Business plan and business model, what's the difference?
Business model and business plan are two other terms that often need clarification due to their close-sounding names. Again, just like the terms we covered in our previous post, they are closely related but are entirely separate.
In short, a business plan describes what a business sets out to do, and the business model details how it will achieve its goals.
A business plan may include the following:
A business plan is critical for obtaining funding from financial institutions and investors. You can draft one on your own using widely-available templates or contract a service.
A business model outlines what steps the business will take to achieve its goals. Aside from monetary details about the product, the business model also describes how the company will run from partnering to marketing. These goals should all align with the company's business plan and vision for profitability.
A business model may include the following:
As the market evolves, so should the business model. Successful businesses frequently review and update their business model to anticipate current and future customer needs.
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Unless the type of service or product is groundbreaking, most businesses can borrow elements from existing business models and tweak them to suit their operations. Many are available. A few standard business models include:
Franchise - Allowing others to build their businesses using an existing brand.
Examples: Subway, KFC
Freemium - Lets the user access the service's basic features for free and charges for advanced functions. It's often closely tied to subscriptions.
Examples: Google Drive, Spotify, many mobile apps
Subscription - Perpetually generates revenue through recurring payments.
Example: Microsoft 365, Netflix
Marketplace - Provides a centralized platform for merchants to sell their items. It generates revenue through commissions, listing fees and other streams.
Examples: Amazon, eBay, Uber Eats