business model v business plan

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Business Plan vs. Business Model

Back to Business Plans

Written by: Carolyn Young

Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.

Edited by: David Lepeska

David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.

Published on February 19, 2023

If you’re starting a business , you have a business model, whether you know it or not. A business model is the foundation of any business idea; it basically outlines how the concept offers value and potential for growth. Essentially, a solid business model ensures that the business will make money.

A business plan , on the other hand, is the business owner’s plan to put that model into action. It’s much more detailed and includes financial projections, objectives, management decisions and further steps.

Still unsure? Have no fear, this handy guide lays out the differences between a business plan and a business model so that you know exactly what you and your business need to succeed.

Business Model

In simple terms, a business model is how the business will make money. Selling ice to eskimos, for instance, is a bad business model. Selling team jerseys to rabbit sports fans, on the other hand, is a solid business model.

The components of a business model are best illustrated by Swiss entrepreneur Alexander Osterwalder’s Business Model Canvas, which is a visual representation with nine sections. Four sections represent internal elements of a business that enable it to function and are related to costs.

Four other sections represent external elements that enable the business to bring in revenue and are related to the customer. The ninth section is the business’ value proposition.

Value Proposition

The value proposition is at the heart of your business model. Your value proposition, which should be no more than two sentences long, needs to answer the following questions:

What are you offering
Whose problem does it solve
What problem does it solve
What benefits does it provide
How is it better than competitor products

Key Activities

Key activities are all the activities required to run the business and create the proposed value. These can include product development and distribution and any other necessary activities.

Cost Structure

The cost structure is a sum of all you’ll need to spend to make the business function. It’s the costs you’ll incur to run the business and bring in revenue.

Key Partners

Key partners are external partners involved in delivering value, such as vendors and suppliers, or maybe a bank.

Key Resources

Key resources are any necessary practical elements that come with a cost. These might include your office space, employees, and equipment like computers.

Revenue Streams

Revenue streams are the ways in which you receive payment from customers. You may have more than one revenue stream, such as via direct sales and subscriptions.

Customer Segments

Customer segments are the groups of people to whom you provide goods or services. In other words, your target market. Maybe your products are aimed at younger women, for instance, or older men. Whatever your target segments, you should build customer personas of each group so that you know how and where to reach them with your marketing.

Customer Relationships

Customer relationships refer to how you interact with your customers to deliver value. Your interactions may be online only, by phone, in-person, or all of the above.

Channels refer to how you reach your customers, such as social media, internet search, direct sales calls, trade shows, and so on.

To Summarize

If you’re just starting a business, the Business Model Canvas is a great way to understand and examine your business model. One thing to remember is that the elements you put in your Canvas will be based on assumptions that will at some point be tested in the market and adapted as needed.

Another thing to remember is that you do not need to do a Business Model Canvas. It’s merely an exercise that can help provide insight into your business model.

Business Plan

A business plan is a detailed document that describes how the business will function in all facets. The key is in the “plan” part of the name. It will specify how you’ll launch your business, gain customers, operate your company, and make money. A business plan, however, is not a static document .

The initial version will be based largely on assumptions, supported by research. As you run your business you’ll constantly learn what works and what does not and make endless tweaks to your plan.

Thus, creating a business plan is not a one-time action – it’s a dynamic and continuous process of crafting and adapting your vision and strategy.

You’ll present your business plan to potential backers, though in recent years some investors have begun to embrace the Business Model Canvas as a tool to assess a business’ potential.

A strong business plan includes eight essential components .

1. Executive Summary

The executive summary is the initial section of your business plan , written last, summarizing its key points. Crucial for capturing investors’ and lenders’ interest, it underscores your business’s uniqueness and potential for success. It’s vital to keep it concise, engaging, and no more than two pages.

2. Company Description/Overview

This section provides a history of your company, including its inception, milestones, and achievements. It features both mission (short-term goals and driving force) and vision statements (long-term growth aspirations). Objectives, such as product development timelines or hiring goals, outline specific, short-term targets for the business.

3. Products or Services Offered

Detail the product or service you’re offering, its uniqueness, and its solution to market problems. Explain its source or development process and your sales strategy, including pricing and distribution channels. Essentially, this section outlines what you’re selling and your revenue model.

4. Market Analysis

Industry Analysis : Research your industry’s growth rate, market size, trends, and future predictions. Identify your company’s niche or sub-industry and discuss adapting to industry changes.
Competitor Analysis : Examine main competitors , their unique selling points, and weaknesses. Highlight your competitive advantages and strategies for maintaining them.
Target Market Analysis : Define your target market , their demographics, needs, and wants. Discuss how and where you’ll reach them and the potential for market shifts based on customer feedback.
SWOT Analysis : Break down your company’s strengths, weaknesses, opportunities, and threats. Detail your unique attributes, potential challenges, market opportunities, and external risks, along with strategies to address them.

5. Marketing and Sales Strategies

Marketing and Advertising Plan : Use insights from your target market analysis to decide advertising channels, emphasizing platforms that best reach your audience, like TikTok over Instagram. Develop a concise value proposition to be central to all marketing, detailing how your product addresses specific needs.
Sales Strategy and Tactics : Define where and how you’ll sell, such as online, in-store, or through direct sales calls. Sales tactics should highlight the customer’s needs, presenting your solution without overly aggressive promotion.
Pricing Strategy : Decide on pricing based on market positioning, whether you aim to be a discount or luxury option. Ensure prices cover costs and yield profit, and position your product in a manner that aligns with the chosen price range. Justify your chosen pricing strategy in this section.

6. Operations and Management

Operational Plan : Outline daily, weekly, and monthly operations, specifying roles, tasks, and quality assurance methods. Include supplier details and order schedules, ensuring clarity on key business functions and responsibilities.
Technology Plan : For tech-based products, detail the development plan, milestones, and staffing. For non-tech companies, describe the technology tools and software you’ll employ for business efficiency.
Management and Organizational Structure : Define who’s in charge, their roles, and their backgrounds. Discuss your management strategy and forecast the development of your organizational hierarchy.
Personnel Plan : List current and future hires, specifying their roles and the qualifications necessary for each position. Highlight the significance of each role in the business’s operations.

7. Financial Plan

Startup Costs : Clearly detail every anticipated cost before starting operations. This will be vital for understanding the initial investment required to get the business off the ground.
Sales Projections : Estimate monthly sales for the first year, with an annual forecast for the next two years.
Profit and Loss Statement : An overview of revenue minus costs, resulting in either a profit or loss.
Cash Flow Statement : Provides clarity on the business’s liquidity by showing cash inflows and outflows over a specific period.
Balance Sheet : Displays the company’s net worth by detailing its assets and liabilities.
Break-even Analysis : Understand at which point revenues will cover costs, helping to predict when the business will start making a profit.
Funding Requirements and Sources : Enumerate the required capital and the sources of this funding. This should also include the purpose for which these funds will be used at different stages.
Key Performance Indicators (KPIs) : Identify the metrics vital for measuring the company’s performance. Use these indicators to spot challenges, understand where improvements can be made, and pivot strategies as necessary. Ensure that each KPI aligns with the business’s objectives and offers actionable insights for growth.

Remember, although the financial section might seem daunting, it is pivotal for understanding the economic feasibility of your business. Proper financial planning helps in making informed decisions, attracting investors, and ensuring long-term sustainability. Don’t hesitate to engage financial experts or utilize tools and software to ensure accuracy and comprehensiveness in this section.

8. Appendices

The appendices section of a business plan is a repository for detailed information too extensive for the main document. This can include resumes of key personnel, full market research data, legal documents, and product designs or mockups. By placing this data in the appendices, it keeps the main plan concise while allowing stakeholders access to deeper insights when needed. Always ensure each item is clearly labeled and referenced at the relevant point in the main document.

As you can see, business models and business plans have some similarities, but in the main they are quite different. Your business model explains the foundational concept behind your business, while a business plan lays out how you’ll put that model into action and build a business.

When you’re starting a business, it’s best to have both, as the work of getting them done involves learning about your business from every angle. The knowledge you’ll gain is likely to be invaluable, and could even be the difference between success and failure.

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Business Model vs Business Plan What’s the Difference?

Free Business Model Canvas Template

January 2, 2024

Business plan, business model, strategies, financial forecasts, and whatnot!

Starting a business means encountering new terms every day, but not exactly knowing when to use what!

Two such terms are business plan and business model. People often use them interchangeably, and it’s okay if you do too. Today we’ll change that so you know which to use when.

In this article, we’ll conduct a thorough business plan vs. business model comparison to understand their meanings and know their purpose.

So, let’s kick-start this journey now.

What is a business model?

A business model is a mechanism that directs how you create, deliver, and attain value in the market; it’s the profit-generating plan of your company.

This involves identifying your value proposition, targeting specific customer segments, defining revenue streams, leveraging key resources, and forming strategic partnerships.

Simply put, it’s how you sell your product to make money.

Components of a business model

The essential elements of a business model are:

Customer segments
Value proposition
Revenue streams
Customer relationships
Key activities
Key resources
Key partners
Cost structure

What is a business plan?

A business plan is a comprehensive document that outlines your entire business operations. It covers everything from launching products and setting milestones to planning an exit strategy, detailing every step of your business journey. A business plan describes what a company does, its vision & goals, and its strategies.

Essentially, a business plan serves as a roadmap for how your business will operate, grow, and achieve success.

Components of a business plan

Here are the core components of a business plan:

Executive summary
Company description
Products and services
Market analysis
Customers analysis
Competitors analysis
Marketing and sales plan
Operations plan
Financial plan

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Four key differences: business model vs. business plan

Now that you know the exact meaning of a business model and business plan, it’s time to understand the difference.

Your business model focuses on optimizing the internal and external company operations to earn maximum profits. It explains your relationship with dealers, distributors, service partners, customers, and target audience.

Conversely, your business plan focuses on how you set business goals, create strategies, make predictions, and manage labor to sustain and scale your business. It also outlines your relationship with your customers, competitors, industry, and the market.

2. Benefits

Adopting the right business model(s) help you:.

Gain a competitive edge

Incorporating a unique business model amazes your audience and attracts them to be your first-time customers. It also provides you with a competitive edge over other businesses in your industry.

Ensure sustainability and scalability

A business model pushes an entrepreneur to have monthly update meetings and plan what the next month should exactly look like. Many businesses shut down due to poor financial management, which is why a business model is required.

From economic storms to unexpected difficulties, a business model ensures both sustainability and scalability.

Inspires trust in investors

Investors know the failure rate of small businesses, which is why incorporating a clear business model provides a sense of security. They will also know that you have a strategy and what your profitability expectations are for the upcoming years.

Writing a good business plan helps you:

Test the viability of your business idea

A business plan defines the target customers and their willingness to pay for your product or service. This way, your business idea will be validated, helping you decide whether to move forward with it or not.

Acquire funding

If you want funds from banks, investors, or other parties, then you’ll require proper financial details like goals, plans, and projections. A good business plan will help you impress investors.

Plan for exit

A business plan includes strategies and a timeline to accomplish any task, which helps in planning your business’s exit too. While handing over your business or closing it directly, meeting the financial goals is also important—which are very specific in the business plan.

Other advantages of writing an ideal business plan include:

Identifying market gaps and threats
Organizing and planning business processes
Forecasting financial estimates and market trends
Creating strategies to achieve objectives

While adopting a business model

First, consider the scalability of your business, then measure the value you offer. List down your competitors, segment your customers, see the market potential, and then choose a business model.

Here are other points to consider:

Aim to receive validation from prospective customers
Modify assumptions to match customer preferences
Focus on the current financial position

While creating a business plan

Answer a few questions first, like where you think your business will be in 10–15 years, what’s your expected income, or what are your projections.

Aim to find factual information through research
Support assumptions through data from customer analysis
Focus on the current and future financial position

Business models

A business model outlines how a company creates, delivers, and captures value. Understanding different types of business models can help identify the best approach for their businesses, ensuring growth. Some of the types of business models are:

Subscription model
Freemium model
E-commerce model
Advertising model
Franchise model

Business plans

Each type of business plan serves a unique role, whether it’s for a startup looking to enter the market, an existing business planning for growth, or a company looking to improve its operational efficiency. Here is an overview of the most common types of business plans:

Startup business plan
Lean business plan
Traditional business plan
Internal business plan

The bottom line

There’s no standard answer for business plan vs. business model; the choice entirely depends on your business’s specific needs and objectives.

Additionally, planning is an ongoing process. You can’t create a business plan or a business model and rely on that for years to come!

So, to keep your business model and business plan updated, explore a business plan app like Upmetrics . It has a business model canvas template, sample business plans, and an AI assistant to help you plan as many times as you need.

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Frequently Asked Questions

Can i write a business plan without a business model.

No, a business plan is like a roadmap for your business—but it also needs direction. This direction comes from a business model. A business model explains how you’ll make money by defining its target market, value proposition, revenue streams, cost structure, and distribution channels. So, writing a business plan after making a business model is advisable.

Is my business model enough to secure funding?

Well, no! For funding an investor would want to know everything about your business like the management team, competitive landscape, industry analysis, financial projections, and more. So, having a business plan for funding is necessary.

When should I create a business model and business plan?

Create a business model and a business plan when you’re starting a new business or launching a new product or service. However, you need to create or alter both documents if there are any shifts in the current business operations.

About the Author

Upmetrics Team

Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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