Demand vs. Supply Constraints
The Cost of Solving the Wrong Problem
Imagine this: A restaurant owner spends thousands on Instagram ads, only to see tables remain empty.
Meanwhile, another restaurant down the street turns away customers daily due to two-hour wait times.
Both are frustrated, but their problems are opposites—one lacks demand, the other struggles with supply.
Many businesses waste time and money fixing the wrong constraint.
Pouring cash into marketing when you’re already overwhelmed? Or optimizing operations when no one’s buying?
Misdiagnosing your bottleneck leads to stagnation, burnout, or worse—lost trust.
Let’s break down how to identify your real challenge and fix it strategically.
The Core Difference: Demand vs. Supply Constraints
Your business faces one primary bottleneck at any given time—never both. Here’s how to tell which it is:
- Demand-Constrained
Symptoms: Excess capacity (empty tables, idle staff, unsold inventory).
Root Issue: Not enough customers.
Test: If you doubled your marketing budget, could you easily double sales? - Supply-Constrained
Symptoms: Overwhelmed teams, long wait times, declining quality.
Root Issue: More demand than you can handle.
Test: Would doubling marketing create chaos (late orders, angry customers)?
The “Double Your Marketing” Thought Experiment
Ask yourself: What happens if I flood my business with new customers tomorrow?
- If the answer is “disaster” → Supply-Constrained
Example: A boutique bakery with a 3-hour wait for custom cakes. Doubling ads would crash their system.
Fix: Raise prices, streamline workflows, or expand capacity. - If the answer is “growth” → Demand-Constrained
Example: A skilled freelance designer with an open calendar.
Fix: Ramp up outreach, refine targeting, or boost referrals.
Real-World Examples & Solutions
1. Restaurants
- Demand-Constrained (Empty Tables)
Problem: Poor visibility, weak online reviews, or unappealing menu.
Solutions:- Run targeted promotions (e.g., weekday lunch specials).
- Partner with food delivery apps or local influencers.
- Refresh branding with professional photos and customer testimonials.
- Supply-Constrained (2-Hour Wait Times)
Problem: Kitchen bottlenecks, inefficient staff, or limited seating.
Solutions:- Introduce online reservations and pre-orders.
- Simplify the menu for faster execution.
- Raise prices by 10–20% to balance demand.
2. Consultants
- Supply-Constrained (Booked 3 Months Out)
Problem: Time is the limiting resource.
Solutions:- Raise rates by 50%+ to align with demand.
- Offer group sessions or digital courses to scale impact.
- Delegate admin tasks to a virtual assistant.
- Demand-Constrained (Open Calendar Slots)
Problem: Low visibility in a crowded market.
Solutions:- Publish case studies showcasing client results.
- Network in niche communities (e.g., LinkedIn groups).
- Offer free workshops to demonstrate expertise.
The High Cost of Misdiagnosis
- Marketing When Supply-Constrained → Overwhelmed teams, damaged reputation, lost customers.
- Optimizing Operations When Demand-Constrained → Wasted resources, missed revenue, stagnation.
Constraints evolve. A startup might start demand-constrained, then hit supply limits after viral growth. Reassess quarterly.
Strategic Fixes for Each Constraint
If You’re Demand-Constrained
- Sharpen your messaging: Speak directly to your ideal customer’s pain points.
- Leverage testimonials: Social proof builds trust faster than any ad.
- Experiment with channels: Test podcasts, partnerships, or SEO.
- Simplify the buying process: Remove friction (e.g., one-click checkout).
If You’re Supply-Constrained
- Raise prices: The fastest way to balance demand and boost margins.
- Automate workflows.
- Outsource non-core tasks: Free up bandwidth for high-value work.
- Scale capacity: Hire strategically, expand locations, or license your model.
Work Smarter, Not Harder
Supply-constrained businesses don’t need more customers—they need higher margins or greater capacity.
Demand-constrained ones need sharper hooks to attract buyers.
Keep Crushing!
- Sales Guy