What Is a Business Model?

A business model is a formal outline of a company's revenue strategy, products, market and desired course of growth. It outlines and identifies how a company converts its products and services into revenue. Business models vary greatly from company to company based on its products and market. However, they generally provide details on the company's products, markets, utility, uniqueness and vision.

A business plan serves as a blueprint for a company’s executive board. The plan describes the concept of the business, specifically its products and the markets it serves. It highlights what the company produces, sells and what businesses it sells to. Standard plans also elucidate the company’s competitive advantage and highlight crucial financial points, including the company’s sales, cash flows, return on investment and profits.

Business models include detailed financial plans to create an understanding of the company’s foundation and its purpose for existing in the marketplace. The value of highlighting the company’s finances and resources is to formulate a purpose and vision for the business.

In addition to these key highlights, a typical business model also identifies why customers purchase the underlying company’s product or service. Standard business models identify specific customer targets, competitors and associated market trends. Sound business models also highlight the company’s legal form operation, the formation date, principal owners and key personnel.