Wallstreet Logo

Trending Courses

Course Categories

Certification Programs

  • Free Courses

Economics Resources

  • Free Practice Tests
  • On Demand Webinars

Demand and Supply Analysis

Last Updated :

21 Aug, 2024

Blog Author :

Edited by :

Reviewed by :

Dheeraj Vaidya

Table Of Contents

What is Demand and Supply Analysis?

The demand and supply analysis focuses on the demand for a product or service and maximum production-distribution capabilities. It highlights the gap between the market's requirements and the fulfillment of goods and services.

This analysis is based on the law of demand and the law of supply. The law of demand explains that the demand for goods is inversely related to their price. The law of supply, on the other hand, states that goods supply is directly related to their price.

Table of contents

Demand-supply analysis explained, applications, frequently asked questions (faqs), recommended articles.

  • Demand and supply analysis is the study of price changes with respect to the number of buyers and sellers for a particular product.
  • In a state of market equilibrium, the demand curve and the supply curve intersect. At this point, the demand and supply for a commodity are equal.
  • The fair price of farm yield is also based on demand-supply. In a perfectly competitive market, farmers are price takers and demand-supply is the price maker. Therefore, governments set a minimum price to protect farmers.

The demand for goods and services signifies the consumers' need, willingness, and ability to buy a particular product. Supply, on the other hand, refers to the production capacity of manufacturers and distributors. A demand and supply analysis is essential to understand the impact of those forces on buyers, sellers, buyer-seller interactions, and prices.

The demand-supply study is based on the laws of demand and supply. The law of demand depicts an inverse relationship between goods price and goods demand. The law of demand renders a downward sloping curve—demand goes up when goods price falls.

Demand Curve

If other factors remain constant, the law of supply suggests that an increase in goods price should result in an increase in the supply of goods and vice-versa. It establishes a direct relationship between the price and supply of a commodity—forming an upward curve.

Demand and supply analysis

Demand and supply together help determine market conditions and consumer behavior. Thus, understanding economic equilibrium is crucial in economics.

Economic equilibrium or market equilibrium is a point where the demand curve cuts across the supply curve . It is a scenario where the demand for a commodity is equal to its supply. On a graph, it is represented as follows:

Demand and supply analysis (Economic Equilibrium)

However, if demand exceeds supply, then there is a shortage of that product. Also, if supply is higher than demand, there is a surplus.

The demand for a product or service is dictated by various factors—goods price, consumer income, consumer taste, consumer preference, price of related goods, competition, consumer expectations, and income distribution.

Similarly, supply fluctuates due to price changes , fiscal policy, monetary policy, natural disasters, price of production factors, monopoly, climate conditions, infrastructure, and technological advancement.

The most common example of demand and supply is the price fluctuation of securities. Stock market analysts study both the demand and supply of stocks to predict future price trends.

Let us assume that the demand for a particular security is high. In that case, there will be many buyers in the market, and the security will be low in supply (a smaller number of people would be willing to sell the security). Due to the high demand-low supply predicament, the security's price is expected to shoot up.

In contrast, if a stock's demand shows a downfall, a smaller number of people are interested in buying it. Let us assume that its supply is high—many stockholders are willing to sell the shares. In this scenario, the stock price will fall—due to surplus supply. 

In economics , the demand-supply study elucidates the dynamics between buyers and sellers (in a free market). Other applications are as follows:

Price Control : When at war, governments use demand-supply analysis to set a price ceiling for each product. The price ceiling is the maximum price of essential goods or services. In order to ensure public wellbeing during pressure situations, this price is kept lower than the equilibrium price.  

Housing Rent Control : Here, the government ascertains a maximum rental price that can be charged to tenants for occupying houses for rent. Again, the set limit is below the equilibrium for housing rent price. This is done to safeguard lower or middle-income tenants from exploitation.

Taxation : The analysis considers the impact of direct and indirect taxes on consumers. When indirect taxes are raised, consumers are burdened. It results in a shift in demand and supply curves.

Subsidy : To encourage a particular commodity, the government offers subsidies to manufacturers. Such grants decrease the price of that particular good or service. As a result, there is an increase in both demand and supply.

Farm Product Pricing : The fair price of farm yield is also based on demand-supply. In a perfectly competitive market, farmers are price takers, and market forces (demand and supply) are the price makers. However, the government sets a minimum price to protect farmers from losses.

Black Market Identification : Black marketers flourish when demand for a commodity is high but the supply is low. They sell products at a price higher than the ceiling price. The demand and supply study reveals such practices.

Minimum Wage Legislation : State governments undertake such analyses of labor markets to determine minimum wages. A minimum wage cap protects employees and laborers from exploitation.

Consumer Surplus and Producer Surplus : A demand-supply study explains the consumer surplus—the gap between the amount consumers are willing to pay and the actual amount paid for a particular commodity. The study also sheds light on the producer surplus —the amount at which producers were ready to sell and the actual selling price.

If the demand for a commodity exceeds the quantity supplied, then there is a shortage of that commodity in the market. This shortage results in a price rise. In contrast, if supply surpasses demand, there is a surplus of that product—resulting in a price fall.

The price of a product or service is the major factor causing demand and supply changes. Other factors include consumer income, customer preference, price of related goods, competition, consumer expectations, fiscal policy, monetary policy, price of production factors, monopoly, climate conditions, infrastructure, and technology.

The law of demand states that when commodity prices increase, their demand decreases. In contrast, the law of supply states when commodity prices increase, its supply also increases.

This has been a guide to what is Demand and Supply Analysis & definition. We discuss Demand and Supply Analysis meaning, graph, application, & examples. You can learn more about it from the following articles - 

  • Derived Demand
  • Determinants of Demand
  • Joint Supply

Youtube

This device is too small

If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.

  • Small Business

7 Reasons Supply and Demand Matters to Your Business

Updated Aug. 5, 2022 - First published on May 18, 2022

DP Taylor

By: DP Taylor

As a small business owner, you're constantly thinking about supply and demand, even if not specifically in those terms. You're wondering if people will buy a new product you're developing, for example, or you're trying to figure out if you have enough units on hand to fill all the orders customers made after a marketing campaign .

Whether you run a seasonal business, own a vacation property for passive income, or operate a more standard business entity, basic economics like supply and demand should matter to you. Here are seven reasons in particular that should drive your thinking as you plot out your business's future.

The supply and demand curve has an inescapable effect on the pricing of the products and services you offer. A lack of market demand will force you to lower prices in order to move products off the shelves, while a lack of supply may cause prices to skyrocket.

Businesses attempt to achieve equilibrium quantity and optimal pricing by placing it at just the right point in the supply/demand intersection -- a tricky task to be sure, and a constantly moving target.

Why a Business Credit Card Could Transform Your Small Business

These business credit cards that offer a convenient and efficient way to separate personal and business expenses, simplifying accounting and tax reporting.

Additionally, business cards can provide valuable perks such as rewards points, cashback, and expense tracking tools, enhancing financial management and the potential to help save money in the long run.

Offer Our Rating Welcome Offer Rewards Program APR

On Chase's Secure Website.

Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Earn $900 bonus cash back Earn $900 bonus cash back after you spend $6,000 on purchases in the first 3 months from account opening. Earn unlimited 1.5% cash back on every purchase Earn unlimited 1.5% cash back on every purchase made for your business

0% Intro APR on Purchases

Purchases: 0% Intro APR on Purchases, 12 months

Balance Transfers: N/A

18.49% - 24.49% Variable

On Chase's Secure Website.

Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Earn up to $750 bonus cash back Earn $350 when you spend $3,000 on purchases in the first three months and an additional $400 when you spend $6,000 on purchases in the first six months after account opening. Earn 5% cash back in select business categories Earn 5% cash back on the first $25,000 spent in combined purchases at office supply stores and on internet, cable and phone services each account anniversary year. Earn 2% cash back on the first $25,000 spent in combined purchases at gas stations and restaurants each account anniversary year. Earn 1% cash back on all other card purchases with no limit to the amount you can earn.

0% Intro APR on Purchases

Purchases: 0% Intro APR on Purchases, 12 months

Balance Transfers: N/A

18.49% - 24.49% Variable

On Capital One's Secure Website.

Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
$2,000 Cash Back $2,000 Cash Back once you spend $30,000 in the first 3 months. Earn an additional $2,000 cash bonus for every $500K spent during the first year 2% - 5% cash back Earn unlimited 2% cash back for your business on purchases, no limits or category restrictions; plus, earn unlimited 5% cash back on hotels and rental cars booked through Capital One Travel.

Purchases: N/A

Balance Transfers: N/A

N/A

2. Competitiveness

Supply and demand has a big impact on the competitiveness of a company. For example, if a firm loses access to supply, they are unable to satisfy customer needs and risk seeing them flee to a competitor. A plunge in demand for a product provides an opening for a competitor to offer an alternative to customers and take market share. A rival may also cut prices in an attempt to drive demand.

Example: Amazon has grabbed a stranglehold on the online retail market by driving prices as low as possible, often selling items at a loss. After subtracting the profitable Amazon Web Services and Amazon Prime portion of the business, the retail portion of Amazon loses billions of dollars annually. This has given Amazon the power to force many smaller retailers out of business and take over more market share in their absence.

3. Expansion

An organization’s ability to expand is highly dependent on supply and demand. Greater demand for a product or service gives the firm the opportunity to grow the business, hiring more workers and increasing capacity to match the demand.

On the other hand, oversupply and low demand forces businesses to contract, laying off staff and closing factories. Companies must achieve the appropriate balance for consistent and sustained expansion.

Example: Blockbuster once owned more than 9,000 video rental stores across the nation, but by 2010 they had declared bankruptcy. The chain was done in by the fact that people no longer wanted to rent physical DVDs, thanks to competitors like Netflix, who created DVD-by-mail and eventually video streaming. Essentially, Blockbuster saw demand for their product drop to almost zero in just a few years and failed to respond quickly enough.

4. Marketing

A company can drive demand for a product or service through marketing. A good marketing campaign can make a customer aware of a product or service and create a desire for it, causing demand to emerge out of nowhere. This creates a justification for a company to create a supply to fill that demand. Marketing and demand create a relational loop that feeds itself.

Example: When Apple’s iPhone came along, it filled a need people didn’t know they had. Through extensive marketing, Steve Jobs was able to convince the world that they needed more than a phone -- they needed a handheld computer that could make calls, play music, browse the Internet, and do all sorts of other tasks. Now, it’s hard to find a non-smartphone, even if you try.

5. Inventory

Inventory is a major logistical challenge for all companies selling a physical product. Supply and demand greatly influences the profit margins of companies that have inventory -- oversupply and low demand results in high inventory costs for the company, while undersupply and high demand will cause the company to be constantly running out of items and displeasing customers.

Inventory management is critical for forecasting supply and demand and planning accordingly.

Example: Back during the Christmas season of 2011, Best Buy had a major catastrophe on its hands. Due to poor forecasting, it had failed to have the proper level of inventory to fill all orders customers had placed -- even those made as early as November. The company made an announcement just days before Christmas that many customers wouldn't get their gifts in time -- despite having been promised on-time delivery -- causing an explosion of outrage that made a major dent in the retailer's reputation.

6. Financing

Strong supply and demand increases the attractiveness of a company to investors, prompting banks, lenders, and inventors to offer their financial assistance to improve and expand the business in exchange for a stake in the company.

On the flip side, a lack of strong demand for a product or service will cause a company to struggle to attract outside investment to turn the company around. Successfully securing financing may help a company boost demand and build a stronger supply chain.

Example: Airbnb leveraged its success in creating a booming online home-rental business into a massive public investment spree. The company went public in December 2020, and on the first day of trading, its Initial Public Offering (IPO) topped a staggering $100 billion.

7. Salaries

Strong demand and the supply to handle it will cause extra revenue to flow into a company’s coffers, giving it more freedom to pay higher salaries in an attempt to attract top talent.

Higher salaries lead to greater worker retention and satisfaction, and improve workers’ confidence in the business. This, in turn, can boost productivity and improve the performance of the business and its products -- which can further increase demand.

Example: In 2015, Gravity Payments CEO Dan Price made headlines by announcing that the company would raise the pay of all employees to at least $70,000 per year while cutting his own salary from $1 million to $70,000 to cover the increase. Today, he boasts arguably the most loyal staff in the country -- when the COVID-19 crisis hit and revenue plunged 50%, loyal employees offered to take pay cuts in the interim to keep the company humming, with about a dozen offering to take no pay at all. It’s hard to imagine that happening at a typical company.

Set aside time to plan for your company’s future

One of the best small business tips you can get is to properly prepare your company for any scenario when it comes to supply and demand. Too many small business CEOs are caught up in the thick of putting out daily fires and don’t carve out time to really plan for the growth of their business.

They don’t take time to ask themselves the big questions. What are the factors impacting demand in my business? What are the potential disruptions to supply? What backup plans can I create to weather -- and even thrive in -- any storms?

Take some time in the coming days to sit down and plot a new path forward for your business. Conduct a business impact analysis to determine what threats are out there and how you can respond. Draft a gap analysis to determine where you are and where you’re going. It will give you peace of mind to know that your company is prepared for anything.

Our Research Expert

DP Taylor

DP Taylor is a business software expert writing for The Ascent and The Motley Fool.

Share this page

We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.

Related Articles

Cole Tretheway

By: Cole Tretheway | Published on June 7, 2024

Lyle Daly

By: Lyle Daly | Published on June 5, 2024

Christy Bieber

By: Christy Bieber | Published on June 5, 2024

By: Lyle Daly | Published on June 4, 2024

The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.

Copyright © 2018 - 2024 The Ascent. All rights reserved.

Supply & Demand Analysis

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.

example of market demand and supply in business plan

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.

Advertisement

Article continues below this ad

More For You

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, 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 holds a Master of Science in Publishing from Pace University. She owns her own content marketing agency, Wordsmyth Creative Content Marketing, and she enjoys writing home and DIY articles and blogs for clients in a variety of related industries. She also runs her own lifestyle blog, Sweet Frivolity.

  • Credit cards
  • View all credit cards
  • Banking guide
  • Loans guide
  • Insurance guide
  • Personal finance
  • View all personal finance
  • Small business
  • Small business guide
  • View all taxes

You’re our first priority. Every time.

We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.

So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. Here is a list of our partners .

How to Write a Market Analysis for a Business Plan

example of market demand and supply in business plan

Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

Profile photo of Dan Marticio

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...

One blue credit card on a flat surface with coins on both sides.

IMAGES

  1. Business Plan Demand Analysis, Four Things to Consider

    example of market demand and supply in business plan

  2. Why Does Your Business Need A Good Marketing Plan?

    example of market demand and supply in business plan

  3. Demand Curve Graph

    example of market demand and supply in business plan

  4. Supply And Demand Diagram Examples

    example of market demand and supply in business plan

  5. Supply Analysis

    example of market demand and supply in business plan

  6. What is supply and demand?

    example of market demand and supply in business plan

VIDEO

  1. The Impact of Supply and Demand on Markets and Economies

  2. Market Structure Demand & Supply SMC best strategy #forex#trending #tinforexku #stockmarket

  3. How to Start an Office Supply Business

  4. How to Start a Party Supply Business

  5. 𝐅𝐚𝐜𝐭𝐨𝐫𝐬 𝐀𝐟𝐟𝐞𝐜𝐭𝐢𝐧𝐠 𝐁𝐨𝐧𝐝 𝐏𝐫𝐢𝐜𝐞𝐬

  6. SUPPLY & DEMAND EXAMPLE !! MASTERCLASS !! CHAPTER-05 !!

COMMENTS

  1. Demand and Supply Analysis - Meaning, Example, Applications

    The most common example of demand and supply is the price fluctuation of securities. Stock market analysts study both the demand and supply of stocks to predict future price trends. Let us assume that the demand for a particular security is high.

  2. How to do a Market Analysis for a Business Plan? (Examples ...

    1. Define Your Objectives. Clearly articulate the goals of your market analysis. Are you aiming to understand customer preferences, assess competition, or identify market trends? Defining...

  3. How to do a market analysis for a business plan

    To do so, you will need to walk the reader of your business plan through the ins and outs of your target market: who are the customers, why do they buy, who are the main players (competitors, suppliers), what are the rules and regulations, what are the key trends, etc.

  4. 7 Factors That Affect the Supply and Demand of Your Business

    A successful business adapts to supply and demand and even influences it. This guide will help you understand supply and demand and why it matters for your business.

  5. Supply & Demand Analysis - Small Business

    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...

  6. How to Write a Market Analysis for a Business Plan

    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...