“A goal without a plan is just a wish,” wrote famed French author and aviator Antoine de Saint-Exupéry. These words ring especially true in modern business planning. As an entrepreneur, planning is a skill that can help ensure your success.
Business models and business plans are both integral aspects of starting a business. But what are the similarities and differences between the two, and when is the right time to think about each for your company? Here’s a breakdown.
Business model vs. business plan: What’s the difference?
A business model is a company’s core framework for operating profitably and providing value to customers. They usually include the customer value proposition and pricing strategy. A business plan outlines your business goals and your strategies for achieving them.
The two documents have a few critical differences, namely their structure and application. But the topics they deal with—such as a company’s finances, goals, and operational framework—are largely the same.
- How they’re similar: Both business models and business plans provide an in-depth description for how a company will generate profits.
- How they’re different: A business plan includes financial performance details relevant to both internal and external stakeholders, such as investors, lenders, or potential business partners. Alternatively, a business model describes your value proposition—what product or service a business will offer and why customers should buy it—as well as the target market.
- How they’re similar: Both business models and business plans include overarching information about how a company plans to operate, including components such as distribution channels and management structure.
- How they’re different: Business models explain the fundamental structure of a company, such as how it plans to create and deliver value to customers, while business plans get into the actionable details of how to achieve a company’s operational goals.
- How they’re similar: Business models and business plans are used to outline the goals, strategies, and operations of a business.
- How they’re different: A business plan generally incorporates a business model, explaining how the model should be implemented and executed to achieve the business's goals.
4 examples of business models
There are dozens of different templates that you, as a business owner, can draw from when building out your operation. Here are four examples of basic business models:
One of the most common retail business models, brick-and-mortar, includes a traditional physical storefront (or a pop-up shop) selling either business to business (B2B), in the form of wholesale goods, or business-to-consumer (B2C). Although overhead such as rent is a consideration in this model, physical locations offer the competitive advantage of tapping in-person customers and building brand awareness through exposure.
2. Direct to consumer
Direct to consumer (D2C or DTC) is a retail model that allows your business to sell straight to customers, rather than going through a third-party retailer such as Amazon. There are numerous benefits to D2C, including higher profit margins because you don’t have an intermediary taking a cut. However, the main disadvantage of D2C is that you have to develop your own customer base without the help of an established platform.
Projections indicate that the subscription ecommerce market has boomed in recent years and is set to hit nearly $900 billion in 2026. The subscription business model includes charging customers a recurring fee for a good or service—anything from home-delivery meal kits to media streaming. Subscription services are dependent on customer relationships and customer loyalty, but they can offer businesses a more predictable revenue stream.
Under a so-called freemium model, consumers can access part of the business’s goods or services free of charge, but must pay to receive unlimited access to everything the company has to offer. Examples include many media organizations, such as The New York Times, which offers several free articles before requiring a subscription, or audio streaming service Spotify, which has a free version with ads, as well as a paid version without.
What's in a business plan?
A comprehensive business plan details many aspects of your company, including everything from marketing strategies to finances to the legal ownership structure. Here are a few key sections to include when writing your business plan.
- Executive summary. The executive summary includes your mission statement, an explanation of your core values and goals, a brief company history, and descriptions of the products or services you plan to provide to a potential or existing market.
- Organizational structure. Management hierarchy, as well as their roles and responsibilities, would be included in this section.
- Marketing and sales. How do you plan to market your offerings? Who is your target market? What is your pricing strategy and how does it compare to that of your competitors? How do you plan to acquire and retain customers? All these questions should be answered in this section.
- Expected financial performance. This includes projected revenue streams, cash flow management, cost structure, expenses, and anticipated profitability. It typically covers from one to five years in the future.
- Business operations. This section covers everything about the day-to-day running of your business, including your storefront (if you have one), inventory management, supply chain, and production.
Business models vs. business plans FAQ
Which comes first, a business model or business plan?
How can a company test and validate its business model before creating a business plan?
Market research, financial modeling, and even seeking out expert advice or consulting are all ways to review and validate your operation’s business model before developing a business plan.
How often should a company review and update its business plan?
A business should be prepared to update its business plan dynamically, based on changes in the market, shifts within the operation, or new investment or opportunities. Many businesses update their plans annually