What is Market Demand and How to Calculate it? [+ Examples]

A fresh product idea has you excited, but you're not sure whether anybody else agrees with you.

When determining if their business idea is profitable, ecommerce entrepreneurs sometimes need more than a gut feeling. Knowing the supply and demand in your area is critical for developing your business strategy, whether it's for your own confidence, to make a compelling argument for a business finance proposal or something altogether else.

More than just confirming that there is a market for your product, demand analysis also influences price plans, marketing strategies, buying decisions, and other things.

What is market demand?

Market demand measures how strongly consumers feel about a product over a certain period. The number of people looking for your product, their willingness to pay for it, and the quantity of your product that is offered to consumers by both your business and your rivals is some of the elements that affect market demand.

Demand on the market may, and frequently does, change over time. Numerous variables, some seasonal and predictable and others more beyond our control, such as a natural catastrophe or even a pandemic, might be to blame for this. The whole demand curve might change at times.

There is an increase in market demand, and prices typically rise when there is a greater demand for a certain kind of product. More people desire it and are prepared to pay more money for it. However, prices typically increase in response to a decline in market demand. It's more complicated than that, but we'll cover it later.

One typical business error is failing to evaluate the market demand for your project, particularly when it comes to product creation. If you spend too much money on products that no one will purchase, your revenues will suffer and your warehouse space will be consumed by sitting stock. You should also consider economic development.

On the other hand, you also need to make sure that you always have enough to satisfy your clientele. Out-of-stocks are an expensive problem that might ruin your opportunity to gain a new, loyal client.

What is the difference between individual and market demand?

Individual demand, as one would expect, pertains to a single person or family, while market demand generalises tendencies for many individuals in a certain category. An individual with a strong interest in dogs is more likely to pay more for a dog product than someone with a weak or average degree of interest. The tastes of that person may not be representative of the trends in your target market as a whole. Aggregate demand is another name for general market demand.

So, what is the significance of this? It's crucial to realise that you need to poll a wide range of people, not simply those who are most enthusiastic about your business or product when you do your own market research to assess demand. If you base your prediction on individual demand, you may have faulty data and put yourself at risk for big losses. In essence, market demand is a collection of individual demand data points.

It's critical to monitor the demand curve throughout the year so you can modify your business plan as necessary. It is often possible to increase the price of your products as demand rises, but you don't want to do so to the point where customers start switching to your rivals.

What’s a market demand curve?

The market demand curve represents demand as it relates to the product price. To generate the market demand curve, you essentially transfer each demand input onto a line graph.

The various pricing points are shown on the y-axis. The number of times the product has been bought at that price point during a certain period is shown on the x-axis. One line will be drawn for each individual, and they will all typically trend downward. This is because demand generally changes when a product's price is raised since fewer people are likely to purchase it. On the other hand, the supply curve is upwardly sloping. The balance between supply and demand will constantly fluctuate in any really competitive market.

3 market demand examples

Testing market demand at a local level

Woodlot is a body care and lifestyle business with origins in Vancouver and is a Shopify merchant. Sonia Chhinji and Fouad Farraj recognized their hometown would make the perfect testing ground to see if there was any market demand and what that demand would be—both locally and globally—when they wanted to try out a new line of candle products.

Inbound leads started to trickle in after they conducted local area research and created a list of stores they wanted to approach for wholesale. They were able to estimate demand for their business as a whole and find strong markets outside of the Vancouver region thanks to this first demand.

“It makes sense to start in your home city—then it's one where you're going to receive a lot of attention, a lot of support, and also a lot of opportunity, but ultimately, you're going to need to spread, and develop,” says Sonia. We were able to import that neighborhood concept to Toronto, Montreal, and then other cities in the US and Canada.

They focused their current product line on candles after discovering via research that they were their most sought-after and bestselling item.

Measuring market demand on ecommerce channels

Liberty Jane Clothing and Jason Miles created Jane Clothing using their children as primary market research. They began making doll outfits, developing new ones, and experimenting with them at home. After that, they applied the concepts outside the home to obtain a clearer sense of what actual market demand may entail. Cinnamon remembers that when they attended dancing lessons and Brownie troop meetings, all the mothers and children would ask, “Where did you get that?” and “How can I obtain that?”

They eventually ventured into even deeper waters, beginning in 2008 with eBay sales. They started releasing the patterns about 18 months later as an additional source of income. They've now capitalized on that rise in demand to establish a successful e-commerce business that earns up to $600,000 annually.

Finding a product with stable demand

While the demand for certain products varies seasonally due to their seasonality, this is not the case for all of them. Matcha is one such instance, which is why several of us at Shopify tried our hands at selling matcha online. Our shop generated more than $900 in sales in only three days.

To confirm demand, we combined Google Trends' indication that the product was becoming more popular with additional market research. We were able to assume that demand would stay constant since matcha is not a seasonal product.

An example of how to use Google Trends to better comprehend the overall demand for a certain product

How to find market demand

While having one-on-one interactions with actual people may provide a wealth of additional information, there are other methods to get more information and make this process easier.

There are two great places to “listen” to consumers: search engines and social media.

1. Use search engine optimization tools

Let's take a look at our SEO tools. Without using a dashboard or logging in, Keyword Surfer is a free Google Chrome extension from Surfer SEO that allows you to instantly get information from search engine result pages (SERPs).

It provides you with search volume, keyword ideas, and projected organic traffic for all pages that are rated. Before investing more money in a product concept influenced by search patterns, you may acquire a sense of the market.

By entering keywords, phrases, and themes in Google Trends, you might get ideas by seeing how often people search for these and similar terms. You have the option of filtering by region, time, or even city. Where those searches are trending will also be shown.

The individual cities looking for our prospective product provide us with insight into the distribution of interest, just as the trending nations do, and may provide you with insight into where you should target your marketing efforts should you decide to continue further.

For upcoming themes, look at Google's “recently trending” page. We can tell that there is some interest in phones here. That might be a method for ecommerce business owners to go further into iPhone accessories exclusive to this model.

We'll go to the Google Keyword Planner right now. (You must create a Google Ads account, which you may do for free.) Making an account now will be helpful once your e-commerce business is up and running.

You may search keyword terms on the Google Keyword Planner to get the average monthly search volume for a certain phrase and its related terms. When we enter “iPhone accessories,” Keyword Planner returns a long list of related keywords that may be used as both a source of new product ideas and evidence of market demand. Less demand is probably indicated by fewer searches.

Use the targeting options to get information from your target market for your own market demand research. Make sure you are focusing on the nations you want to sell to.

In your list of results, there are three things to pay attention to:

• Long–tail keywords. Keywords with three or more words are known as long-tail keywords. Not just any long-tail keyword will do; you want one that is specifically relevant to your niche and product. In our research on the iPhone, for instance, “hdmi to lightning cable” appears.
• High search volume. This could be arbitrary. However, you should focus on long-tail keywords with a respectable monthly search volume. More people are searching for your potential product, which indicates a higher search volume. This might help you get a fair idea of how popular your product is.
• Competition. How many other people are actively bidding for and competing to appear in queries connected to that keyword is shown in this column. Low competition typically indicates that it would be simpler to rank for these keywords and less expensive to buy advertising for them.

There is no suggested minimum for relevant searches every month, but it's critical to understand the potential that is already available. Additionally, it relates to other keywords and product keywords.

Google receives a decent amount of traffic and queries, but it's not the only source to find out what the market is looking for. Introducing social listening

2. Use social listening tools

Aggregating data from social media discussions regarding goods, products, companies, etc. is known as social listening.

Numerous tools let you filter chats, target certain areas, and get condensed analytics reports that you may combine with other data. When it comes to analyzing market demand, each instrument achieves the same result while having a distinct mode of operation.

In essence, you will type in a few keywords, and the application will retrieve social media posts that reference or relate to those keywords. You can see how people are feeling about it, where they are talking about it, and even what they are saying.

But determining consumer interest in a product is just one aspect of market demand. Understanding how much and at what price point your target market will buy a product is also critical.

Look for publicly available data about product sales, such as in market research papers and case studies. An excellent place to start is a regular Google search. We looked up “how many people purchase iPhones?” and found the following data on Statista:

Using this number as a starting point, we might estimate the potential market demand for iPhone accessories and then go further into the accessory data to get a more accurate estimate.

We now need to look at the cost. Find out what your competitors are charging for the same or comparable products. Here, it's a good idea to research a variety of competitors, including those who sell directly to consumers and those that may be found on other online marketplaces. This data should be taken into consideration.

How do you calculate market demand for a product?

Are you prepared to put this knowledge to use? Let's conduct some calculations for a fictitious case.

Let's return to the notion of iPhone accessories. One more long-tail keyword we found in Google's Keyword Planner is “Billie Eilish iPhone cases,” and we want to offer them.

These are significant data points, and a simple look on Google Shopping reveals that the prices for these phone cases range from less than $1 to as much as $25 each.

Now, let's examine each person's demand. How many and at what price do people purchase Billie Eilish iPhone cases?

Riley, our first client, constantly changes her phone cover, and she also smashes it a lot. She typically buys a new iPhone cover each month; in a calendar year, she has purchased six with Billie Eilish on them. Sandra, our second client, purchases fewer cases each year because she makes them last longer. They are both Billie Eilish songs.

However, when we change the offered price, Riley and Sandra's actions are also affected. Given the restricted consumer budgets, both are likely to purchase iPhone cases less often as costs rise.

Here’s what that looks like for a full year:

Observe how decreasing demand occurs as prices rise. For all products and marketplaces, that is essentially universal (though there are always exceptions). You'd repeat the procedure above for each client to get an idea of the total market demand.

Bringing it all together

Being enthusiastic about your business idea is usually a plus. It's equally crucial to analytically and impartially assess your product's viability by establishing if there is a general demand for it. Understanding market demand makes it simpler to create precise forecasts, preventing you from overbuying or underbuying inventory. Enjoy your research!