will make money: for example, by selling advertising, by earning a commission, by adding a markup to services, working with partners, selling direct, charging by the hour, with additional services, etc. While a business defines specific activities, it includes timeframes, budgets, owners, dependencies and impact.