demand analysis in business plan example

Business Plan Demand Analysis, Four Things to Consider

Small businesses and entrepreneurs use demand analysis to:

• Consider substitute products and services
• Get input from (potential) customers
• Determine what “drives” demand
• Understand what variables affect demand and to what degree

Demand analysis is about challenging your preconceived notions regarding your product/service. A stress test, if you will. A demand analysis will take your idea and start molding it into something that has even higher potential.

As an entrepreneur, you can’t be too stubborn. You have to be flexible. After going through this process, the hope is that you’ll come out the other end with an even more refined idea and a greater chance at success.

Market research and competitive analysis for a business plan

This is the second post on drafting a business plan for your startup. These posts are modeled after the SBA Business Guide .

Want to know how many people are included in your “customer avatar?” Read this post: BUSINESS PLAN DEMOGRAPHICS – DEFINING A TARGET MARKET

Business plan demand analysis of the total market

When first thinking about the market for your product/service, don’t define it too narrowly. Try to think of substitutions that you might not have otherwise considered. No, you might not compete directly with these substitute products, but the presence of substitute products will have an impact on your pricing and demand.

Pricing too high could push customers to these substitute products. Even if that pricing seems in line with your value proposition when compared to direct competitors. But, theoretically, the amount demanded changes (inversely) with the price. A higher price will push customers to consider alternatives. A lower price should result in a higher volume sold.

Further defining the market for my product

As I mentioned in my first business plan post on the topic of demographics, I am working alongside you. I have a prospective product that I would like to explore the viability of, and I am creating a business plan for this product as I write these posts. As a reminder, my potential product is an all-natural hair-thickening topical supplement.

Anyhow, in the previous post, I used “customer avatars” to roughly ascertain the size of my market. I think I was fairly liberal in that estimation. The three of my avatars that were the most detailed totaled approximately 5.2 million people. The avatar that was broader included 6.5 million people.

Want to know what a top-down and bottom-up analysis would say about your market size? Read this post: MARKET SIZE FOR A BUSINESS PLAN – 2 METHODS TO GAUGE IT

Substitute products

As mentioned above, I have to keep in mind that not all of these people will pursue hair loss treatment. Many, will just accept it as a normal part of aging. Others will choose to address the problem but will pursue an alternative treatment method to topical supplements. Some of these alternative treatment methods include:

• Biotin, vitamin D, Viviscal, Nutrafol, Finasteride (Propecia), collagen powder, nutriceuticals, Spironolactone (Aldactone)
• Toupees, hair fibers
• Laser treatments, microneedling, hair transplants, protein-rich plasma injection
• HairMax LaserComb, light treatment

In addition to substitutions, I have to consider the direct competition. The alternatives that are also topical. Those include:

• Minoxidil (Rogaine), rosemary essential oil, pyrithione zinc shampoo, scalp tonic/serum

Obviously, there’s no shortage of alternatives to my prospective product. However, many of these treatments are ongoing and the potential exists for customers to combine them.

After listing these potential substitutions, it dawned on me that there are a couple of different classes of hair loss. I would probably target individuals that are in the early stages and are merely looking for help to slow down and, hopefully, somewhat reverse the initial effects of hair loss.

Another thing that dawned on me when researching substitutions is that it might be a mistake to only consider men when ascertaining the market for this product. Most of the results I found when searching “hair loss treatments” were articles targeted at women.

As I said, I’m taking this journey right along with you. So, I’m refining my idea and picking things up as I go along.

Gathering survey information for your business plan demand analysis

The next steps are mostly statistical. That might give you pause if numbers aren’t your thing.

I really do wish I could provide you with the handiest spreadsheet imaginable to manage the information you find. There are just too many variables, though. Different surveys asking different questions. Not to mention, every industry is going to address unrelated topics. I just couldn’t figure out how to make a one-size-fits-all tool.

What we’re going to do is compile whatever relevant statistical information we can get our hands-on, and interpret what we find. You can input this information into your own spreadsheet if you like

Statistical information, hopefully, can be obtained from a simple internet search. “[your topic/industry] survey results”, or something similar should yield some useful information. If you can’t find relevant info, then you might have to reach out to industry trade magazines or organizations.

As far as how much survey information to collect – there’s no clear answer. It depends, first and foremost, on the abundance of such information. If there is plenty available, then I guess I’d recommend collecting it until you’re tired of doing so. You can always circle back around and search for more specific results if you need to in the future.

What to focus on

Right now, focus on demographics information, substitute product information, and information about motivation (drivers).

This is where having it in a spreadsheet will come in handy. With the numbers in a spreadsheet, you can combine survey information and break it down as needed. Check out my example below to see what I mean.

Survey information about my product

There was no shortage of survey results regarding hair loss. In fact, I grew tired of collecting information well before I was able to read it all.

I must admit, I learned something on this step. I learned that it probably makes more sense to do this research before creating customer avatars rather than after .

This research showed me that hair loss in women is a considerably more prevalent problem than I knew. So, I should definitely not exclude women when trying to calculate the size of my target market. Additionally, I learned a lot more about the age that hair loss starts to affect men and women. Not to mention, a lot of other interesting tidbits related to marketing and substitute products.

I simply typed the figures I found into the cells and tried to organize it in a somewhat easy-to-read format.

To make this information as useful as possible, I also included a link to the survey – in case I wanted to reference it again. Also, I thought it would be useful to make note of the year the survey was conducted. That way, I could note trends, if any existed.

Finally, to top it all off, I put in some charts. Charts can help to illustrate ideas in a way that numbers can’t, sometimes.

Now, I have a nice little foundation of data to build my business plan off of. I also know that there is plenty of other information out there if I want to delve further on a specific topic.

Divide total industry demand into its main components.

Now, you want to start to organize the information you found in a logical manner.

First, isolate the information related to demographics or that which otherwise describes your potential customers to you. You want to break this information up so that you can get an idea of what your potential customers might look like. You should, hopefully, begin to see customer “avatars” take shape.

Yes, I asked you to create avatars in the previous post. As I said above, that was probably premature. It would make more sense to create the avatars with this survey information, then use the census/demographic information to estimate the size of the market based on what you found.

Live and learn…

After you have the demographic information in good order, move on to the “solution” information – if available. This is information that specifies how customers are solving their problem(s) now.

If you’re lucky, this information will join seamlessly with the demographic information you organized above.

Start with the simplest questions (those with the fewest variables) and expound from there.

What if my survey data is inconsistent?

You might run into a situation where you have conflicting information. Or you might find yourself in the fortunate situation where different surveys seem to corroborate the same statistics.

If your information sources don’t jive, you have a couple of options. First, you can move forward with the information you deem to be the most trustworthy. Or, alternatively, you can average what you found. This works well if the differing results are relatively close together. Finally, you can choose to use the data source that is most recent – particularly if your industry is especially dynamic.

All of your numbers aren’t going to jive up perfectly. However, at this point, you are armed with a lot better information than when you started. Better information will ultimately lead to better decisions.

Industry components for my product

Demographics.

For my part, I like to start simple and divide my demographics based on the variable with the fewest options. In this case, the simplest variable only has two choices – men and women.

From there, I used information that I found regarding the percentage of men and women that have had hair loss and have tried treatments.

Next, I break things down further based on the age that men and women started experiencing hair loss. I was fortunate to find information for both genders.

That’s the extent of demographic information I was able to obtain. I would have liked to have found some information regarding income or socioeconomic status. If that information proves to be critical as I move forward with my business plan, I’ll have to circle back around to see if I can track it down.

Once I felt good about my (revised) customer avatars, I moved on to “solution” information.

Want to use data.census.gov to know how big your potential market is? Read this post: CENSUS DATA MARKET RESEARCH AT THE NEW DATA.CENSUS.GOV

Again, thanks to the abundance of information I was able to find, I found similar questions for both genders. The first question was the simplest. It asked if the person with hair loss had done anything to address the problem.

From there, I had a couple of survey questions that explored the alternatives that hair loss sufferers had tried in the past. Additionally, I found results that gave insight into how effective these alternatives were.

When all was said and done, I had the groundwork laid for the ability to know how many potential customers I might have, their demographics, what they have tried so far, and how well those alternatives had addressed the issue at hand.

Here’s what my worksheet looks like after sorting my information into industry components:

Business plan demand analysis of drivers

Hopefully, in your search for survey results, you came across some information that provided insight into the “why people buy” question.

In particular, we’re looking for drivers of sales here. Specifically, what circumstances compel a customer to buy your product/service (or a substitute)? Hint: people usually buy to solve a problem. To avoid pain, not seek pleasure. Or, so I’ve been told…

Insight into what compels your customers to buy will not only be valuable in the drafting of the remainder of the business plan but in all your marketing efforts once you are up and running.

The information about who your customers are (from the previous step), why they buy, and what steps they are currently taking to solve their problems (also from the previous step) will hopefully paint a clear picture for you. A picture that will guide you to a point where you can position your strengths in a manner that will help other people’s weaknesses.

Understanding the drivers of demand for my product

Again, I was fortunate to have an abundance of survey information to draw from. A couple of my surveys not only touched on how hair loss made people feel but also on specific actions that they had taken before the hair loss started.

This information tells me an angle I can take when marketing my product, plus where a lot of my potential customers are going before they start to experience this problem. That place…the hairdresser.

Of course, that’s for women. Though there’s no rock-solid proof that it’s hairstyling that is contributing to hair loss in women, there is enough correlation to make a compelling case. For men, on the other hand, hair loss just seems to be the hand that most are dealt.

But, before we get into that, let’s look at some of the emotional drivers that might compel customers to purchase a topical hair loss supplement…

Drivers for men

On the “men” side I got information about how “worried” men were about hair loss. This told me that most men were, at least, “somewhat” worried about hair loss.

Beyond that, there was valuable information about how hair loss had affected them negatively.

Finally, the most valuable information, to me, was a question of what they would give up to solve this problem (men & women). The answers were encouraging for someone who was hoping to build a business in this industry. Almost half would rather have more hair than more money. Three quarters would give up a prized possession for more hair.

While I acknowledge that I’m not marketing a guaranteed cure to hair loss, that tells me that people are willing to try anything to fix this problem. As I know from my market segmentation analysis, supplementation works for about 1 in 17 people. Not great odds, by any means. But good enough, I hope, to at least try a new product. Especially when the ingredients are all-natural and offer no downside.

Drivers for women

About half had stress prior to experiencing hair loss. That’s a coin flip. It doesn’t mean that the hair loss was caused by the stress (though it surely didn’t help). But it provides insight into what women are feeling prior to and while they are experiencing this problem.

I also included the “What they’d give up” question on the women’s side of the analysis because my source for that information didn’t specify either gender. Plus, it seems feasible that women would feel the same or even stronger. It’s my opinion that society values female attractiveness above male attractiveness.

Finally, we get down to the brass tacks. A potential cause-and-effect situation for the problem I’m attempting to address. The number of women that are currently experiencing hair loss are also (possibly) straightening/heat processing or getting their hair colored on a semi-frequent basis.

This tells me that hairstyling might play a part in a lot of women’s hair loss (this goes back to the pressure to be attractive thing). Therefore, I should consider marketing my product in salons and other establishments that focus on women’s hair.

There’s still a lot of analysis to be done. But, two steps into the process of drafting my business plan, I feel a lot more confident about my understanding of the environment.

Here’s a look at my spreadsheet with the driver information included:

Business plan demand analysis of sensitivity

To this point, the goal has been to make assumptions and get answers. We want to have a better understanding of the environment in which our business will operate. Hopefully, you feel that you’ve accomplished that.

But, we don’t do ourselves any favors by lying to ourselves.

Well, yes. But probably not willingly.

You start off excited about your business idea. So excited that you decide to take the first step (something that the vast majority of people won’t do). You begin to write a business plan. You can feel your idea taking shape. You’ve already refined your idea a bit and feel that by the time this whole exercise is over, there’s no way you can fail. You’ve got momentum and your confidence keeps increasing.

That is all very good. Confidence is key. But, if everything looks rosy, you might be blind to a risk that could put your baby in jeopardy.

So, I don’t want to be a killjoy. But, for the sake of our businesses, let’s take a step back and play devil’s advocate. We need to ask ourselves some tough questions and challenge our assumptions. If we can rise to these challenges, and address them with confidence, our chances of success are that much greater.

Go back through your segmentation and demand drivers and think critically about this information. Some statistics might be a given, without much wiggle room. Others might be misrepresentative of reality. In these instances, tap into your inner cynic.

Make notes of what the worst-case scenario might look like. If you’re using a spreadsheet, like me, maybe use a different colored text. Address things like survey questions that might have been misinterpreted or alternative explanations for results.

Don’t get too down-and-out here and don’t dwell on this step too long. You don’t have to necessarily plan what you would do if these worst-case scenarios came to be. You just need to imagine them so that when the time comes for serious planning, you can take these risks into consideration.

Demand sensitivity for my product

I think my categorization by demographics is pretty safe. It’s rather well established how many men and women experience hair loss. The only thing that I might tweak is the number of men and women who have had hair loss and tried treatment. I lowered those estimates by 20%. It could be that the respondents’ interpretation of “treatment” is to comb their hair a different way or to shave their heads rather than to buy a product to battle hair loss.

Furthermore, what if the number of people that have “done anything” is lower? What if I misinterpreted the question for women that asked: “Do you take medication to prevent hair loss?” Maybe it was 20% of women who actually had hair loss rather than all women? The effect of that would be dramatic.

What if the alternative treatments were more effective than I’ve been led to believe? It could be that the respondents only consider “effective” to be a restoration to a full, thick head of hair? Also, just because they consider them ineffective, it doesn’t mean that they’ll stop using them. They might think that all of their hair will fall out if they stop (which could work in my favor, though). Perhaps they were overly optimistic when it came to supplements? It could be that supplements gave them other benefits, but didn’t make their hair loss any worse – so they considered them “effective.”

Could it be that fewer men are really “(very) worried about hair loss” than I’m led to believe? Are more are “Not worried at all?” Plus, it might be that those who are only “somewhat worried” aren’t motivated to do anything about it.

As far as confidence (love life, making friends, professional life) goes, it might be that that hair loss is a contributor to low confidence, but not the primary driver. Maybe they’re overweight or socially awkward and that’s why they lack the confidence they desire?

As far as “what they’d give up” it could be that the respondents were primed by the hair loss questionnaire to be more self-conscious than they usually are. If it came down to it, perhaps not so many would be willing to part with valuables to solve this problem.

Finally, as far as hair styling being a cause of hair loss in women, it could be that I am wrong. Maybe hair styling has no effect on hair loss. Or, maybe women overestimate how often they heat process or color their hair. It only feels like every day/once every 2-3 weeks. When, in fact, they do it a lot less often.

Okay, that’s enough pessimism. It seems unlikely that every worst-case scenario would be true. But, there’s probably a mix in there between my initial interpretations and the not-so-great ones.

Want to back your business plan up with valuable data? Read this post: GOVERNMENT STATISTICS FOR MARKET RESEARCH VIA USA.GOV

This exercise should help me going forward to make realistic forecasts and assumptions. Which, in turn, should help me be proactive to some of the challenges I might face.

Here’s a final look at my spreadsheet with my worst-case notes in blue:

Business plan demand analysis

This step takes a little bit of thought and a decent amount of research. This is done to give you a deeper understanding of the market you hope to compete in and the customers you hope to sell to.

What other steps would you have taken to refine estimates of demand?

Do you think my demand sensitivity was rational? Or, was I taking it too easy on myself?

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Demand Analysis - Definition, Importance, Steps, Parameters & Example

What is demand analysis.

Demand analysis is a research done to estimate or find out the customer demand for a product or service in a particular market. Demand analysis is one of the important consideration for a variety of business decisions like determining sales forecasting, pricing products/services, marketing and advertisement spending, manufacturing decisions, expansion planning etc. Demand analysis covers both future and retrospective analysis so that they can analyze the demand better and understand the product/service's past success and failure too.

Importance of Demand Analysis

For a new company, the analysis can tell whether a substantial demand exists for the product/service and given the other information like number of competitors, size of competitors, industry growth etc. It helps to decide if the company could enter the market and generate enough returns to sustain and advance its business. 

Demand analysis helps in identifying key business areas where demand is highest and areas which needs attention as very low demand indicates different problems like either the customers are not aware of the product/service and more focus must be in advertisement and promotion or the customer needs are not met by current product/service and improvements are needed or competitors have sprung up with better offerings etc.

• Demand Based Pricing
• Demand-Backward Pricing

Steps in the Demand Analysis

Demand analysis process needs to be done in a structured manner for a particular market and affects the business strategy and decisions. Some of the steps which are to be followed for the analyzing the demand are:

1. Market Selection

Demand is linked to a market. Without knowing the market properly, demand cannot be analyzed. Every business would be operating in a single or multiple markets but it should be clearly known. The first step is understanding the market and knowing the demand trends for the particular product or service.

2. Product/Service category analysis

Next step would be to make sure which product or service is being used to analyze the demand. A company may be having a product portfolio of 20 products. Total demand would not give a picture at an individual level. It may happen that demand is huge for 5 categories and low for the rest of 15 but still overall demand is high. For analysis, the product category has to be selected. e.g. if a company is selling smart devices it needs to select phones or the tablets only for its purpose.

3. Understanding Business Parameters

Demand is never constant across a single year or a time. A less demand in a particular month may not be a sign of an issue with the product line but it may be that due to climate change, the demand of an item like an air conditioner may go low but it may again rise in summer season.

4. Understanding the competitors and partner trends

For an accurate demand analysis, we also need to see what our partners, vendors and suppliers are predicting in the market as they are also in the same market and product category. Also competitors performance and past sales can help us analyze the demand correctly.

Demand Analysis Parameters

The key drivers while determining demand are:

1. Product's own price

Price of the product plays an important role in demand analysis. If the price is high as compared to competitors or what the customer can pay, the demand would be affected.

It can be low or high depending upon the price point of the product or service.

2. Customer income

They buying power of customer would definitely impact the demand of a product. If the product or service is offered at a price point more than the affordability of a customer group then the demand would be low hence customer income needs to be analyzed for demand.

3. Price of competitor goods

As we discussed in the first 2 points about price and buying power, competitor's price adds to the equation and can affect the demand of product/service. If competitor is priced lower then the demand of that particular product would be more and vice versa. It can be different scenario in case of luxury of niche products.

4. Tastes & requirements of the customer

Consumer behavior has be to taken into account. The product or service has to align with the customer's preferences else there would be no demand for the product.

5. Expectations

Sometimes the customer has expectations from a new or existing product based on the overall industry landscape. e.g. if every competitor in the market is offering free warranty service but one company doesn't then most likely it would not be able to meet the customer expectations.

6. Number of customers in the market

The potential market is an important parameter for demand analysis as the customers drive the demand. if the customers are too low then even though the first 5 points are in favor still the demand would never rise as the customer base is too small for a viable business.

Demand Analysis Example

Below is the demand analysis for US restaurant industry (Source: Dun & Bradstreet)

It shows that market activity is highest in East North Central area. The figures are arrived by tracking the annual sales in each region. So for offering a particular product in this market, a company needs to analyze if they can do business in multiple sub-markets with decent demand or focus on sub markets or areas with high demand. Both aspects are part of demand analysis to be done by the company based on product or service parameters.

Hence, this concludes the definition of Demand Analysis along with its overview.

This article has been researched & authored by the Business Concepts Team . It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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A step-by-step guide to product demand analysis in 2023

2020 showed us: even the steady sales of toilet paper can’t be taken for granted. Sudden surges or drops in demand happen across all product categories, from soap to software.

What is a product demand analysis?

Why conduct a product demand analysis, what are the types of product demand, how to conduct a product demand analysis in 5 steps, product demand analysis examples, product demand analysis best practices, picking the right market research tools.

But if you become an expert at product demand analysis, those highs and lows don’t catch you by surprise as often. In this guide, you’ll learn the foundations of product demand analysis for the marketplace of tomorrow.

With a product demand analysis, you try to get an accurate estimate of future sales of your product. It’s a way of understanding how competition, seasons and other relevant events affect the sales of a certain product. 

Product demand analysis can be done at various times – even for products that aren’t for sale yet. It’s not only based on past sales, demand can also be predicted based on changes in society, technological advancements and environmental changes. 

So yes, there are a lot of factors weighing in, and nobody can predict the future down to the last chocolate bar being sold. But gauging product demand is crucial for building a future-proof business. Here’s why.

The goals of your product demand analysis depend very much on at what stage your business or product is in. 

Validating ideas and financial planning

You could be doing exploratory market research and trying to find out if there’s a big enough market for you to enter with your product. And if there is, could you enter at a price point high enough to make your idea worth pursuing? 

Buying materials from suppliers

Product demand analysis is also important for businesses who heavily rely on secondary manufacturers or resources from external sources. Will you be able to get the necessary materials in time? 

Save money and work more efficiently

Saving money could also be one of the goals of performing a product demand analysis. Knowing when your product will be popular will help you better allocate your budget and manpower. Knowing when demand will be higher will help you plan the budget and timing for marketing campaigns, but also make sure you have enough employees on the work floor to handle the extra orders. 

Track product demand with our audience of 125 million

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Product demand isn’t as straightforward as you’d think. Products and categories are connected to each other, and sometimes demand comes from where you were least expecting it. Here are the most important types of product demand with examples. 

• Direct demand: the simplest form of product demand is the demand for a final product. For instance, how many people are planning to buy a new smart TV.
• Indirect Demand is the demand for a product that is used to produce another product. Are you still following? A simple example is the rising demand for, let’s say, standing desks. The wood of the table would be the product that is in higher indirect demand, due to the popularity of the end product.
• Joint demand occurs when two products have a direct and positive correlation in demand. If people start buying more paint, they will start buying more canvases.
• Composite demand is the demand for products that can be used in more ways than one. For materials like the wood earlier, it’s important to know that it’s not just in demand for stand-up desks. It could also be used for millions of other products.
• Latent demand is the demand for a product that consumers can’t satisfy. There are three scenarios in which this happens:

1. The consumer doesn’t have the means to buy the product. They want it, but they can’t afford it. 

2. The product that consumers want isn’t available.

3. The consumer doesn’t know the product exists or doesn’t know a certain product fulfils their needs. 

When conducting your product demand analysis, it’s important to distinguish between these types of demand, but also to see the connections where possible. You might be able to benefit from composite or joint demand, while never having looked into that option.

Product demand analysis shouldn’t be wild guessing: it’s building a solid foundation of knowledge and structuring your research on top of that- and it’s a fundamental part of market research for new product development . Here are the steps:

• Define your market
• Assess the maturity of the market business cycle

Identify your market niche

Calculate market growth potential.

• Evaluate the competition 

Define your market 

Who could you be selling to, how much do those people have to spend, and who are they currently giving their money to? Those are crucial questions to ask when defining your market. 

Defining your market shouldn’t just be done in words, by explaining personas or target audiences – the numbers are crucial to this. 

Depending on the goal of your product demand analysis, you could also look at secondary markets for this part of your research. There might be some ground you could cover in markets where your product would be used by people who are not in your primary target audience. 

Assess the maturity of the market and business cycle

Some products seem to have an endless life cycle. The oldest beer brewery has been around since 1040, and we’re still drinking it – even though many other alternatives have entered the market. But there are also breweries that have gone bankrupt. What’s up with that?

The market and business life cycle are two important things to analyse. First of all, you want to get an idea of how steady the market is. Will you be entering a market that is in the growth phase, is it mature and stable, or is it heading towards decline?

The same should be done for your business: how mature is it? It’s important to make this a part of your product demand analysis. If your market is growing but you can’t keep up, how will you deliver enough products to actually be profitable?

Your market niche is the sweet spot of where there’s potential to enter and where you would be able to deliver. Not only in terms of physical products or practical services, it should also be a match when it comes to values and USPs. Consumers aren’t just looking for products, they are looking for brands they connect with. 

When doing a product market analysis, it’s important that you are specific and don’t paint a better picture by looking at the entire market, or too large a part of it. Eventually, you will have to choose a targeted message that will not speak to everyone in the market: keep this in mind when defining the real size of your market.

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Now you have the data on the current situation: time to look into the future. To do that, we’ll start by going to the past. 

How has the market share been divided among your competitors ever since the market came to exist? What events and products affected these changes in the division? What was happening in related or similar markets in the same time period? 

Based on this information you can try to pinpoint patterns and find opportunities for growth in the future. Also keep societal factors in mind, like wages and costs of other possibly related products, and changes in tax.

Evaluate the competition

Chances are, your competitors are also performing some kind of product demand analysis while you are too. Maybe they also have a new product in mind that they want to launch, or they’re trying to increase their market share another way. 

Look at how they went about their previous product launches and how this was received by your target market. How were the sales numbers? What could you learn from them?

You can keep an eye on what’s being said by and about your competitors using smart competitor tracking tools . 

Is it magic? Is it witchcraft? Is it espionage? No, it’s artificial intelligence. 

One of the kings in product demand analysis is undoubtedly Amazon. How do they have that tiny screw in the right colour available for next day delivery, when all hardware stores in your area are out of stock?

A lot of it is thanks to artificial intelligence, and an exquisite product demand analysis. Amazon has mastered the craft of balancing human intelligence with human tasks. Product demand analysis on the scale they are doing would simply take too long to do manually, so where possible they let AI do the heavy lifting. In the background, their team is figuring out the details that make their supply chain so impressive. 

The team knows not only what products to have in stock, but also where. In 2013, they got a patent for ‘anticipatory shipping’. This technique helped them to get a product to the closest warehouse to you, even before you actually hit ‘buy now’.

Other parts of their product demand analysis are more common sense. Certain local products will only get stocked in relevant regions, and they look beyond the obvious seasonal changes. Sunscreen is important in summer, yes, but also in winter in places where, for example, families go on skiing holidays. 

How do you actually gather all that information we mentioned above? Let’s look at some tools and best practices that will help you get the most relevant and actionable insights regarding product demand predictions. 

Product demand surveys

To accurately estimate the demand for your product through a survey, it’s crucial that you ask the right questions. Think about how precise you would want people to answer, what data you need. Is it just numbers, or also about days or months? Will you ask them about alternative buying reasons for your product? 

Set a clear goal for your product demand survey and build the questions based on that, so you won’t miss a single piece of information. 

Another crucial element is defining quality respondents. Your product demand analysis survey should only be sent to people who match the criteria of actual buyers. This way you prevent getting data on latent demand, from people who would buy, but don’t actually have the money. 

Ask the right questions with the right survey

With templates for market analysis plus on-demand support from our research experts, we’re here to help you gather continuous product demand data, fast.

Experiments with price and offer

Some markets are unpredictable, mostly because they are new. If after your initial product demand analysis you find that the numbers are a tiny bit lower than you’d hoped for, try analysing what happens if you tweak your offer.

You can experiment with different price points, package deals or bundles, or other types of promotions. You can also try finding partnerships or products that go well with yours to create more demand, even if it’s just secondary. This could be especially helpful if you are just entering a new market, and you want to ride on the success of another product.

Consumer trends

To identify consumer trends, you can use tools such as Google Trends, look into frequent Amazon searches and keep an eye on trending topics on social media. 

With social listening tools, you can keep track of what people are saying about a certain product or brand, which will help you get data on what’s trending. Joining online communities or Facebook groups that are relevant to your market is also a great way to stay up to date on what’s happening. 

Don’t forget to also look into popular topics in specific regions if that’s relevant for you. When looking at specific keywords, you can get incredibly precise data that will drive your decision-making process forward. 

Still feel like product demand analysis is just a guessing game? With the right market research tools , you’ll see that getting accurate data is more a science than an art. Here are four of our favourite tools for market research that could help you getting your product demand analysis right:

• Attest : we had to! With our quick, easy-to-use market research platform you can find those hyper-relevant consumers and ask them those burning questions about their buying behaviour.
• Social Mention : to keep an eye on consumer trends, we highly recommend using social mention. This is a social listening tool that will give you first-hand data on what’s being said about your market across different platforms, without you having to monitor them manually. 
• Heartbeat.ai : if you know that people are talking about your market, it’s also important to know what they’re saying. Just because a lot of people are talking about Blockbuster, doesn’t mean DVD rental is back in the picture. They’re just making memes. With heartbeat.ai, you can automatically analyse the tone of online conversations. 

Love these tools? So do we. If you’re looking for more of this, check out our entire article with 6 of our favourite tools for market research . 

Track product demand with Attest

Learn how your customers think, act and buy to give them the products they want. With an audience of over 125 million people in 59 countries, our data gives you an accurate picture of your product demand.

VP Customer Success 

Sam joined Attest in 2019 and leads the Customer Research Team. Sam and her team support brands through their market research journey, helping them carry out effective research and uncover insights to unlock new areas for growth.

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How to Write a Market Analysis for a Business Plan

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A lot of preparation goes into starting a business before you can open your doors to the public or launch your online store. One of your first steps should be to write a business plan . A business plan will serve as your roadmap when building your business.

Within your business plan, there’s an important section you should pay careful attention to: your market analysis. Your market analysis helps you understand your target market and how you can thrive within it.

Simply put, your market analysis shows that you’ve done your research. It also contributes to your marketing strategy by defining your target customer and researching their buying habits. Overall, a market analysis will yield invaluable data if you have limited knowledge about your market, the market has fierce competition, and if you require a business loan. In this guide, we'll explore how to conduct your own market analysis.

How to conduct a market analysis: A step-by-step guide

In your market analysis, you can expect to cover the following:

Industry outlook

Target market

Market value

Competition

Barriers to entry

Let’s dive into an in-depth look into each section:

Step 1: Define your objective

Before you begin your market analysis, it’s important to define your objective for writing a market analysis. Are you writing it for internal purposes or for external purposes?

If you were doing a market analysis for internal purposes, you might be brainstorming new products to launch or adjusting your marketing tactics. An example of an external purpose might be that you need a market analysis to get approved for a business loan .

The comprehensiveness of your market analysis will depend on your objective. If you’re preparing for a new product launch, you might focus more heavily on researching the competition. A market analysis for a loan approval would require heavy data and research into market size and growth, share potential, and pricing.

Step 2: Provide an industry outlook

An industry outlook is a general direction of where your industry is heading. Lenders want to know whether you’re targeting a growing industry or declining industry. For example, if you’re looking to sell VCRs in 2020, it’s unlikely that your business will succeed.

Starting your market analysis with an industry outlook offers a preliminary view of the market and what to expect in your market analysis. When writing this section, you'll want to include:

Market size

Are you chasing big markets or are you targeting very niche markets? If you’re targeting a niche market, are there enough customers to support your business and buy your product?

Product life cycle

If you develop a product, what will its life cycle look like? Lenders want an overview of how your product will come into fruition after it’s developed and launched. In this section, you can discuss your product’s:

Research and development

Projected growth

How do you see your company performing over time? Calculating your year-over-year growth will help you and lenders see how your business has grown thus far. Calculating your projected growth shows how your business will fare in future projected market conditions.

Step 3: Determine your target market

This section of your market analysis is dedicated to your potential customer. Who is your ideal target customer? How can you cater your product to serve them specifically?

Don’t make the mistake of wanting to sell your product to everybody. Your target customer should be specific. For example, if you’re selling mittens, you wouldn’t want to market to warmer climates like Hawaii. You should target customers who live in colder regions. The more nuanced your target market is, the more information you’ll have to inform your business and marketing strategy.

With that in mind, your target market section should include the following points:

Demographics

This is where you leave nothing to mystery about your ideal customer. You want to know every aspect of your customer so you can best serve them. Dedicate time to researching the following demographics:

Income level

Create a customer persona

Creating a customer persona can help you better understand your customer. It can be easier to market to a person than data on paper. You can give this persona a name, background, and job. Mold this persona into your target customer.

What are your customer’s pain points? How do these pain points influence how they buy products? What matters most to them? Why do they choose one brand over another?

Research and supporting material

Information without data are just claims. To add credibility to your market analysis, you need to include data. Some methods for collecting data include:

Target group surveys

Focus groups

Reading reviews

Feedback surveys

You can also consult resources online. For example, the U.S. Census Bureau can help you find demographics in calculating your market share. The U.S. Department of Commerce and the U.S. Small Business Administration also offer general data that can help you research your target industry.

Step 4: Calculate market value

You can use either top-down analysis or bottom-up analysis to calculate an estimate of your market value.

A top-down analysis tends to be the easier option of the two. It requires for you to calculate the entire market and then estimate how much of a share you expect your business to get. For example, let’s assume your target market consists of 100,000 people. If you’re optimistic and manage to get 1% of that market, you can expect to make 1,000 sales.

A bottom-up analysis is more data-driven and requires more research. You calculate the individual factors of your business and then estimate how high you can scale them to arrive at a projected market share. Some factors to consider when doing a bottom-up analysis include:

Where products are sold

Who your competition is

The price per unit

How many consumers you expect to reach

The average amount a customer would buy over time

While a bottom-up analysis requires more data than a top-down analysis, you can usually arrive at a more accurate calculation.

Step 5: Get to know your competition

Before you start a business, you need to research the level of competition within your market. Are there certain companies getting the lion’s share of the market? How can you position yourself to stand out from the competition?

There are two types of competitors that you should be aware of: direct competitors and indirect competitors.

Direct competitors are other businesses who sell the same product as you. If you and the company across town both sell apples, you are direct competitors.

An indirect competitor sells a different but similar product to yours. If that company across town sells oranges instead, they are an indirect competitor. Apples and oranges are different but they still target a similar market: people who eat fruits.

Also, here are some questions you want to answer when writing this section of your market analysis:

What are your competitor’s strengths?

What are your competitor’s weaknesses?

How can you cover your competitor’s weaknesses in your own business?

How can you solve the same problems better or differently than your competitors?

How can you leverage technology to better serve your customers?

How big of a threat are your competitors if you open your business?

Step 6: Identify your barriers

Writing a market analysis can help you identify some glaring barriers to starting your business. Researching these barriers will help you avoid any costly legal or business mistakes down the line. Some entry barriers to address in your marketing analysis include:

Technology: How rapid is technology advancing and can it render your product obsolete within the next five years?

Branding: You need to establish your brand identity to stand out in a saturated market.

Cost of entry: Startup costs, like renting a space and hiring employees, are expensive. Also, specialty equipment often comes with hefty price tags. (Consider researching equipment financing to help finance these purchases.)

Location: You need to secure a prime location if you’re opening a physical store.

Competition: A market with fierce competition can be a steep uphill battle (like attempting to go toe-to-toe with Apple or Amazon).

Step 7: Know the regulations

When starting a business, it’s your responsibility to research governmental and state business regulations within your market. Some regulations to keep in mind include (but aren’t limited to):

Employment and labor laws

Advertising

Environmental regulations

If you’re a newer entrepreneur and this is your first business, this part can be daunting so you might want to consult with a business attorney. A legal professional will help you identify the legal requirements specific to your business. You can also check online legal help sites like LegalZoom or Rocket Lawyer.

Tips when writing your market analysis

We wouldn’t be surprised if you feel overwhelmed by the sheer volume of information needed in a market analysis. Keep in mind, though, this research is key to launching a successful business. You don’t want to cut corners, but here are a few tips to help you out when writing your market analysis:

Use visual aids

Nobody likes 30 pages of nothing but text. Using visual aids can break up those text blocks, making your market analysis more visually appealing. When discussing statistics and metrics, charts and graphs will help you better communicate your data.

Include a summary

If you’ve ever read an article from an academic journal, you’ll notice that writers include an abstract that offers the reader a preview.

Use this same tactic when writing your market analysis. It will prime the reader of your market highlights before they dive into the hard data.

Get to the point

It’s better to keep your market analysis concise than to stuff it with fluff and repetition. You’ll want to present your data, analyze it, and then tie it back into how your business can thrive within your target market.

Revisit your market analysis regularly

Markets are always changing and it's important that your business changes with your target market. Revisiting your market analysis ensures that your business operations align with changing market conditions. The best businesses are the ones that can adapt.

Why should you write a market analysis?

Your market analysis helps you look at factors within your market to determine if it’s a good fit for your business model. A market analysis will help you:

1. Learn how to analyze the market need

Markets are always shifting and it’s a good idea to identify current and projected market conditions. These trends will help you understand the size of your market and whether there are paying customers waiting for you. Doing a market analysis helps you confirm that your target market is a lucrative market.

2. Learn about your customers

The best way to serve your customer is to understand them. A market analysis will examine your customer’s buying habits, pain points, and desires. This information will aid you in developing a business that addresses those points.

3. Get approved for a business loan

Starting a business, especially if it’s your first one, requires startup funding. A good first step is to apply for a business loan with your bank or other financial institution.

A thorough market analysis shows that you’re professional, prepared, and worth the investment from lenders. This preparation inspires confidence within the lender that you can build a business and repay the loan.

4. Beat the competition

Your research will offer valuable insight and certain advantages that the competition might not have. For example, thoroughly understanding your customer’s pain points and desires will help you develop a superior product or service than your competitors. If your business is already up and running, an updated market analysis can upgrade your marketing strategy or help you launch a new product.

Final thoughts

There is a saying that the first step to cutting down a tree is to sharpen an axe. In other words, preparation is the key to success. In business, preparation increases the chances that your business will succeed, even in a competitive market.

The market analysis section of your business plan separates the entrepreneurs who have done their homework from those who haven’t. Now that you’ve learned how to write a market analysis, it’s time for you to sharpen your axe and grow a successful business. And keep in mind, if you need help crafting your business plan, you can always turn to business plan software or a free template to help you stay organized.

This article originally appeared on JustBusiness, a subsidiary of NerdWallet.

On a similar note...

Market research

Demand analysis: what it is and how to do it

TRY OUT NOW

Demand analysis is a comprehensive process that focuses on evaluating and understanding the factors that influence the quantity of a good or service that consumers are willing and able to purchase in a given market and over a given period of time . 

This approach examines in depth elements such as price, income, consumer preferences, economic conditions, and other external factors that may influence the relationship between supply and demand for a product or service. 

Using demand analysis, companies can make informed decisions about pricing strategies, market positioning and product development to anticipate and meet changing consumer needs.

• 1 Types of demand
• 2.1 Identification of key variables
• 2.2 Demand curve
• 2.3 Elasticity of demand
• 2.4 Factors affecting demand
• 2.5 Predicting demand
• 3.1 Step 1: Define the subject of the investigation
• 3.2 Step 2: Collect market data
• 3.3 Step 3: Identify the influencing factors
• 3.4 Step 4: Determine the elasticity of demand
• 3.5 Step 5: Demand Curve Analysis
• 3.6 Step 6: Assess the competition
• 3.7 Step 7: Examine past demand
• 3.8 Step 8: Using Predictive Models
• 3.9 Step 9: Conduct market research
• 3.10 Step 10: Summary of results
• 4 Conclusion
• 5 1:1 Live Online Presentation: QUESTIONPRO MARKET RESEARCH SOFTWARE
• 6 Try software for market research and experience management now for 10 days free of charge!

Types of demand

There are different types of demand that can be classified according to different criteria. These categories help analysts and companies better understand how fluctuations in various variables can affect demand for products or services in the market.

• Completely inelastic demand: Quantity demanded does not change in response to changes in price. It is a scenario in which consumers are willing to purchase a fixed quantity of the good or service, regardless of its price.
• Inelastic demand : The quantity demanded changes less than the price. Essential goods or services often have inelastic demand because consumers are willing to pay a higher price for these necessary products.
• Elastic demand: The quantity demanded changes more than the price. This is usually the case for goods or services that are considered somewhat optional or for which there are readily available substitutes.
• Cross demand : This refers to the relationship between the demand for a good and the price of a related good. An increase in the price of one good can affect the demand for another related good.
• Complementary demand: This occurs when the demand for one good is positively related to the demand for another good. For example, the demand for cars and the demand for gasoline are complementary.
• Competing Demand: Occurs when two or more products compete to satisfy a similar consumer need. Price changes for one product can affect demand for the other.
• Derived demand: Mainly refers to goods or services that are necessary for the use of another product. For example, the demand for cars is derived from the demand for tires.
• Seasonal demand: It is subject to predictable fluctuations at different times of the year. Examples include the demand for winter clothing or toys before the Christmas season.
• Luxury demand : This refers to goods and services whose demand increases as consumers' income increases. These products are often perceived as luxurious and not essential to life.

Factors affecting demand analysis

Demand analysis provides critical information to businesses by understanding the forces that influence consumers' purchasing decisions. In this way, they can effectively adapt their business strategies to meet the needs of the market and maintain a competitive advantage.

This process examines the factors that influence the demand for a product or service in the market.

A more detailed description can be found below:

Identification of key variables

• Price : Demand analysis first examines how the quantity demanded of a product or service changes in response to price changes.
• Income : The availability of consumers' income directly affects the demand for products and services. It examines how changes in income can influence purchasing decisions.

Demand curve

• The relationship between price and quantity demanded is usually represented by a demand curve. This curve shows how quantity demanded changes when price changes and other factors remain constant.

Elasticity of demand

• Elasticity of demand measures the sensitivity of the quantity demanded to changes in price. Elastic demand means that the quantity demanded is very sensitive to price changes, while inelastic demand suggests that the quantity demanded is less sensitive to price changes.

Factors affecting demand

• External factors: Changes in economic conditions, cultural trends, technology, government regulations and others can significantly impact demand.
• Substitution and supplementary products : The availability of substitute or complementary products can influence the demand for a particular good or service.

Predicting demand

• Demand analysis can be used to try to predict future trends and purchasing behavior. This is important for companies to plan their production, marketing and pricing strategies.

How do you conduct a demand analysis?

Conducting demand analysis can be a structured and useful process to understand consumer behavior and make informed decisions. Here are step-by-step instructions on how to easily conduct a demand analysis:

Step 1: Define the subject of the investigation

Clearly identify the product or service you are analyzing. Define its main characteristics and position in the market.

Step 2: Collect market data

Gather information about the market where your product or service is offered. This may include demographic data, economic and social data, and information about competitors.

Step 3: Identify the influencing factors

Identify the factors that influence demand for your product or service. These may include price, income, consumer tastes and preferences, economic conditions, etc.

Step 4: Determine the elasticity of demand

Determine whether demand is elastic, inelastic, or uniform by determining how the quantity demanded changes as price changes. You can use the elasticity of demand formula:

Elasticity= % change in quantity demanded.

                      % Price change

Step 5: Demand Curve Analysis

Based on the data collected, draw a demand curve. This allows you to illustrate how the quantity demanded changes as prices change.

Step 6: Assess the competition

Analyze how competitors' behavior can affect demand for your product. Consider the presence of substitutes and complementary products.

Step 7: Examine past demand

Review historical sales data and demand patterns. This can provide valuable information about seasonality and trends over time.

Step 8: Using Predictive Models

Apply forecasting models to anticipate changes in future demand. You can use techniques such as regression analysis, time series or opinion polls.

Step 9: Conduct market research

If necessary, conduct surveys or interviews to get direct feedback from consumers. This can provide detailed insights into their preferences and purchasing behavior.

Step 10: Summary of results

Summarize the results and use the information to make strategic decisions. Consider adjustments related to marketing, pricing, sales, or even the product itself.

Remember, the key is to use accurate and relevant data. This ongoing analysis allows you to adapt to changes in the market and better meet consumer needs.

In summary, demand analysis helps you understand the factors that influence consumers' purchasing decisions, from price to individual preferences. By assessing elasticity, constructing demand curves, and considering elements such as competition and seasonality, companies can make informed strategic decisions. 

Demand analysis not only provides an in-depth understanding of market dynamics, but also serves as a guide for adapting strategies, anticipating change, and ultimately driving sustainable success in an ever-changing business environment. 

QuestionPro has a number of tools that allow you to collect information to properly analyse various aspects of your business. Create a free account or request a demo so we can understand your needs and offer you the best solution.

1:1 live online presentation: QUESTIONPRO MARKET RESEARCH SOFTWARE

Arrange an individual appointment and discover our market research software.

Try software for market research and experience management now for 10 days free of charge!

Do you have any questions about the content of this blog? Simply contact us via contact form . We look forward to a dialogue with you! You too can test QuestionPro for 10 days free of charge and without risk in depth!

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FURTHER INFORMATION

• Conduct quantitative and qualitative market research with QuestionPro (Qual & Quant)
• Market research: examples, tips, data collection, data analysis, software for carrying out and presenting the results
• The big QuestionPro-Guide on the subject of customer surveys: definition, development, methods, examples, evaluation, template for import.
• Customer Experience Management: Tips, Tools, Best Practices
• Reputation management: tips, software, app
• Sentiment analyses and semantic text analysis based on artificial intelligence
• All information about the experience management platform QuestionPro
• Conducting employee surveys: A specialist article from QuestionPro

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The Beginner's Guide to Demand Planning in Sales

Published: April 21, 2021

Demand planning in sales helps make sure your literal and metaphorical shelves are stocked, but not overflowing. While some people may have clairvoyant skills to predict the future, the rest of us need to rely on sales planning and operational tactics to get the job done.

That’s where demand planning comes into play.

What is demand planning?

At its most fundamental, demand planning is getting ahead of the anticipated volume by preparing for upcoming sales. Where sales forecasting predicts what to expect in terms of revenue and sales, demand planning ensures you have the proper resources to successfully fulfill those sales.

Demand can support the sale of physical products, like filling purchase orders, or extend to labor for services or development, like properly staffing your support team.

Demand Planning vs. Demand Forecasting

A common challenge that trips a lot of businesses up is the difference between demand planning and demand forecasting. Demand forecasting is a necessary part of demand planning, however demand planning encompasses a much wider scope. Demand forecasting is considered the pure analytics behind demand planning, and an important part of the demand planning process.

Demand planning is when cross-functional collaboration comes into the picture. Forecasts are analyzed, inventory adjusted, and customer support is staffed for demand and educated on any policy changes.

Why is demand planning important?

Increasing sales is great, but if you can’t keep up with the demand, those increased sales may be worse for your business long-term.

Without planning, customers will wait much longer than expected for their products, or wait way too long to get help from your understaffed team. In other words, poor demand planning can contribute to poor customer experience. When customer experience suffers, customers are far less likely to become repeat customers or recommend your brand to family and friends.

Instead, they are far more likely to speak ill of your company, brand, or product on social media and review sites. Failing to properly invest in demand planning can have long-lasting negative implications on your business.

On the other side hand, if you don’t have a refined demand planning process that’s built around data analysis and cross-team collaboration, you could also wind up with too many resources. Overstaffing and overstocking are both costly mistakes, even in the short-term.

Based on the long term business implications of poor customer experience, and the short-term budgetary implications of overstaffing and overstocking, demand planning becomes a critical facet of any sales operations strategy .

The Demand Planning Process

Step one: Hire a psychic.

All jokes aside, it is worth noting that demand planning involves forecasting future business, which comes with a certain amount of uncertainty. No one is able to predict the future with 100% accuracy (no, not even psychics), so some of your demand planning will undoubtedly be off. The question becomes “by how much?”

Demand planning is not an easy process and takes a great deal of fine-tuning and experience. Fortunately, there are certain steps you can take to make planning for the future state of your business a bit more predictable.

The three basic steps to demand planning are:

• Collect and analyze your data.
• Define business goals.
• Collaborate across teams.

1. Collect and analyze your data.

Clean, relevant data supports the foundation of a strong demand planning strategy, but that data can come from a variety of different sources. This is the part of the process that is also known as demand forecasting. Let’s break down the types of data and forecasting many businesses encounter.

Historical Data

Historical data is the simplest indicator of how your business might do during any given month of the year. It simply shows you how much you sold last year, and if that fluctuates annually.

A good example of how historical data can help with demand planning is seasonality. Increased business over the holidays and decreased business over the summer is a great data point to start making demand-based assumptions off of.

Contextual Data

Contextual data takes historical trends and adds context from the current market. An example of contextual data might be the effects of COVID-19 on brick-and-mortar businesses vs. online retailers, or if new legislation suddenly made it requisite to utilize your product.

Sales Forecasting

Sales forecasting can show existing opportunities in the pipeline and make predictions on what’s likely to happen with those opportunities based on past performance.

If you have 2000 leads in the pipeline, typically bring 13% of those leads into an opportunity, and can close 6% of those opportunities to a deal, you can predict 15 customers coming in soon. If your leads require an enterprise-level touch and you only have a single account manager taking on the load, that can be a lot of demand to account for.

Looking at raw data on its own may not give you the insight you’re looking for. However with analysis and proper context, numbers can turn into valuable insights.

By looking at all three sources above in tandem, your level of understanding will increase, driving you to the next phase of demand planning: defining business goals.

2. Define business goals (and KPIs to measure success).

After analyzing your data, you might come to some actionable conclusions. Here’s an example of a statement that could be parsed together from historical, contextual, and sales forecasting data.

Customers will be taking more online courses this fall, and fewer in-person workshops.

Historically, the company may know customers take more classes in the fall. Contextually, fewer people are taking classes in person due to COVID-19. As far as sales forecasting goes, they may have already seen a drop in the in-person workshop pipeline and an increase in online sign-ups.

This insight is a great compass to help point to and define larger business goals. Translating the insight from above into business goals, you might come to a conclusion such as:

This fall, we aim to drive 90% of would-be in-person workshop attendees to our online courses.

Now, we have a business goal to plan demand behind.

3. Collaborate across teams.

Accomplishing these goals takes teamwork, which requires buy-in from leadership in multiple departments. It’s important to make sure all key stakeholders are briefed on the demands, and what their part is in meeting those demands.

Product teams, for example, need to be looped in to know what they need to deliver, and when. Support teams, on the other hand, need to be in the loop to staff accordingly, and train their team on any new changes the demand brings with it, such as operational process or policy changes. Different departments will need to adjust accordingly to accommodate the anticipated surge (or reduction) in demand, so it’s imperative everyone is in the loop.

From our example, this company might reduce the number of in-person workshop classes (saving money on space and labor) and increase online courses. This might increase demand in customer support as students and teachers are learning to work on a new platform. Product teams may need to build new functionality to accommodate more online courses, and engineering may need to make backend adjustments to keep up with the increase in the online load.

Demand Planning Software

All of this likely seems a bit daunting if you don’t have the right tools and software in place. Tools like HubSpot aggregate insights across marketing, sales, and service teams to pull the right data together for forecasting, and make sure informational silos don’t keep any department out in the cold when it comes to collaborating across teams.

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• Business Plans
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Business Plan (3) – Market Analysis, Demand Analysis

• October 11, 2020
• Business Plan Guide

In Part 3 of our 8-Part Guide to Writing a Business Plan we look at Market Analysis and Demand Analysis.

3. Market Analysis

In this chapter you will define:

• Geographical area
• Consumer behaviour
• Market segmentation

3.1 The market is the people or organisations that will participate in the buying and selling processes of the products or services or use these products or services.

3.2 The geographical area refers to a type or range of products in a defined geographical zone, for example, the car market in the USA or the cosmetic market in the UK.

3.3 Once you have defined the market and the geographical area you need to summarise the needs and behaviour of the consumers. Who are they? Why do they need the product or service?

3.4 Different groups of customers will have different requirements. The market for any product can be split into individual segments, where each segment describes customers with similar requirements, tastes, characteristics, interests, or lifestyles. Segmentation indicates gaps in the market and highlights requirements of different types of users, enabling products to be positioned to meet those needs.

• If you do not know your market, you can not create a viable plan, so do your homework.
• Think about the behaviour and habits of each of the segments.
• Identify consumer needs that the competition does not cater for, and make sure that these are highlighted clearly in the customer requirements.

4. Demand Analysis

In this section you are going to make a numerical evaluation of the market and the segments of the market that you have defined in the following areas:

• Potential demand
• Actual demand
• Future demand
• Evolution of demand

4.1 The potential demand is the maximum the consumers could buy in a determined period of time.

4.2 Actual demand is the demand for the product or service this year or the previous year if the data is not available. It is possible to obtain sales data on a national or regional level from many different sources. If there is no data available you need to make estimates using other methods.

4.3 To establish future demand, estimate the increase in demand for the next year as a percentage of actual demand. For example the market for video games will go up by 10% in the next year. You can also make estimate for the medium and long term, 3-5 years would give you information to provide for and create future strategies.

4.4 To see the potential evolution of demand make a graph of historical sales in your sector, using this you can see the market trends and define the phases of the product life cycle. Using the actual, potential and future demand figures and applying them to the market segments previously identified by geographical region, objectives can be created as detailed later.

• Do not commit the error of being over optimistic with demand forecasts.
• Define the life cycle of your product or service, apply this to future demand.
• The launch phase of many products is slow; sometimes it is better to enter a market after others when the demand has already been created.

Go to Part 4 – Environmental, Company and Competition Analysis

Go to the Guide to Writing a Business Plan Index

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What is Demand Forecasting? Importance and Benefits of Forecasting Customer Demand

By Rachel Hand Last updated on February 22, 2024

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Table of Contents

What is demand forecasting?

Importance of demand forecasting for ecommerce, examples of demand forecasting methods, types of demand forecasting techniques, factors influencing the customer demand life cycle, how to forecast demand in 4 steps [infographic], how shipbob makes demand forecasting easier, demand forecasting faqs.

Running a business is hard. You never really know how it will all turn out, yet you need to be able to answer questions like these:

• How many units of inventory do you need to have on hand to be at full stock for each SKU?
• How often do you project to replenish inventory ?
• How will those projections change over time?
• Where do you expect to be a year from now?

Maybe you only have a slight understanding of demand for your products. That’s fine! Forecasting projections is one of the toughest things to get right.

And just when you’ve been doing it for a while and start to get the hang of it, your projections shift again.

Whether your brand is experiencing gradual sales or is in high-growth mode , we’ll walk you through some tips to improve your ability to forecast demand.

Demand forecasting is the process of using predictive analysis of historical data to estimate and predict customers’ future demand for a product or service. Demand forecasting helps the business make better-informed supply decisions that estimate the total sales and revenue for a future period of time.

Demand forecasting allows businesses to optimize inventory by predicting future sales . By analyzing historical sales data, demand managers can make informed business decisions about everything from inventory planning and warehousing needs to running flash sales and meeting customer expectations.

Without demand, there is no business. And without a thorough understanding of demand, businesses aren’t capable of making the right decisions about marketing spend, production, staffing, and more.

Demand forecast accuracy will never be 100%, but there are steps you can take to improve production lead times , increase operational efficiencies, save money, launch new products, and provide a better customer experience.

Preparing your budget

Demand forecasting helps reduce risks and make efficient financial decisions that impact profit margins, cash flow, allocation of resources, opportunities for expansion, inventory accounting , operating costs, staffing, and overall spend. All strategic and operational plans are formulated around forecasting demand.

Demand planning and scheduling production

Demand forecasting lets you provide the products your customers want when they want them. Forecasting demand requires that order fulfillment is synced up with your marketing prior to launching.

Nothing kills progress (or your reputation) faster than being sold out for weeks on end. Proper demand forecasting and inventory control can help ensure a business doesn’t buy insufficient or excessive inventory.

Storing inventory

Demand forecasting can help you spend less money on both inventory purchase orders and warehousing , as the more inventory you carry, the more expensive it is to store. Good inventory management involves having enough product on hand but not too much.

Closely tracking inventory levels lets you easily restock and forecast inventory over time.

“With ShipBob, we have access to live inventory management, knowing exactly how many units we have in each fulfillment center. This not only helps with our overall process in managing and making sure our inventory levels are balanced but also for tax purposes at the end of the year.” Matt Dryfhout, Founder & CEO of BAKblade

Developing a pricing strategy

Demand forecasting isn’t just about perfecting a business’s production schedule to supply demand, but it should also help price products based on the demand. By understanding the market and potential opportunities, businesses can grow, formulate competitive pricing , employ the right ecommerce marketing strategies, and invest in their growth.

If you choose to slash prices or put an item on promotion, demand may temporarily increase for that product. Without that sale, you may not have experienced the boost.

If there is a limited supply of a high-demand product, you can use the scarcity principle to increase the price as an exclusive offer. You must keep an eye on new entrants though, as supply may increase.

A small business may be on a conservative growth plan, while another company may be scaling or diversifying with aggressive growth plans. The demand forecasting examples below walk through a couple of different scenarios.

A grocery store looks at sales trends from last year’s Thanksgiving week to prepare adequate inventory levels for the upcoming season. They look at sales leading into that week last year for seasonal products like turkeys, cranberries, and mashed potatoes.

It was a great holiday sale for them. But eight months ago, a competing grocery store opened four blocks away, so they’re unsure how Thanksgiving demand will be affected and if local customers will buy ingredients from their competitor.

At the same time, a lot of families continue to move into the neighborhood, and they’ve still grown an average of 1% month-over-month since the competing chain opened.

They plan to launch a few more ads than last year through channels that have proven a good ROI for them in the past and also offer some new deals to position themselves as the go-to Thanksgiving destination. Their calculations project a 5% increase in sales from last year.

An up-and-coming direct-to-consumer cosmetics brand is growing quickly. Currently, they are selling 10,000 orders per month. Based on their past sales data, upcoming ad campaigns, and general market conditions in the industry, they plan to be above 30,000 orders per month at this time next year.

Right now, they’re stocking a total of 75,000 units at varying levels across their 5 SKUs. Their order volume fluctuates quite a bit based on their replenishment cycle, and they restock inventory by SKU level at a rate of about every 90 days.

The average units they store will grow quickly while the cadence will remain the same. The last run of their main SKU was 30,000 units. They’re about to ship in another 50,000 units, and their next run will be 75,000 units.

They plan to continue to grow at that pace, so they are looking into whether they should purchase land, lease a warehouse, or outsource fulfillment to keep up with demand.

There are various ways businesses can forecast demand. All demand forecasting models leverage data and analytics over specific periods of time.

Macro-level

Macro-level demand forecasting looks at general economic conditions, external forces, and other broad things disrupting commerce. These factors keep a business in the know around portfolio expansion opportunities, market research intel, and other shifts in the market.

Micro-level

Demand forecasting at the micro-level can be specific to a particular industry, business, or customer segment (e.g., examining demand for a natural deodorant for millennial customers in Chicago, IL).

Short-term demand forecasting is usually done for a time period of less than 12 months. It looks at demand for under a year of sales to inform the day-to-day (e.g., planning production needs for a Black Friday/Cyber Monday promotion).

Long-term demand forecasting is done for greater than a year. This helps identify and plan for seasonality, annual patterns, production capacity, and expansion over a longer period of time. This drives long-term business strategy (e.g., plans to launch a facility or store internationally and expand into new markets).

Demand forecasting is where the supply chain management side of business meets sales and marketing. Both sides must be in sync to succeed. Learn how different forces affect demand forecasting.

Seasonality

Seasonality refers to changes in order volume throughout a specific period of time. A highly seasonal brand may serve a specific time period, event, or season, causing varying demand levels throughout the year, including large spikes during their peak season (e.g., shoppers looking for grilling equipment right before the summer or 4th of July).

The chart below shows a ShipBob customer that runs an extremely seasonal business.

Seasonal demand often requires a business to reduce inventory on hand during the quiet months and then ramp up production and their operations workforce during peak season. That’s why many cyclical businesses outsource retail fulfillment to a third-party ( 3PL ) logistics company, who can store inventory, pick items, pack boxes, and ship orders for them.

Competition

Competition affects demand as there are more options for your customers to choose from and more companies vying for their attention.

When a competitive force comes into play — whether it’s a direct competitor or a new kind of solution that forces your customer to choose between you or them — demand will be skewed. This can take you by surprise, so an agile demand forecasting model can help you respond quickly.

Types of goods

Demand forecasting will be very different for different products and services — from perishable goods that expire quickly to subscription boxes that come at the same time each month.

It’s important to know the lifetime value of your customers (the total purchases they buy from you across channels over time), your average order value (how much they’re spending each time), and the combinations of products ordered to improve demand forecasting.

Using this data, you can understand how to group or bundle items, drive more recurring revenue, and see how one SKU affects or drives demand for another (e.g., razor and blade cartridge refill sales).

The geography of where your customers reside and where you manufacture and ship orders from can greatly impact inventory forecasting and the speed at which you can fulfill customer orders.

The geographic locations of your retail supply chain can be very strategic. Using fulfillment centers in locations near your customers can help you fulfill customer demand quickly and more affordably, so it ships from the warehouse closest to the customer.

This helps you monitor where your customers reside and store certain products in the regions where they are ordered most, so you don’t have to ship to far away destinations .

“We love that ShipBob actually operates its fulfillment centers — they know their operations and they are very clear about it. ShipBob having multiple locations was also huge for us. Keeping our inventory in Chicago and Los Angeles has brought cost savings since we ship from the locations that are closest to the customer.” Courtney Lee, founder of Prymal

Forecasting demand is an extremely challenging task. You want to be flexible enough to handle sporadic influxes but also take a long-term approach. Here are some tips for your business.

1. Set objectives

Demand forecasting should have a clear purpose. At its core, it predicts what, how much, and when customers will purchase. Choose your time period, the specific product or general category you’re looking at, and whether you’re forecasting demand for everyone or a specific subset of people.

Make sure it satisfies your financial planners, product marketing, logistics, and operations teams in a non-biased way.

You need to understand what your goals are for the right demand capacity planning, which will allow you to use decision-making forecasting processes to understand online consumer behavior better.

2. Collect and record data

Integrating all of the data from your sales channels can provide a cohesive view of actual product demand and insight into sales forecasts.

 In addition to recording the time and date of all orders, the SKU(s) included in each order, and the sales channel it originated from, there are other important forecasting metrics to track, such as:

• SKU Velocity: how frequently a SKU is picked over a certain period of time
• Inventory Turnover Rate: how many times your entire inventory has been sold and then replaced within a given timeframe
• Average Order Value (or AOV): the average dollar amount a customer spends each time they place an order
• Return rate: the frequency with which each SKU is returned
• Stockout rate: how often your business sells out of a particular SKU, depleting available units of the SKU to 0

By tracking these inventory metrics over time, your business can forecast growth and trend projection on a more granular level and look back to see how your forecasts matched up to reality.

In addition to your historical sales data , you may also need to pull in other pieces of data, like market conditions. Make sure any data you use is properly prepared to achieve the most reliable and accurate forecasts possible.

“We have a Shopify store but do not use Shopify to track inventory. In terms of tracking inventory, we use ShipBob for everything — to be able to track each bottle of perfume, what we have left, and what we’ve shipped, while getting a lot more information on each order. The analytics are super helpful. We download Excel files from the ShipBob dashboard all the time and use them to analyze everything from cancelations, to examining order weights, to checking on whether ShipBob is shipping orders on time.” Ines Guien, Vice President of Operations at Dossier

3. Measure and analyze data

Whether done manually or using automation and predictive analytics, you’ll need a repeatable data analysis process. This requires comparing what you predicted to actual sales to help you adapt your next forecast.

The chart below shows four different ShipBob customers on the same timeline that have all shipped 60,000 total orders in the same year. Measuring this helps track demand for different products at different times. While they each ship an average of 5,000 orders per month, some months are much lighter than others.

If the brands under-forecasted this volume, they wouldn’t have had enough inventory to ship orders out, and there wouldn’t be enough staff to fulfill them all in a timely manner. If they over-forecasted the volume, they would have spent a lot of money on inventory that is just sitting and taking much longer than anticipated to generate revenue.

As you grow, you may find you need to start tracking additional pieces of information such as obsolete stock, frequency of stockouts , and other order details you may need to improve.

4. Budget accordingly

Once you have a feedback loop, you can set your next forecast (hopefully more accurately) and update your budget to allocate funds where they should go based on growth goals. Demand forecasting helps you reduce inventory carrying costs , plan marketing spend, future headcount, production and inventory needs, and even new products.

ShipBob’s proprietary software and merchant-facing dashboard provides ecommerce businesses with real-time visibility into their inventory.

With metrics like daily order status and performance, units on-hand, and days of inventory left, you can monitor today’s inventory activity before looking ahead. 

When you’re ready to forecast demand for the future, you can look back at your inventory history. ShipBob automatically tracks data over time — including average units sold per day, order destinations, and SKU velocity — which you can use to optimize your forecasts for accuracy. 

You’ll also have access to information on average storage, fulfillment, and shipping costs, as well as a suggested ideal distribution of inventory across locations to reduce these costs while optimizing for speed.

Here are just a few stories from ecommerce brands that have used ShipBob to improve their demand forecasting.

The esports and apparel brand leverages the “drop” model to create spikes in demand. With ShipBob’s intuitive analytics and dashboard, they can manage their inventory levels even on the busiest days — and get orders out the door on time.  

“Quadrant operates using a drop model, meaning we offer a select number of units each release and they sell out really fast. We run on the idea of “if you’re quick enough, you can get a piece.” Our last drop sold out in 18 minutes – it was amazing! The key to this model is ensuring we are able to fulfill a massive spike in demand within a reasonable timeframe. With ShipBob, we are able to trust that orders will get out in a timely manner. ShipBob has given us increased visibility thanks to the dashboard that allows us to easily manage stock and orders. That wasn’t possible for us before. Our relationship with ShipBob has been a game-changer for Quadrant, and it’s made my life so much easier. ShipBob is incredibly easy to use – that’s my favorite part about it.” Will Kerr, Apparel Lead at Quadrant

Slime by Nichole Jacklyne

Youtuber-turned-business-owner Nichole Jacklyne was blown away by the comprehensive visibility into inventory metrics that ShipBob provided. Having data and insights at her fingertips equips her to grow her business, and continue meeting demand across channels.

“When I found ShipBob, I was so taken back by how thorough everything was. I’m obsessed with the dashboard – everything I need to know is there. If I want to know shipping analytics or shipping prices, it’s all right there and so transparent.  I love ShipBob’s analytics tool. I like being able to look at the last seven days of shipping costs. It’s so nice to see exactly what the average shipping cost is and make sure the number that my Shopify store has customers paying matches what’s in the ShipBob dashboard. Having those kinds of metrics on hand at any point is incredible.  As I grow my business, I’ve realized how important little details like analytics and insights are. If I can’t go in and see that information like I can in ShipBob, it’s going to hinder my ability to grow the business. Ultimately, we left our old small fulfillment center because everything ShipBob offered blew them out of the water.” Nichole Jacklyne, Founder of Slime by Nichole Jacklyne

This digital health brand uses ShipBob’s inventory analytics tools to make sure they always have enough inventory to fulfill demand. Using automatic reorder notifications, MDacne can reorder inventory to avoid stockouts if demand forecast is ever off. 

“ShipBob’s analytics tool is also really cool. It helps us a lot with planning inventory reorders, seeing when SKUs are going to run out, and we can even set up email notifications so that we’re alerted when a SKU has less than a certain quantity left. There is a lot of value in their technology.” Oded Harth, CEO & Co-Founder of MDacne

Demand forecasting helps businesses make informed decisions that affect everything from inventory planning to supply chain optimization . With customer expectations changing faster than ever, businesses need a method to forecast demand accurately.

If you’re looking for an ecommerce fulfillment solution to help you improve demand forecasting, learn more about how ShipBob helps you replenish stock and deliver the experience that customers want. Request a pricing quote of our fulfillment services below.

For ecommerce brands, forecasting projections is one of the toughest things to get right. Here are answers to some common questions about demand forecasting.

Demand forecasting is the process of predicting future sales by using historical sales data to make informed business decisions about everything from inventory planning to running flash sales.

Why is demand forecasting important?

Without a thorough understanding of demand, businesses aren’t capable of making the right decisions about marketing spend, production, staffing, and more. Through it will never be 100% accurate, forecasting demand can help you improve production lead times, increase operational efficiencies, save money, launch new products, and provide a better customer experience overall.

How is demand forecasting done?

There are various ways businesses can forecast demand. All forecasting models leverage data and analytics over specific periods of time. For instance, you can forecast demand on the macro-level (e.g., economic conditions, external forces, and other broad things disrupting commerce) or micro-level (e.g., particular industry, business, or customer segment). Or, you can determine future demand by short-term or long-term, depending on how you’ll use the data.

How do I build a demand forecasting model?

Forecasting demand is an extremely challenging task. You want to be flexible enough to handle sporadic influxes but also take a long-term approach. The first step is to set clear objectives, and make sure your objective satisfies your financial planners, product marketing, logistics, and operations teams in a non-biased way. You’ll also need a technology and systems in place to collect historical order accurately from your sales channels, so you can easily measure and analyze the data.

Forecasting demand can be a time-consuming task. By partnering with a logistics platform like ShipBob, you can access advanced analytics and distribution metrics to make the process much easier.

Written By:

Rachel Hand

Rachel is a Content Marketing Specialist at ShipBob, where she writes blog articles, eGuides, and other resources to help small business owners master their logistics.

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Evaluating the Importance of Demand Analysis for Your Business

What is demand analysis.

Demand analysis involves understanding the customer demand for a product or service in a particular market. Companies use demand analysis techniques to determine if they can successfully enter a market and generate expected profits to advance their business operations. It also gives a better understanding of the high-demand markets for the company’s offerings, giving them a fair idea on which markets to invest in. Demand analysis is one of the most important considerations for a variety of business decisions including sales forecasting, pricing products/services, marketing and advertisement spending, manufacturing decisions, and expansion planning.

Identifying market opportunities and meeting the market demand can prove to be challenging without appropriate expertise. Request a free brochure to learn how experts at Infiniti Research can assist you with smart solutions that cater to dynamic business needs.

Key factors affecting demand analysis

Common steps in market demand analysis

While there may be several methods of market demand analysis that varies according to the complexity of operations in the business, we have curated some of the commonly used steps for demand analysis:

Market identification

Identifying the specific and target market for the company’s products or services is one of the first market demand analysis steps. Surveys or customer feedbacks can be used to determine the current customer satisfaction levels. Comments indicating dissatisfaction can lead to improvements that will eventually enhance customer satisfaction. Although companies usually identify markets close to their current product line, new industries may be tested for business expansion possibilities.

Business cycle

After identifying the potential markets, the next step is to assess the stage of the business cycle in which that particular market is. A business cycle ideally comprises of three stages: emerging, plateau and declining. Markets that are in the emerging stage indicate higher consumer demand and low supply of current products or services. The plateau stage depicts the break-even level of the market, where the supply of goods meets the current market demand. A declining stage indicates lagging consumer demand for the company’s goods or services.

Request a free proposal for more insights into our market intelligence solutions and learn how we can help enhance your business outcomes.

Product Niche

Once the market and their respective business cycles have been reviewed, companies will need to develop products or tailor their services to meet a specific niche in the market. Products must be differentiated from other peers in the market, so that they meet a specific need of consumer demand, creating higher demand for their product or service. It is also advisable to conduct tests in sample markets to determine which of the potential product styles is most preferred by consumers. Companies can also develop their goods in order to prevent competitors from easily duplicating their products or business strategies.

Evaluate competition

A crucial factor of demand analysis is determining the number of competitors in the market and their current market share. Markets in the emerging stage of the business cycle tend to have fewer competitors. This translates to a higher profit margin for your company. Once a market becomes saturated with competing companies and products, fewer profits are achieved and companies will begin to lose money. As markets enter the declining business cycle, companies must conduct a new market demand analysis to find more profitable markets.

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The Concept of Supply & Its Uses in Business

What happens to price when supply decreases, relationship between level of prices and demand.

• What Can Make a Demand Curve Shift?
• What Is the Market Analysis of a Supply and Demand Curve?

A demand and supply analysis is a vital tool used in economics to inform business decisions. When it is done accurately after considering factors such as trends and seasons, a supply and demand analysis can anticipate the effects of market shifts.

What Is Demand and Supply Analysis?

At the core of a supply and demand analysis are two laws: the law of demand and the law of supply. According to The Business Professor , the law of demand stipulates that the quantity of demanded goods and services lowers with the rise of prices. Conversely, the law of supply stipulates that the number of goods and services supplied increases with a rise in price.

Britannica explains that a supply and demand analysis indicates the relationship between the quantity producers want to sell at various price points and the quantity consumers will buy. Including a demand and supply analysis in a business plan is one of the best tools business owners can use to predict their next moves. By analyzing various factors that affect supply and demand, businesses can predict the amount of product they should produce at a particular price point to yield the most profit.

How to Interpret Supply and Demand

In a graph, the demand curve is represented by a downward curve based on the relationship between what consumers want and what they can pay. As prices rise, demand decreases. If consumers cannot afford a product, they won’t be interested in buying it. When plotted on a graph with price on the vertical axis and demanded quantity on the horizontal axis, the demand curve slopes downward as price increases and quantity decreases. The steepness of the curve depends on the current influences on demand.

In a supply analysis, the supply curve is plotted onto the same graph – with prices on the vertical axis and quantity on the horizontal – as an upward sloping curve. Based on the number of goods produced, the supply curve factors in input resources, labor, technology and regulations to accumulate its data.

The equilibrium is the point where the two curves meet. This point indicates where the market balances and the quantity supplied matches the demand. Businesses can adjust their prices or supply to find the equilibrium point and use workforce planning to meet an upcoming predicted demand.

Supply and Demand Influences

Many factors influence supply and demand trends. Five common factors that influence demand are consumer preference, income level, substitute prices, complementary goods and future expectations.

Many products become popular based on trends; However, trends don’t last forever. As consumer preferences shift, demand for formerly popular products will likely decrease. Similar to trends, future expectations also influence buyer habits. For example, if the consumer expects prices to decrease, they may wait to purchase later, such as buying holiday decorations after the holiday season has ended.

However, complementary goods, which are items that are traditionally bought together, affect demand differently. If one item becomes cheaper, such as pancake mix, the demand for maple syrup is more likely to increase. Production costs, technology advances, the number of suppliers and government regulations can all affect supply trends. For example, advances in technology can influence supply by cutting costs in the production chain, making it cheaper to produce more product.

• The Business Professor: Demand-Supply Analysis - Explained
• Britannica: Supply and Demand

Danielle Smyth is a writer and content marketer from upstate New York. She has been writing on business-related topics for nearly 10 years. She owns her own content marketing agency, Wordsmyth Creative Content Marketing, and she works with a number of small businesses to develop B2B content for their websites, social media accounts, and marketing materials. In addition to this content, she has written business-related articles for sites like Sweet Frivolity, Alliance Worldwide Investigative Group, Bloom Co and Spent.

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LONDON--( BUSINESS WIRE )--A well-known market intelligence company, Infiniti Research, has announced the completion of their recent article on evaluating the importance of demand analysis for your business. The article provides comprehensive insights on why demand analysis is vital for modern businesses and the key steps involved in an ideal demand analysis strategy.

Demand analysis is the process of understanding the customer demand for a product or service in a target market. Companies use demand analysis techniques to determine if they can successfully enter a market and generate expected profits to expand their business operations. It also gives a better understanding of the high-demand markets for the company’s offerings, using which businesses can determine the viability of investing in each of these markets.

Identifying market opportunities and meeting the market demand can prove to be challenging without the right expertise. Request a Free Brochure to learn how experts at Infiniti Research can assist you with smart solutions that cater to dynamic business needs.

Steps in market demand analysis

Market identification

one of the first steps in market demand is to identify the target market for the company’s products or services. Surveys or customer feedbacks can be leveraged to determine the current customer satisfaction levels. Any comments indicating dissatisfaction can be taken into consideration for planning improvements that will eventually enhance customer satisfaction.

Get one step ahead of your peers in the market with intelligent and agile business solutions. Request a free proposal to know how our solutions can help you achieve this!

Business cycle

After identifying the potential markets, the next step is to assess the stage of the business cycle that each market is undergoing. A business cycle ideally comprises of three stages: emerging, plateau and declining. Markets that are in the emerging stage show higher consumer demand and low supply of current products or services. The plateau stage depicts the break-even level of the market, where the supply of goods meets the current market demand. A declining stage indicates lagging consumer demand for the company’s goods or services.

Product Niche

Once the market and their respective business cycles have been reviewed, companies must develop products or tailor their services to meet a specific niche in the market. Products must be differentiated from the peers in the market so that they meet the specific needs of consumers, and thereby create higher demand for the company’s goods or services.

Evaluate competition

A crucial factor of demand analysis is determining the number of competitors in the market and their current market share. Markets in the emerging stage of the business cycle tend to have fewer competitors. This translates to a higher profit margin for your company.

Request for more information and know how we can help you create robust market intelligence strategies that will give you a first-mover advantage in the market.

About Infiniti Research

Established in 2003, Infiniti Research is a leading market intelligence company providing smart solutions to address your business challenges. Infiniti Research studies markets in more than 100 countries to help analyze competitive activity, see beyond market disruptions, and develop intelligent business strategies. To know more, visit: https://www.infinitiresearch.com/about-us

Infiniti Research Anirban Choudhury Marketing Manager US: +1 844 778 0600 UK: +44 203 893 3400 https://www.infinitiresearch.com/contact-us

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Infiniti Research has announced the completion of their recent article on evaluating the importance of demand analysis for your business.

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Demand Analysis

Definition: The Demand Analysis is a process whereby the management makes decisions with respect to the production, cost allocation, advertising, inventory holding, pricing, etc. Although, how much a firm produces depends on its production capacity but how much it must endeavor to produce depends on the potential demand for its product.

Thus, the marketer is required to analyze properly the demand for its product in the market and must hold inventory accordingly. Such as if there is a potential demand in the future, then the firm should hold more inventories and in case there is no demand, then the production remains unwarranted, and hence, lesser inventories are held.

There is a possibility that production might exceed the demand, then the marketer must use alternative ways such as better advertisements to create a new demand.

The demand shows the relationship between two economic variables, the price of the product and the quantity of product that a consumer is willing to buy for a given period of time, other things being equal.

Features/Characteristics of Demand

The following are the main features or characteristics of demand that the marketer must keep in mind while analyzing the demand for its product:

• The demand is the specific quantity that a consumer is willing to purchase. Thus, it is expressed in numbers .
• The demand must mean the demand per unit of time , per month, per week, per day.
• The demand is always at a price, e. any change in the price of a commodity will bring about a certain change in its quantity demanded.
• The demand is always in a market , a place where a set of buyers and sellers meet. The market needs not to be a geographical area.

Thus, demand plays a crucial role in the success of any business enterprise. And it must be remembered that demand is always at a price and a particular time period in which it is created. Such as demand for woolen clothes will be more in winters than in any other season. Hence, demand analysis is always done in terms of the price and the relevant time period.

Related terms:

• Market Demand
• Types of Demand
• Law of Demand
• Elasticity of Demand
• Types of Price Elasticity of Demand

Reader Interactions

messay leulesged says

August 2, 2021 at 11:51 am

I have learned very well about demand analysis. Thank you

CHANDANA says

August 12, 2021 at 10:55 am

GOOD EXPLANATION

Komal Jha says

October 24, 2021 at 11:34 am

Very good explanation

Mathivathani.M says

October 8, 2022 at 9:01 pm

Good explanation

NIKITA SAINI says

November 3, 2023 at 7:59 pm

very well explained

Ritik Jaiswal says

November 5, 2023 at 11:23 am

Very well explained.

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How to Do a Market Analysis for a Business Plan?

• What is Market Analysis in a Business Plan?

Market analysis for a  business plan serves the purpose of exploring the suitability of your product or service for the market. 

Why you should do Market Analysis for a business plan?

What should you include in market analysis, how to do market analysis for a business plan, market research from wisebusinessplans.

• Market Research Institutes and Databases we use

Sample Research

Your market analysis for a business plan lets you see your position in the market. It helps you identify the market trends, product demand, buying trends, seasonality, competition, etc.

A good market analysis will prepare you for a successful launch and steady growth. The time you invest in exploring your target market is well-spent. 

In this article, we have discussed how to conduct market research for a business plan. Make sure you read till the end to fully understand  how to do a market analysis in business plan .

Want to write a business plan? Get help from our business plan writers for hire !

When you analyze your target market in-depth, you understand it better. You understand what market demands are and how your product can serve the market. This market knowledge will help you convince your lenders and investors to work with you. 

These are some reasons why you should include a market analysis business plan.

Reduce Risk

Target on the right customer base, know the trend, project revenues, set growth benchmarks , optimize marketing strategy .

Doing a market analysis will lower your risk of failure by helping you spot market pitfalls. When you know what lies ahead, you can plan better and prepare better. 

A market analysis for a business plan will help you identify the right customer base for your product or service. 

Many people cast a wide net at the start but a market analysis proves them wrong. 

For example, if we say that many Indians live in a neighborhood and an Indian food restaurant will be a sure hit there may be wrong. Maybe all they are eating at home is Indian food and they don’t wish to eat the same food at a restaurant. 

Another example would be thinking that since your product or service is a good match for small businesses, all small businesses are your target customers. 

When you do market analysis and look critically at your customer base, you can dodge false optimism.

All markets are unpredictable in one way or another. Knowing how the market behaves when changes occur and understanding the market trends is important for long-term success. 

Check for seasonality, innovation in the market, and consumer behavior trends. See how your industry responds to the changes in economy.

 A market analysis for a business plan can help you make sound revenue projections for your business. Your projections with data are no longer your wishful thoughts. 

If your revenue forecast is based on solid market research, potential investors and lenders will know it and consider you a serious candidate for funding. 

Every industry moves in a distinct way. Some industries have favorable business conditions and growth is rapid in that industry. 

Doing a market analysis and knowing your industry will help you set realistic growth benchmarks. When you set aggressive growth benchmarks with a reasonable chance of success, you can maximize your business growth. 

Your marketing strategy is how you’ll raise awareness and drive sales for your product or service. Your market analysis can tell you:

• how to reach your customers, 
• how you should design your offers, 
• how much will you need to spend 
• When will you achieve your marketing goals

You will analyze the target market in business plan in this section. Here is what you should include in a market analysis for business plan.

Industry Outlook

Industry outlook shows the direction of your industry. It shows if you are in a growing industry, a stagnant, or a declining industry. 

Consider adding these points to  your industry outlook:

• Are you in a big market like casual wear clothing or a niche market like heavy snow coats 
• Discuss the product life cycle 
• Discuss projected year-over-year growth

Target Market 

Determine and specify your target market. Your initial, super-optimistic estimations about your target market may be incorrect. 

Base your assumptions on data. Specify your target market by using these markers. 

• Identify your target customers’ demographics like gender, age, location, income, education, etc. 
• Create a buyer persona to show what your ideal customer looks like 
• Include research and surveys about your target market like focus groups, and feedback surveys

Product/Service Demand 

Document your product or service demand in the market. See how many units of similar products or services are sold per year and how many people make the purchase. 

Market Growth Prospects 

Assess the overall change in your industry. Every industry has different dynamics. Some industries react to economic shocks with a rapid decline while others may show resilience. 

Many consumer goods industries stay stable for a long stretch of time and you can spot the decline years ahead. On the same lines, discuss the growth prospects of your industry and the market.

Market Trends 

Trends are the sudden changes that disrupt. The fashion industry is one of the best examples to study market trends. 

Watch for similar market trends in your industry and document them. 

Competitor Analysis 

Competitor analysis is the meat of your market analysis for a business plan. These businesses are like case studies as you can learn from their business practices and growth trajectories. 

Industry Entry Barriers 

If the industry entry barriers are low, you’ll compete with a lot of businesses. However, your chances of early success are higher in such industries as you can easily reach the breakeven point and sustain your business. 

Hard entry barriers mean there are established players in that industry and it will take time for you to grab a share of the market. 

Industry Regulations 

See the level of regulations for your industry and make a plan ahead to deal with them. The regulations increase business operating and overhead costs.

When doing industry analysis in business plan, list the industry regulations you’ll need to care for. 

Access our free business plan examples now!

A market analysis is about collecting all the necessary information and research and getting into the details of your industry and competitors. 

You can do a market analysis using this simple framework.

Decide your Purpose 

Do industry research, define your customer, understand competition, collect more data for the market , make use of this data .

You may be doing a market analysis for knowing your industry better or for convincing a potential lender or investor. Once you determine the purpose of market analysis, you can estimate the time and type of research the process will take.

Discuss the industry trends and see how the market is changing over the past few years. You’ll also need to include industry forecasts to complete the picture. 

A comparative market analysis helps you identify your competitive advantage. Make sure to include this in the market analysis.

Defining your customer helps you understand their needs. Define your customer in terms of demographics like:

• Occupation 

Build a buyer persona for your product or service. This will help you understand the customer well and design products and services for your ideal customer. 

Pro Tips: Learn how to write a business plan products and services section.

Understanding your competition will prepare you for the market. Look into their strengths and weakness. See what businesses are successful in your industry and study them to understand how they are doing it. 

Steps for doing competitor analysis business plan.

• List your top competitors 
• Do a SWOT analysis for each competitor 
• Compare their product or service with yours 
• Analyze why a customer chooses their product over others 
• Identify opportunities on how you can improve your product

The more data you have, the better your chances are of doing a top-notch market analysis. 

Collect your data from credible sources. Make sure your data is factually correct. You will be making decisions on the basis of this data. 

Here are some reliable and credible data sources that you use in your market analysis. 

• U.S. Bureau of Labor Statistics
• U.S. Census Bureau
• Local Chamber of Commerce & Industries 
• Trade Journals and Academic Research
• Your own SWOT analysis
• Market surveys or feedback

It is time to make sense of the numbers. 

The market analysis includes details from business conditions to long-term success in the industry. It calculates risk for your business.  Some factors may not be in your favor and you’ll have to decide on your chances of success.  

Keep your data organized in sections. Organize your data with a goal to present it before investors, lenders, and the team. That way, you’ll keep it simple and easy to understand.

Do you want to see an example of market analysis in a business plan? See our business plan examples to understand how it is done. 

Still wondering what is a market analysis in a business plan? See this example of market analysis in a business plan and writer a killer market analysis. Download the  Business Plan Market Analysis Example PDF  here. 

At Wise Business Plans™ we pride ourselves on giving you the best market research for business plans available. We subscribe to commercial software programs and pay hefty licensing fees to give your business a competitive edge. 

Instead of spending hours on figuring out how to do market research for a business plan, hire professionals from WiseBusinessPlans and get a top-notch market research report for your business plan. 

Market Research Institutes and Databases we use 

IBIS World’s Industry Market Research Reports are powerful business tools that provide strategic insight and analysis on over 700 U.S. industries. 

ESRI: Market Research combines GIS (Geographic Information System) technology with extensive demographic, consumer spending, and business data for the entire United States to deliver on-demand, boardroom-ready reports and maps.

Dun & Bradstreet: D&B’s products and services are drawn from a global database of more than 130 million companies.

Hoovers : Hoover’s database of industry information, 65 million company records, and 85 million people records you can deliver valuable business insight to your employees and customers.

First Research: First Market Research is the leading provider of market analysis tools that help sales and marketing teams perform faster and smarter, open doors, and close more deals.

Worried about writing a business plan? Hiring a business plan writer can ease your worries and create a strong plan.

Base your Market Research on data and expertise you can trust.   Hire professional market researchers from WiseBusinessPlans and take a solid start. 

A market analysis in a business plan is an assessment of the target market and industry in which your business operates. It involves researching and analyzing factors such as market size, competition, customer needs, trends, and growth potential.

Gather information for a market analysis by conducting market research through various methods like surveys, interviews, online research, and analyzing industry reports. Collect data on customer demographics, market trends, competitors, and customer preferences.

Include key components in a market analysis, such as an overview of the industry, target market segmentation, customer profiles, competitor analysis, market trends and growth projections, and barriers to entry. Use this information to identify opportunities and assess the viability of your business.

Analyze the competition by identifying direct and indirect competitors in your target market. Assess their strengths, weaknesses, market share, pricing strategies, and unique selling propositions. This analysis will help you understand your competitive landscape and differentiate your business.

A market analysis is crucial for a business plan as it provides insights into the market potential, customer demand, and competitive landscape. It helps you make informed decisions, develop effective marketing strategies, and demonstrate to investors or lenders that there is a viable market for your products or services.

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Demand analysis: What is it and how to do a demand analysis in your business

Demand analysis; how do you use it in your business? Do you want to know how to do a demand analysis for your business? This note tells you the steps to follow to achieve it quickly and effectively. Look!

Market analysis

Before we talk about demand analysis, we must go back and talk about market analysis .

At a macro level, a market analysis provides information about industries, customers, competitors, and other variables. It also allows you to determine the relationship between supply and demand for a particular product.

Based on this knowledge, you can make informed decisions to achieve the success of your business.

One of the key points in market analysis is demand analysis. But what do we mean when we talk about demand? Keep reading, and we’ll tell you.

What is the demand?

In sales, the demand is the number of goods and services that a group of people is willing to acquire to satisfy their needs or desires in a period.

Believe it or not, income ( that is, the material possibility that a customer has to buy a product) is not the only factor influencing demand; there are more.

One of them is the tastes and preferences of the client. Especially today, with the advancement of the digital world, consumers know what they want and need. Therefore, it is essential to know your buyers thoroughly!

Related to this point, there are potential consumers, that is, those people who will probably acquire your product or service and who can be included within your ideal client or buyer person.

However, the demand may not be related to customer issues. For example, it may depend on the prices of other goods with which they are associated, which we call the price of related products.

What is demand analysis?

Now that you know what demand is, we can finally get to the point: demand analysis is a process through which we seek to understand potential consumers’ need for a particular product or service within a target market.

Why does it? We generally do it when we want to break into a particular market to test the terrain and evaluate possibilities. With the data we get from the analysis, we can determine the best offer that can launch .

How to do a demand analysis?

Demand analysis aims to answer two questions: how many people want my product? And of them, how many can buy it? Here’s how to answer these questions.

1) Define your target audience

There is no single way to do a demand analysis. The demand analysis you carry out will depend on the kind of market, the size, and the target or target audience .

For this, it can be beneficial to carry out surveys and interviews that help you know your current clients’ opinions. This way, you will be able to see their satisfaction level with your products and if they are ready to receive a new product or service.

Knowing the target audience allows us, among other things, to put a price on a product. For example, suppose we target a segment that we qualify as having high purchasing power. In that case, we can be freer when thinking about the value of the product we want to launch.

2) Identify the total money supply and demand

Logically, we want to perform a demand analysis that is as accurate as possible. Therefore, we must consider elements that have to do with the current state of the country or region where we want to launch the product or service. So, we use two currency indices.

On the one hand, we can use the money supply, that is, the total amount of money that exists in a country’s economy. On the other hand, we are oriented according to the total monetary demand, which consists of the wealth that companies and people keep in the form of money. Therefore, this term is closely related to the first and adds some liquidity.

But what is this data for? Knowing the amounts of money that are handled in a country allows you to determine its economic cycle. It describes the rise and fall of production of goods and services in the economy through the real Gross Domestic Product (GDP) or adjusted for inflation.

Identifying what economic cycle the market and economy of your country are in will help you define the actions you can take in your business. It is also helpful to know whether or not it is time to launch a new product or service on the market, for example.

3) Keep the product niche

Once you’ve determined if it’s an opportune time to release a new product, you need to make sure you find your niche. A market niche is a portion of the market in which individuals have needs that are not covered by the massive market supply. It is where your product or service comes in. At this point, it is crucial that your company and your products or services can demonstrate a competitive advantage. That is, what you offer has to be the best option compared to the competition that exists in the market. So how do you know if your product has a competitive advantage? Make sure you know your competition thoroughly.

First, evaluate your strengths and weaknesses to know your areas of opportunity and be able to develop your advantages fully. Achieving something distinguishable from the rest is the key to sales success.

Our advice is to remember that niches do not always remain the same because consumers change. Therefore, you have to be attentive to their evolution. Your company must adjust to the fluctuating needs of the market; this can be through a reinvention of the brand or rebranding, a design change, or a new article.

A case on-demand analysis

A trendy food restaurant in the United States wanted to increase its potential and added a new gastronomic option to its menu. The dish began to be tested in San Francisco, and although expectations were low, the new product was a success.

How do I do it? Through an analysis of demand, the restaurant verified that, during the first period and in the branches that offered the dish, it averaged 3% of sales. In turn, he found that 50% of customers who preferred the plate were meat eaters looking for a change.

He identified a particular target audience through surveys and a solid social media presence. He was able to narrow down the best markets in which to test the product. Once he considered the United States’ economic cycle, he realized that it was an excellent time to launch the product en masse.

The restaurant stood out for constantly including new gastronomic options on the menu to increase its influence, adjusting to its niche progressively.

Thinking in competitive terms, he discovered that there were no similar products, which was a new market.

Through this example, we can see that the successful inclusion of a new product in the market is only possible through a well-done demand analysis.

Now you know everything , you need to start doing a demand analysis. What are you waiting for to take advantage of it? Do not waste time! Start applying your new knowledge to translate it into sales.

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• > Economics

A Guide to Demand and Supply Analysis

• Yashoda Gandhi
• Feb 15, 2022

Introduction

The study of how buyers and sellers interact to determine transaction prices and quantities is known as demand and supply analysis. As we'll see, prices reflect both the value of the next (or marginal) unit to the buyer and the cost to the seller of that unit. 

The most basic set of microeconomic tools in private enterprise market economies, which are the primary concern of investment analysis , is demand and supply analysis.

Consumers (or households) and firms are the two types of private economic units classified by microeconomics. The theory of the consumer and the theory of the firm are two branches of study based on these two groups. 

The consumer theory is concerned with utility-maximizing individuals' consumption (demand for goods and services) (those who make decisions to maximise satisfaction from current and future consumption).

The firm theory is concerned with profit-maximizing firms' provision of goods and services. The consumer and firm theories are important because they help us understand the underlying principles of demand and supply. The theory of the consumer and the theory of the firm will be the focus of subsequent readings.

What is Supply and demand analysis ?

Two laws are at the heart of a supply and demand analysis: the law of demand and the law of supply. According to  The Business Professor , the law of demand states that as prices rise, the quantity of desired goods and services decreases. The law of supply, on the other hand, states that as prices rise, so does the number of goods and services available.

A technical assessment of securities based on factors influencing supply and demand for a specific security or for securities in general. The purpose of the supply-demand analysis is to see if there is or will be an imbalance between supply and demand for securities. 

For instance, if a security's supply is expected to exceed demand, the security should be sold or avoided because its price is likely to fall. New stock offerings, government borrowing, pension fund contributions, mutual fund cash balances, and a variety of other similar factors are all factored into the supply-demand analysis.

Also Read |  Factors affecting the supply of a product

When to apply Supply and demand analysis ?

With a few exceptions, the law of demand states that as the price of a good or service rises, so does the quantity demanded. The law of supply states that as a supplier's price rises, so does the quantity supplied. Demand is often a downward sloping curve in the price-quantity plane, whereas supply is an upward sloping curve.

The market equilibrium is defined as the intersection of the supply and demand curves, which determines the equilibrium levels of price and quantity of a particular good (or service) in the economy. Excess demand describes a situation in which the current demand for a good (or service) in the economy exceeds the equilibrium quantity.

In a similar vein, excess supply is defined. Changes in supply and demand (and thus the equilibrium price and quantity) of any good or service can be influenced by a variety of factors, including policy changes, unexpected economic shocks, business cycle fluctuations such as a recession or a boom, or even simply over time (long run versus short run).

It also depends on the market's characteristics (whether the market is perfectly competitive or monopolistic etc.). The study of supply and demand, or simply 'Demand-Supply Analysis,' could be applied to all of the above. (source)

Supply-demand analysis tool

A comprehensive strategic planning approach includes supply and demand analysis. Because the market and consumer habits are rapidly changing, it's all about making sure you're always responding in the best way possible to the needs of the customers you're trying to serve.

This tool will give you a solid foundation for a supply and demand analysis, which can then be used to inform a more comprehensive strategic planning process.

The Supply/Demand Analysis feature is a chart that is directly embedded in the scenario. The graph shows the supply and demand planning data over time in a combined view.

The supply data is shown as a stacked bar graph, with the area stacked vertically according to the building or lease. The demand data is shown as a line graph that is superimposed on the bars. This graph depicts how an organization's space or area supply compares to its demands.

You can use this tool to interactively analyse scenario options to match forecasted business demand to portfolio space supply over time. The graphical analysis tool can assist you with the following:

Visually identify supply-demand gaps that necessitate action planning to meet demand or maximise portfolio utilisation.

Consider what-if supply-side scenarios for lease contract options, new building expansions, and portfolio consolidations.

Examine the effects of demand-side changes in order to match supply or close gaps.

Also Read |  11 Types of Economic Theory

Importance of demand and supply analysis

Demand analysis.

For a new business, the analysis can determine whether there is a significant demand for the product/service, as well as other information such as the number of competitors, size of competitors, industry growth, and so on. It aids in determining whether a company can enter a market and generate sufficient returns to sustain and grow its operations.

Demand analysis aids in identifying key business areas with the highest demand and areas that require attention, as low demand can indicate a variety of issues, such as customers not being aware of the product/service, which necessitates increased advertising and promotion, or customer needs not being met by current product/service, which necessitates improvements, or competitors have sprung up with better offerings, among other things.

Supply analysis

Supply analysis aids manufacturers in determining the impact of changes in production and policies on the increase or decrease in finished goods supply. 

For example, newer upcoming technology can aid in the production of more goods in the same amount of time. The results of the analysis can be used to determine whether or not this new technology should be adopted. 

Is there a demand for more products if this technology can help produce more? What effect will it have on the current labour market, and how will it affect supply?

Another example is the impact of market wage increases on supply. The cost of labour will rise, and with it, the cost of goods will rise as well. 

If the supply must be maintained at the same level, the costs must be maintained at the same level, and if the supply must be maintained at the same level, the supply must be reduced, driving up prices if the demand remains constant. These are some of the questions that supply analysis aims to address.

Also Read |  What is Scarcity in Economics?

Demand analysis parameters

Price of similar products.

As we discussed in the first two points about price and purchasing power, the price of a competitor's product or service enters the equation and can influence demand. If a competitor's price is lower, demand for that product will be higher, and vice versa. In the case of luxury or niche products, the situation may be different.

Customer preferences and requirements

Consumer behaviour must be taken into consideration. The product or service must match the preferences of the customer; otherwise, there will be no demand for it.

Price set by the product itself

In demand analysis, the product's price is very important. Demand will be affected if the price is too high in comparison to competitors or what the customer can afford. It can be low or high, depending on the product or service's price point.

Profits from customers

Customer purchasing power has a significant impact on product demand. If a product or service is offered at a price point that is higher than a customer group's affordability, demand will be low, so customer income must be considered.

Customers in the market

Customers drive demand, so the potential market is an important parameter for demand analysis. If the customer base is too small for a viable business, even if the first five points are favourable, demand will never rise because the customer base is too small.

Expectations

Based on the overall industry landscape, the customer may have expectations for a new or existing product. For example, if every competitor in the market provides free warranty service but one company does not, that company is unlikely to meet customer expectations. (source)

Example of demand-supply analysis in tariffs

A tariff is a tax imposed on goods from other countries that are sold in the United States. Assume that foreign-made automobiles are subject to a 10% tax.

Who would be the ones to bear the brunt of this tax? Assume that a Japanese car and a similar American car both sell for $25,000 in the United States.

According to the source , with the ten per cent tax ($2,500) on Japanese cars, the Japanese company wants to raise the price to $27,500. The tariff will be imposed on Japanese automobile manufacturers.

A tariff on a foreign product with very elastic demand is referred to as an optimal tariff in technical terms. In the United States, the price of a foreign product rises very slowly.  

Also Read |  Law of Diminishing Marginal Utility

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How to Write a Customer Analysis

Elon Glucklich

9 min. read

Updated October 27, 2023

You’ve been hard at work conducting market research into your potential customers— developing a deep understanding of industry dynamics and the potential size of your market .

Hopefully, you’ve also spent time interviewing potential customers—learning about their behaviors and needs, and digging into publicly available data to support your research. 

But you still need to document these findings in a way that gives you an actionable road map to grow your customer base.

This is where a well-written customer analysis can be extremely useful. 

Including a customer analysis in your business plan will boost your marketing efforts by identifying your target customers , their needs, and how your product or service addresses these needs.

• Customer analysis vs market analysis

A market analysis is a broader exploration of the market and potential customers.  A customer analysis zooms in on the specific behavioral or demographic characteristics of individual customer segments in your target market.

The market analysis includes details like the number of customers you hope to serve and the types of competitors you must contend with. 

By contrast, the customer analysis looks at the specific attributes of your potential customers – their personal habits, values, beliefs, and other characteristics that might affect their purchasing decisions.

• What should a customer analysis include?

Demographics

Some of the earliest information you’ve collected probably about your customers includes:

• Gender/ethnicity
• Income level
• Geographic area
• Education level

Example: Suppose you own a business that creates an environmentally friendly cleaning product . Your customer demographics might include: 

• Age range: 30-60 (old enough to have used a variety of cleaning products in their homes)
• Income: Above average (more likely to buy a higher-priced alternative to discount cleaning products)
• Education level: college degree or equivalent (high enough education level to understand the product’s societal benefits).
• Employment: full-time employee

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Values and beliefs

This section captures the psychological and emotional factors that influence customer behavior. 

• Cultural backgrounds
• Ethical values

Let’s return to the environmentally friendly cleaning product example. You are more likely to attract customers who prioritize sustainability and are willing to pay more for products that match their values.

Buying behaviors

Analyzing buying behaviors involves understanding how, when, and why customers purchase. These behaviors impact:

• The channels customers prefer for shopping
• Price sensitivity
• Factors that trigger a buying decision

Example: Suppose you’re running an environmentally friendly cleaning products business. In that case, you might discover that most of your customers buy their cleaning products from a magazine for homeowners or that they typically buy multiple cleaning products simultaneously. 

Technology use

Nearly three-quarters of small businesses have a website . Even if your business doesn’t have one, your customers are, without a doubt, browsing the internet. 

So it’s critical to understand how your target customers interact with technology and to set up an online presence for your business if you aren’t already active. 

Key questions about customers’ technology habits include:

• Are they active on social media? If so, which platforms? 
• Do they prefer online shopping or in-store visits? 
• Are they more likely to respond to email marketing, blog content, or social media campaigns?

Example: Let’s say you discover that significantly more of your target customers visit websites like yours on a smartphone than a desktop. In that case, it would be important to optimize your website for mobile viewing or develop a user-friendly app . 

• 5 steps to write a customer analysis for your business plan

Now that we understand the individual pieces of a customer analysis, we’ll examine how to write a customer analysis for your business plan .

1. Use existing data

Regardless of your country, there are likely numerous sources of data published by government agencies, private industry, or educational institutions that could be relevant to your business.

Finding existing data is the best starting point for your customer analysis. It’s easy to find, it’s regularly updated, and it’s immensely valuable for providing context for your research. 

For instance, if you determine that your target demographic is people between 30 and 60, Census data can help you determine the number of residents in your selling area within that age range.

We’ll look at some examples of publicly available data for businesses operating in the United States.

U.S. Census Bureau

The Census Bureau publishes official population counts for the country, states, and local communities. Demographic characteristics like age, gender, and race sort the data. Census data also includes useful data for businesses, such as the total number of businesses, employment counts, and average incomes in local communities across the country.

Bureau of Labor Statistics

Data from the Bureau of Labor Statistics tracks changes in the U.S. workforce and the overall state of the labor market. The BLS publishes the Consumer Price Index , tracks consumer spending, and gauges overall consumer confidence. 

Examining this data can give you insights into the willingness of consumers to pay for your product or service.

Bureau of Economic Analysis

The Bureau of Economic Analysis takes a broader look at the performance of the U.S. Economy. You can use BEA data to find personal income and corporate profit data by industry. 

If you make a product or service used by other businesses, these figures can help you understand the financial health of the broad customer base you’re targeting.

Federal Reserve

The Federal Reserve publishes various financial reports, such as consumer credit and spending statistics , as well as the health of banks. 

This data can give you important context about the financial health of your customers, which could help you determine pricing strategies—like whether you should offer flexible payment plans.

Industry associations

There are thousands of private sector industry associations in the United States alone. These organizations not only advocate for the businesses in their field. They provide members with a wealth of helpful information, such as “state of the industry” reports and business surveys. 

You should leverage customer data from these peer organizations as a business owner.

Academic institutions

Many university business schools make their research publicly available online. Scholars make a career out of researching market and industry trends, and much of their work is available through online searches. 

2. Review customer feedback

One of the most direct ways to show an understanding of your customers in your analysis is by reviewing their feedback.

If you’re a new business without direct customer feedback yet, that’s OK. Instead, look around at what people are saying about your competitors . You might find common complaints from customers in your industry about the products available. 

You can then reach out and interview potential customers to better understand their needs.

If you have an existing business, there may already be reviews of your company on Google or social media sites like LinkedIn. Doing so can help you determine if customers are struggling to use your product or have suggestions for improvements. 

Read as many reviews as possible, and use them to show an understanding of your customers’ needs in your analysis.

3. Use third-party data

So far, we’ve discussed free, publicly available sources to find information about your customers. 

But for those willing to dig deeper, third-party data providers can help you uncover information that’s truly unique to your business and your customers.

Google Analytics

Third-party data providers like Google track the activity of users across numerous websites. Google has its own tool, Google Analytics , which makes that information available on your company’s website.

This data is a gold mine for understanding your customers. Besides giving you a demographic and geographic breakdown of your visitors, it can tell if they view your site on a desktop or smartphone, what pages they’re clicking, navigating around your site, and much more.

For new business owners, Google Trends is a powerful tool to discover what people are searching for online. 

For the environmentally friendly cleaning products business we’ve used as an example—you could see how many people are searching on Google for information about products like floor cleaners or dishwasher detergents.

Social media metrics

If your business uses social media, there are plenty of tools to help you understand your audience on these platforms. 

Many social media companies make their data available to businesses at a cost. For instance, the Facebook Audience Insights platform gives you information about the types of people who visit your page or interact with your posts.

There are also third-party tools like Hootsuite, Sprout Social, and Buffer, which track various metrics across social media platforms.

Wherever you find the data, including social media metrics in your customer analysis provides instant feedback about how customers interact with your business.

Specialty tools

Software companies have created numerous tools that collect and analyze customer data from various online sources. 

Audience research tools like SparkToro and FullStory analyze large amounts of data online and spot trends—such as the topics people discuss online and which websites or social media accounts those audiences visit. 

These are insights that would be incredibly time-consuming to get directly from customers. However, understanding where potential customers spend time online and what they talk about can easily turn your analysis into a targeted marketing campaign that addresses their needs.

4. Create a customer persona

After gathering and analyzing all this data, you should have plenty of information about your customers. The next step is to create a customer persona . In case you need a refresher, the customer persona is a semi-fictional representation of your ideal customer based on your collected data.

For example, a customer persona for that environmentally friendly cleaning products business will reflect that audience’s demographics, behaviors, and needs. 

In addition to being an effective tool to focus your marketing efforts, creating this persona can help determine the size of your customer base and how to prioritize your time and resources to attract them to your business. It’s also helpful to show potential investors you know your target audience.

5. Connect to your problem/solution statement

Many business plans include a problem and solution statement as early as the introduction. It’s a reasonable way to start, considering that successful businesses identify a problem and provide a solution. 

So as you put your customer analysis together, ensure the research is grounded in the problems they’re experiencing. Doing so will keep you accountable by making you validate your product or service as the solution they need.

• Get started with your business plan template

A customer analysis is a key part of any business plan. But it’s just one piece. At Bplans, we take some of the pain out of business planning. 

We’ve developed a free business planning template to help reduce entrepreneurs’ time to create a full, lender-ready business plan.

Bplans has also collected over 550 free sample business plans across numerous industries. Find one that fits your industry to get inspiration and guidance when writing your plan.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Elon is a marketing specialist at Palo Alto Software, working with consultants, accountants, business instructors and others who use LivePlan at scale. He has a bachelor's degree in journalism and an MBA from the University of Oregon.

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How to Use TAM, SAM, SOM to Determine Market Size

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How to do a market analysis for a business plan

A key part of any business plan is market analysis. This section needs to demonstrate both your expertise in your particular market and the attractiveness of the market from a financial standpoint.

This article first looks at what we mean exactly by market analysis before looking at how to make a good one for your business plan.

What is a market analysis?

A market analysis is a quantitative and qualitative assessment of a market. It looks into the size of the market both in volume and in value, the various customer segments and buying patterns, the competition, and the economic environment in terms of barriers to entry and regulation.

How to do a market analysis?

The objectives of the market analysis section of a business plan are to show to investors that:

• you know your market
• the market is large enough to build a sustainable business

In order to do that I recommend the following plan:

Demographics and Segmentation

Target market, market need, competition, barriers to entry.

The first step of the analysis consists in assessing the size of the market.

When assessing the size of the market, your approach will depend on the type of business you are selling to investors. If your business plan is for a small shop or a restaurant then you need to take a local approach and try to assess the market around your shop. If you are writing a business plan for a restaurant chain then you need to assess the market a national level.

Depending on your market you might also want to slice it into different segments. This is especially relevant if you or your competitors focus only on certain segments.

Volume & Value

There are two factors you need to look at when assessing the size of a market: the number of potential customers and the value of the market. It is very important to look at both numbers separately, let's take an example to understand why.

Imagine that you have the opportunity to open a shop either in Town A or in Town B:

Although Town B looks more competitive (10 competitors vs. 2 in Town A) and a smaller opportunity (market size of £100m vs. £200 in Town A), with 1,000 potential customers it is actually a more accessible market than Town A where you have only 2 potential customers.

Potential customer?

The definition of a potential customer will depend on your type of business. For example, if you are opening a small shop selling office furniture then your market will be all the companies within your delivery range. As in the example above it is likely that most companies would have only one person in charge of purchasing furniture hence you wouldn't take the size of these businesses in consideration when assessing the number of potential customers. You would however factor it when assessing the value of the market.

Market value

Estimating the market value is often more difficult than assessing the number of potential customers. The first thing to do is to see if the figure is publicly available as either published by a consultancy firm or by a state body. It is very likely that you will find at least a number on a national level.

If not then you can either buy some market research or try to estimate it yourself.

Methods for building an estimate

There are 2 methods that can be used to build estimates: the bottom-up approach or the top-down approach.

The bottom-up approach consists in building a global number starting with unitary values. In our case the number of potential clients multiplied by an average transaction value.

Let's keep our office furniture example and try to estimate the value of the 'desk' segment. We would first factor in the size of the businesses in our delivery range in order to come up with the size of the desks park. Then we would try to estimate the renewal rate of the park to get the volume of annual transactions. Finally, we would apply an average price to the annual volume of transactions to get to the estimated market value.

Here is a summary of the steps including where to find the information:

• Size of desks park = number of businesses in delivery area x number of employees (you might want to refine this number based on the sector as not all employees have desks)
• Renewal rate = 1 / useful life of a desk
• The volume of transactions = size of desks park x renewal rate
• Value of 1 transaction = average price of a desk
• Market value = volume of transactions x value of 1 transaction

You should be able to find most of the information for free in this example. You can get the number and size of businesses in your delivery area from the national statistics. Your accountant should be able to give you the useful life of a desk (but you should know it since it is your market!). You can compare the desk prices of other furniture stores in your area. As a side note here: it is always a good idea to ask your competitors for market data (just don't say you are going to compete with them).

That was the bottom-up approach, now let's look into the top-down approach.

The top-down approach consists of starting with a global number and reducing it pro-rata. In our case, we would start with the value of the UK office furniture market which AMA Research estimates to be around £650m and then do a pro-rata on this number using the number of businesses in our delivery area x their number of employees / total number of people employed in the UK. Once again the number of employees would only be a rough proxy given all business don't have the same furniture requirements.

When coming up with an estimate yourself it is always a good practice to test both the bottom up and top-down approaches and to compare the results. If the numbers are too far away then you probably missed something or used the wrong proxy.

Once you have estimated the market size you need to explain to your reader which segment(s) of the market you view as your target market.

The target market is the type of customers you target within the market. For example, if you are selling jewellery you can either be a generalist or decide to focus on the high end or the lower end of the market. This section is relevant when your market has clear segments with different drivers of demand. In my example of jewels, value for money would be one of the drivers of the lower end market whereas exclusivity and prestige would drive the high end.

Now it is time to focus on the more qualitative side of the market analysis by looking at what drives the demand.

This section is very important as it is where you show your potential investor that you have an intimate knowledge of your market. You know why they buy!

Here you need to get into the details of the drivers of demand for your product or services. One way to look at what a driver is to look at takeaway coffee. One of the drivers for coffee is consistency. The coffee one buys in a chain is not necessarily better than the one from the independent coffee shop next door. But if you are not from the area then you don't know what the independent coffee shop's coffee is worth it. Whereas you know that the coffee from the chain will taste just like in every other shop of this chain. Hence most people on the move buy coffee from chains rather than independent coffee shops.

From a tactical point of view, this section is also where you need to place your competitive edge without mentioning it explicitly. In the following sections of your business plan, you are going to talk about your competition and their strengths, weaknesses and market positioning before reaching the Strategy section in which you'll explain your own market positioning. What you want to do is prepare the reader to embrace your positioning and invest in your company.

To do so you need to highlight in this section some of the drivers that your competition has not been focussing on. A quick example for an independent coffee shop surrounded by coffee chains would be to say that on top of consistency, which is relevant for people on the move, another driver for coffee shop demand is the place itself as what coffee shops sell before most is a place for people to meet. You would then present your competition. And in the Strategy section explain that you will focus on locals looking for a place to meet rather than takeaway coffee and that your differentiating factor will be the authenticity and atmosphere of your local shop.

The aim of this section is to give a fair view of who you are competing against. You need to explain your competitors' positioning and describe their strengths and weaknesses. You should write this part in parallel with the Competitive Edge part of the Strategy section.

The idea here is to analyse your competitor's angle to the market in order to find a weakness that your company will be able to use in its own market positioning.

One way to carry the analysis is to benchmark your competitor against each of the key drivers of demand for your market (price, quality, add-on services, etc.) and present the results in a table.

Below is an example of a furniture shop in France. As you can see from the table all the actors on the market are currently focused on the low medium range of the market leaving the space free for a high end focused new player.

This section is all about answering two questions from your investors:

• what prevents someone from opening a shop in front of yours and take 50% of your business?
• having answered the previous question what makes you think you will be successful in trying to enter this market? (start-up only)

As you would have guess barriers to entry are great. Investors love them and there is one reason for this: it protects your business from new competition!

Here are a few examples of barriers to entry:

• Investment (a project that requires a substantial investment)
• Technology (sophisticated technology a website is not one, knowing how to process uranium is)
• Brand (the huge marketing costs required to get to a certain level of recognition)
• Regulation (licences and concessions in particular)
• Access to resources (exclusivity with suppliers, proprietary resources)
• Access to distribution channels (exclusivity with distributors, proprietary network)
• Location (a shop on Regent's Street)

The answer to the questions above will be highly dependent on your type of business, your management team and any relations it might have. Therefore it is hard for me to give any general tips about it.

If regulation is a barrier at entry in your sector then I would advise you to merge this section with the previous one. Otherwise, this section should be just a tick the box exercise where you explain the main regulations applicable to your business and which steps you are going to take to remain compliant.

Now you know how to do a market analysis for a business plan! I hope you found this article useful. If so please share it, and if not let us know what we need to improve.

Also on The Business Plan Shop

• Free business plan template to download
• TAM SAM SOM, what it means and why it matters
• Business model vs business plan
• What is a business plan and how to create one?

Founder & CEO at The Business Plan Shop Ltd

Guillaume Le Brouster is a seasoned entrepreneur and financier.

Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.

Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.

Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.

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Market Analysis Business Plan

At first, you may think that a market analysis business plan is complex and formal. However, if you are already aware of the basics of its development and execution, then you can easily understand how easy it is to create this document.

• 10+ Retail SWOT Analysis Examples
• 8+ Executive Summary Marketing Plan Examples

Market analysis can be done in an efficient manner as long as you have all the firsthand details that you need, the equipment and tools that can help you within the entire market analysis, and the knowledge about the proper integration of analysis processes and results to your business plan.

Do not feel dissuaded in creating a market analysis business plan just because you think it is a critical document that you cannot create on your own or from scratch. If you are already planning to execute the steps that will help you draft a marketing analysis for your business, there are actually guidelines that will allow you to be more prepared in developing the document.

Do not worry on how to find these guides and other help that you need as we got you covered. Make sure to download the examples of market analysis business plans available in this post for references.

Market Analysis and Business Development Strategy Planning Example

Business Plan Template with Marketing Analysis Example

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What Makes a Market Analysis Business Plan an Important Part of Your General Business Plan?

It is already evident that customers play a vital role when it comes to the successes of the business. Hence, it is of utmost importance for you to continuously provide what they need and meet their expectations as well. However, this will not be possible if you do not know anything about them. This is where the benefits of planning, developing, and implementing a marketing analysis business plan come in. You may also see marketing plan examples .

A comparative market analysis , or any other kinds of market analysis business plan for this matter, is an essential process and document that will help you achieve efficiency and sustainability within the implementation of your marketing efforts, operational action plans, and business development strategies .

Listed below are a few of the reasons why it is recommended for you to include a market analysis business plan in your general business plan are as follows:

1. A market analysis business plan can help provide a thorough explanation of the market segmentation that you have considered as well as the focus that you allotted both for your current market and potential sales leads. With this, you can be more aware of the threats and opportunities that you can face in the future through a valuable market forecast. You may also like marketing strategy plan examples .

2. A market analysis business plan presents the needs, demands, and expectations of your target market. This helps a lot in terms of providing information that will guide you in the development of action plans that can meet the requirements for business sustainability and market relevance.

3. A market analysis business plan can showcase a more in-depth description of your audience. With the help of this document, you can specifically point out your target market, their locations, the things that are relevant and beneficial to their daily activities, and the factors that can affect their purchasing or buying decisions. You might be interested in define marketing plan and its purpose ?

4. A market analysis business plan can show not only the reaction of the market to your offers but also to those coming from the competitors. With this, you can analyze the difference of your products, services, and offers from that of your competition. This can help you a lot when there is a need to plot new market strategies, which can effectively get the attention and trust of your desired audience. You may also see business marketing plan examples .

Business Plan: Market Research and Analysis Example

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Supply Market Analyis and Business Plan Example

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How to Develop an Impressive Market Analysis Business Plan

Are you aware of what a market analysis – demand and supply is? Simply put, it presents the concept that there should be balance with regards the demands of the market and the supply that you provide them with. It is essential for you to know the market that you are catering to so you can successfully use your resources and present your offers. This can result to the improvement of your marketplace standing and operational efficiency.

Developing a market analysis business plan can be very helpful as this document can make it easier and faster for you to organize the call-to-actions that you need to execute and the tactics that you need to incorporate in your efforts and movements to achieve maximum results. You may also see strategic marketing plan examples .

Some of the guidelines that you can follow if you want to develop an impressive market analysis business plan include the following:

1. Know the market segments that you have a hold of and define the kinds or types of customers that are present in each segment. It is essential for you to know the groupings of your target customers so that you can point out the specific key factors that can affect their decisions when buying an item or acquiring services. You always have to be reminded that different market segments have different qualities and characteristics. You may also like apartment marketing plan examples .

Hence, there is a need for your market analysis business plan to provide particular strategies and tactics.

2. Be aware of the factors that can affect the implementation of your market analysis business plan. This includes the nature of the activities of your market segment, the description of the forces that can affect your competitive advantage, the communication and distribution channels that you will use, and the required simple action plans that you need to execute in a timely manner to achieve your goals and objectives.

3. Know the ways on how you can effectively get information of your market. Aside from surveys and questionnaires , there are still different tools and equipment that you can use to have a hand on the details that you need to analyze to come up with the strategies and general action plans that fit your business operations and marketing efforts.

Marketing Business Plan Example

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Market Analysis to Support Business Planning Example

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Business Plan: Market Research Report for Advanced Product Example

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Elements to Consider When Developing a Market Analysis Business Plan

Not all elements of a comparative market analysis are the same with that of a market analysis business plan. There are also differences when you compare the functions of each elements in both documents. Before you create a market analysis business plan, you have to make sure that you will make yourself knowledgeable of the things that you will work on so that you can achieve your desired final document.

Some of the most important elements that you need to consider if you have already decided to start the processes of developing a market analysis business plan are as follows:

1. Geographical and demographic conditions.

How many of your desired audience are within a particular market segment? Is the location of the marketplace convenient to your business and your operations? You have to know the number of people that you can reach through your marketing efforts as well as the areas in which specific activities are needed to be done. You may also see restaurant marketing plan examples .

In this manner, your market analysis business plan can present whether it is really reasonable to tap the particular market specified in the document.

2. Sales leads and potential customers.

Do not just focus on the current customers who provide you with their purchasing power. You always have to be innovative when creating a market analysis business plan as not all customers will forever be there to execute repeat business. Know how to analyze market segments that can be your next target. Doing this can give you a higher possibility of bigger sales and wider market reach. You may also like event marketing plan examples .

3. Market movement, purchasing power and buying habits.

The financial and sales aspect of the business should be prioritized when making a market analysis business plan. Analyzing a market whose activities does not align to the business offers will only waste your time, efforts, and resources. This is the reason why you first need to have an initial findings about your target or desired audience. With this, you can assess how they match your business operations and needs. You may also check out digital marketing plan examples .

4. Direct competition and their activities.

A market analysis business plan does not only rely on the evaluation and assessment of the consumers, customers, and/or clients. You also have to look into the activities of your direct competitors.

Doing this can help you become more aware on how their processes affect or impact their operations and brand. Hence, you can veer away from activities that can produce negative results and you can also give more focus on the strategies that can provide you with the most benefits. You might be interested in personal marketing plan examples .

Market Research and Analysis for a Business Plan Example

Transmedia Marketing Plan and Analysis for a Business Example

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Market Analysis and Business Plan Example

In Need of Tips for Creating a Market Analysis Business Plan?

Having the best products and/or services is not enough. If you cannot carry out the exact marketing message that you would like to disseminate in the marketplace, then you cannot expect the best returns from your audience. You may also see annual marketing plan examples .

More so, not knowing how you can connect to your audience or how you can incorporate the usage and benefits of your offers to their needs and activities will most likely lessen the potential successes of your business.

Developing a market analysis business plan is very important as it helps you focus on the environment rather than just internal functions and abilities. With this, you can thoroughly align and use your resources based on the expected results and reactions of your market. All the useful tips that can help you create an outstanding market analysis business plan are listed below. You may also like marketing strategy business plan examples .

1. You should have enough knowledge on how to do the market analysis for a business plan . Aside from the discussions and examples in this post, it will be best if you will still research and find resources that will help you understand the full concept of market analysis. The more you know about the development of this document, the easier it will be for you to put together necessary and relevant information.

2. Make sure that you will come up with a concise and well-defined industry description. You have to know the size and growth forecast of the marketplace where your business belongs. In this manner, you can point out the life cycle of market processes as well as the changes in trends that can affect the decision-making processes of your target audience. You may also check out importance of business plan .

3. Focus not only on your desired market size and the characteristics of your target market segment. You also have to look into the competition and other external factors that you cannot control. This can help you be prepared when facing threats and risks from elements that you do not have a hold of. You might be interested in simple marketing plan examples .

4. Present the market analysis business plan accordingly. Use clauses that can group all the discussion areas or parts that are intended to be together. Using proper headings and subheadings is also a great way to make the document more organized and presentable. If you need help in formatting the document, do not hesitate to use market analysis business plan template examples .

Do not skip the evaluation, review, and assessment of your market when making a business plan document. Knowing the quality standards that you incorporate in your operations and offers is one thing. Knowing how the market will react to your marketing message is another. For you to ensure that your practices and activities are relevant, you have to perform market analysis. Try developing your own market analysis business plan now.

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