As a beginner, there are often some terms or processes that are confused with in a Startup or a Business. When we draw out our planning that shapes the future performance of our intended business, there are certain terms that should be clear in an individual’s mind. There has often been confusion with many business owners when it comes to the terms and concept of ‘Business Plan’ and ‘Business Model’, both are often considered as same, and that’s where the mistake begins. An entrepreneur must have proper knowledge of both these concepts and have their business run accordingly.
According to its literal definition, ‘A business plan is a written document that describes in detail how a business usually a Startup defines its objectives and how it is to go about achieving its goals. A business plan lays out a written roadmap for the firm from marketing, financial, and operational standpoints.’ If we talk about a rough draft that any entrepreneur would have for his/her business, then it would be the Business plan which would be used as a reference for planning and succeeding in the business.
According to the literal definition of the Business Model, it can be defined as, ‘A business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of business model construction and modification is also called business model innovation and forms a part of business strategy.’ The Business Model explains how revenue would be generated by a business, there are various types of Business Models that are followed by businesses. Hence, somewhere the success of your Business would depend on the type of business Model you choose.
Types of Business Model
To entirely understand what a Business Model is, it would be better to understand the various types of Business Models that are out there. Practically, there are too many Business Models in the market, some which are successful and some of which may not derive many results. A few of the best Business Models are as follows.
1. Franchise Model
This Business Model is already well-known in the market. The Franchise Model is one of the oldest and one of the most profitable Business models in the market. The concept of the Franchise Model is simple, a Brand owner can sell the rights to other businesses for using their brand or products in exchange for receiving some profits or a small percentage of their revenue.
2. Affiliate Model
The Affiliate model, being a part of the Advertising Business model is another profit-oriented model adopted widely. In the Affiliate model, the Affiliates earn by the number of views, or the number of clicks, and even by the number of purchases that are made by people through their Affiliate link. However, for having better results in this type of model, an Affiliate must have a well-built platform through which he/she can attract visitors, for example, a website or an email list.
3. The Direct Selling Model
One of the leading business models that has produced great profits for people engaged in them is the Direct Selling Model. Here, the company manufactures the goods, and instead of the supply chain, it directly gets in touch with the distributors and ultimately the customers. The distributors in turn earn the money by creating a customer base.
Major Differences Between Business Plan and Business Model
After understanding the concepts of a Business plan and a Business Model, we can now comprehend most of the differences between the two of them. Both of these concepts have separate roles to play. However, the significant differences between the two are as follows.
1. Structure and Plan
A Business Model is a structure that explains the mechanism through which a particular business would be making revenue in the market. It lays the foundation for all the businesses, without a business model there is no structure of how the money will be earned. If we talk about the Business Plan, then it just provides a roadmap through which a business owner can take ultimate advantage of generating revenue through the Business model.
2. Functioning and Strategy
A Business Model would decide and reflect how a particular Business would function, how the customer would be availing their services or goods, and how the revenue will be generated for the business. The Business model covers all the aspects that are related to the functioning of the business. In a Business plan, we plan and put forth strategies through which the functioning of the business runs smoothly and efficiently.
3. The Common Difference
A Business Model would be adopted by many businesses that are out there. The Business Model would remain the same for each business, there can be no changes made in how the revenue would flow. However, the Business plan which each business would have would be unique or different from their competitors. There are tons of businesses or brands that follow the same particular model but each of them would have a different Business plan, thereby leading to some of them being successful.
Logically, many would believe that a Business Model would have more weightage or importance compared to a Business Plan. However, it is quite the opposite as while pitching the investors or explaining to someone the potential of your business, it is not the business model but the business plan that would carry more significance in the eyes of the investors.
5. A Subset or the Center
A Business Model comes at the center of the business plan. The business model would remain the same even if a Business plan doesn’t exist. However, the entire basis of a Business Plan would be laid on the type of Business Model chosen, in other words, a Business model comes at the center of a Business Plan.
A Business Model describes the revenue structure of a Business and a Business plan talks about the various strategies for making the best use of a Business Model. The various differences between the two are Structure & Plan, Functioning & Strategy, the common difference, Weightage, and being a center or a subset.
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