How to Analyze the Supply and Demand of a Niche

As a small business owner it is imperative that you study the supply and demand of any particular niche for which you feel you want to be involved. In addition, choosing a smaller niche market can allow your business to avoid competing with huge businesses that can afford to put out less expensive items.

As a smaller business owner you can charge higher prices for specialized and differentiated products or services that you promote to smaller audiences, giving higher profitability. In contrast, a larger business isn’t going to touch the smaller niches because they want to make much larger profits than the smaller niches will allow.

The trick is to learn how to analyze the supply and demand of any particular niche to ensure that you want to enter that market.

Define Your Customers – How many customers are there to whom you can market any particular product or service? Knowing how many there are can give you a good idea about what the price point of the product needs to be in order to make it worth your while. Remember, you’re never going to reach every last potential customer so adjust your expectations accordingly.

Determine Their Needs – As you look at the customers you want to work with, it’s important that you develop an understanding of their needs so that you can create products or services that are special, differentiated, and that they’re going to be willing to pay a higher premium for than mass-produced products and services that are lower quality.

Provide the Right Products or Services – Knowing the customers and their needs will help you get down to work identifying several potential product ideas that you can do more research on by using keyword research, polling of the audience, and other methods to determine the supply and demand of products like yours.

Outline a Marketing Plan – Once you’ve figured out the product or service you want to market, you’ll be able to determine marketing strategies and tactics that will help you earn the most from your small niche. Part of profitability is to know how you can market efficiently to your customer.

Make a Profit – Finally, doing the research will help you determine if you can make profit. Take the number of people in the market, the average market penetration and your price point, and you can come up with the most likely number of products you’d have to sell each month, week and day to reach your goals.

In order to make all this work together it’s important to:

1. Choose Keywords – Keyword research is somewhat subjective and starts with an understanding of your audience and a few words that you think they’ll use. You can also use tools to help you do keyword research.

2. Research Other Products – Find products that claim to be answers to your audience’s issues and check them out to find out how you can differentiate yours enough to charge the price point you need.

3. Identify the Price Point – Using the information gathered, come up with a price point that works for you.

4. Determine Your Break Even Number – Using all that information, come up with how many products you’d need to sell to make the profit you need to make, and whether it’s even possible considering all the other factors.

Bringing all these points together will ensure that you understand how supply and demand relates to the profitability of your niche. If there aren’t enough customers, or enough demand, and you can’t sell at a price point that fits with your income needs, you can then know it’s time to move on to another idea.


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