What Is Market Demand and How To Calculate It - Shopify Malaysia (2024)

Excited about a new product idea but unsure if you're the only one who thinks it's a good idea?

Sometimes ecommerce entrepreneurs need more than a gut check to prove their business venture is viable. Whether it’s for your own reassurance or to build a strong case for a business funding application—or something else entirely—knowing the supply and demand in your niche is critical to informing your business plan.

Determining demand does more than confirm there’s an audience for your product: it informs pricing strategies, marketing initiatives, purchasing, and more.

What is market demand?

Market demand is the total quantity of a product or service that consumers are willing and able to purchase at a given price and within a specific market. It represents the collective desire and purchasing power of potential customers. Market demand is influenced by factors such as consumer preferences, income levels, population demographics, and overall economic conditions.

Total market demand can fluctuate over time—in most cases, it does. This could be due to a variety of factors, some seasonal and predictable, others more out of our control, like a natural disaster or even a pandemic. Sometimes the entire demand curve shifts.

When more people want a specific type of product, this is an increase in market demand and prices typically go up—more people want it and more people are willing to pay for it. But when market demand decreases, prices typically follow suit. It gets more complex than that, but we’ll get into it later.

One common business mistake is not considering market demand for your venture, especially when it comes to product development. You don’t want to invest too much capital in products that no one will buy—sitting stock eats at your profits and takes up warehouse space. You also want to account for economic growth as well.

On the flip side, you also want to make sure you always have enough to serve your customer base. Out-of-stocks are costly issues and could spoil your chance to snag a new lifelong customer

What is the difference between individual and market demand?

As you might guess, individual demand refers to a single person or household, while market demand generalizes trends for many individuals in a particular segment. An individual who is passionate about dogs is more likely to pay more for a dog product than someone who has an average or minimal interest level. That individual’s preferences might not reflect the trends of your entire target market. General market demand is also often referred to as aggregate demand.

So why is this important? It’s important to understand that when you do your own market research to estimate demand, you need to survey many individuals—not just the individuals who have the most passion for your industry or product. If you forecast based on individual demand, you might have bad data and make yourself vulnerable to significant losses. Market demand is basically a bunch of individual demand data points put together.

It's critical to keep an eye on the demand curve over the course of the year so you can adjust your business strategy appropriately. When demand increases, this is often an opportunity to raise a given price of your products, but you don't want to raise prices so much that your customers jet to the competition.

What’s a market demand curve?

The market demand curve is a visualization of demand based on product pricing. Essentially, you map all of the individual demand inputs onto a line graph to create the market demand curve.

On the y-axis, you have the different price points. On the x-axis, you have the number of times the product has been purchased in a given time period at that price point. You’ll have several lines, one for each individual, that typically slope downward. This is because when a product is priced higher there's usually a shift in demand, as people are likely to buy less of it. On the flip side, the supply curve slopes upward. With any truly competitive market, there will always be ebbs and flows of supply and demand.

2 market demand examples

Measuring market demand on ecommerce channels

Cinnamon and Jason Miles’s Liberty Jane Clothing brand was born out of first-hand market research—their daughters. They started designing and creating doll clothes and testing ideas at home. They then took the ideas outside the home to get a better idea of what market demand could look like in the real world. “We would go to dance classes and Brownie troop meetings and all the mums and daughters would say, ‘Where did you get that?’ and ‘How can I get it?’” Cinnamon recalls.

Eventually, they tested even larger waters, getting started with selling on eBay way back in 2008. Just 18 months later, they began publishing the patterns as an additional revenue stream. Now, they’ve taken advantage of that increase in demand to create a thriving ecommerce business that brings in as much as $600,000 per year.

Read more: What is a Vertical Market and Why Should You Care?

Finding a product with stable demand

While some products are seasonal, and thus experience fluctuating demand, others are more level year round. One example is matcha—and that was one of the reasons some of us here at Shopify experimented with selling matcha online. In just three days, our store did more than $900 in revenue.

We looked at Google Trends to see that the product was emerging in popularity and paired that with additional market research to validate demand. Because matcha isn’t a seasonal product, we were able to assume that demand would remain steady.

An example of using Google Trends to better understand aggregate demand of a given product.

Read more: What Is Product Development? Learn The 7-Step Framework Helping Businesses Get to Market, Faster and Easier

How to find market demand

While 1:1 conversations with real people can provide a ton of valuable insights, there are ways to get additional data and make this process more valuable and streamlined.

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

1. Use search engine optimization tools

Let’s consider our SEO tools. Keyword Surfer is a free Google Chrome add-on from Surfer SEO that lets you get insights from search engine result pages (SERPs) directly—no dashboard or login required.

It gives you search volume, keyword suggestions, and estimated organic traffic for all ranked pages. You can get a lay of the land before doubling down on a product idea inspired by search trends.

You can also find inspiration in Google Trends by typing in keywords, phrases, and topics to see how frequently users search these and related terms. You can filter by time period, country, and even city. It’ll also reveal where those searches are trending.

Much like the trending countries, the specific cities searching for our potential product give us insight into the distribution of interest and can give you insight into where you should focus your marketing efforts should you decide to move forward.

Check out Google’s “recently trending” page for emerging topics. Here, we can see there’s been some interest in phones. Ecommerce entrepreneurs might look at that as a way to drill down further into iPhone accessories specific to this model.

Now we’ll head over to Google Keyword Planner. (You’ll need to open a Google Ads account, but it’s free to do so. Creating an account now will ultimately be useful for when you launch your ecommerce business.)

Keyword Planner allows you to search for keywords to determine the average monthly search volume on Google for that term and related search terms. If we type in “iPhone accessories,” Keyword Planner gives us a whole list of similar keywords that can serve as inspiration for product ideas and validation for market demand. Fewer searches likely indicates less demand.

For your own market demand research, use the targeting settings to get data from your intended market. You want to make sure you’re targeting the countries you plan to sell to.

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

• Long-tail keywords. Long-tail keywords are keywords that are made up of three or more words. You’re not just looking for long-tail keywords, but long tails that are closely related to your product and niche. For example, “hdmi to lightning cable” comes up in our iPhone research.
• High search volume. This can be subjective. However, you want to look at long-tail keywords that have a decent search volume each month. Higher search volume means more people are looking for your potential product. This can start to give you a good understanding of how in-demand your product is.
• Competition. This column refers to how many other people are actively bidding for and competing to show up in queries related to that keyword. Low competition generally means that it would be easier to rank for these keywords and cheaper to purchase ads based on these keywords.

There is no minimum number of relevant searches per month we would recommend, but it’s important to recognize the current potential. It’s also relative to other product ideas and keywords.

Although Google sees its fair share of traffic and queries, it’s not the only place to learn about market demand. Enter social listening.

2. Use social listening tools

Social listening involves aggregating data from social media conversations about products, industries, brands, etc.

Many tools allow you to filter conversations, target specific geographic locations, and pull summarized analytics reports you can use in combination with other data. Each tool works differently but they all accomplish the same thing when it comes to researching market demand.

Essentially, you’ll enter a few keywords and the tool will pull social media posts that mention or are relevant to that keyword. You can see what the sentiment is, where people are talking about it, and even what they’re actually saying about it.

But market demand is about more than just calculating interest in a product. It’s also about understanding how much of a product your market will purchase and at what price point.

Look at public information about product sales—industry reports, case studies, etc. A good old-fashioned Google search is also a great starting point. We searched “how many people purchase iPhones?” and found this data from Statista:

If we were to go the iPhone accessories route, we could use this number as a starting point to estimate the potential market demand, and then drill down further into accessory data to get a better estimate.

Now we need to look at pricing. Find what your competitors are selling the same or similar products for. It’s a good idea to check out a range of competitors here, both direct-to-consumer brands and those that can be found on other online marketplaces. These are important data points to note.

How do you calculate market demand for a product?

Ready to put all this information to work? Let’s crunch some numbers in a hypothetical example.

We’ll go back to the iPhone accessories idea—we want to sell “Billie Eilish iPhone cases,” which was another one of our long-tail keywords we found in Google’s Keyword Planner.

A quick look on Google Shopping shows that these phone cases go for anywhere from less than $1 to as much as $25 each These are important data points.

Now, we look at individual demand. How many Billie Eilish iPhone cases do people buy and at what price level?

Riley, our first customer, likes to switch out her phone case frequently—and she also breaks it a lot. She typically buys a new iPhone case every month—over the course of a year, six of those feature Billie Eilish. Our second customer, Sandra, makes her cases last longer, so she only buys two a year. Both of those are Billie Eilish.

However, as we adjust the given price, we also influence both Riley and Sandra’s behavior. As prices rise, both will likely purchase iPhone cases less frequently as consumer income is limited.

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

Notice how as prices go up, demand goes down. That’s pretty much universal for all products and all markets (though there are always exceptions). To get an idea of total market demand, you’d repeat the above process for each customer.

Learn more: How to Start a Phone Case Business

Bringing it all together

It’s always great to be excited about yoursmall business ideas. It’s equally important to logically and objectively analyze the viability of your product by determining whether there’s aggregate demand for it. When you understand market demand, it’s easier to accurately forecast so you don’t fall victim to purchasing too much or too little inventory. Happy researching!