The quest to increase marketed surplus prompts farmers to demand high-yielding crop varieties. Understanding the farmers' challenges to increase marketed surplus would contribute to policy intervention measures that increase crop yields. Using an Endogenous Switching Probit regression (ESP) model, the study investigated the effect of marketed surplus on-demand for improved groundnut varieties and determined the factors that affect marketed surplus. The study used data collected from 416 farm households in some selected districts of central and northern Malawi. The ESP estimates showed that marketed surplus had a positive impact on the demand for improved groundnut varieties. The demand for improved groundnut varieties increased by 40% among smallholders with a marketed surplus. Conversely, the demand for improved groundnut varieties among farmers with no marketed surplus declined by 14%. Other findings suggest that increased crop productivity, smallholders' engagement in off-farm economic activities, and enhanced access to market information are critical in increasing marketed surplus. Therefore, policy intervention measures that encounter the farmers' challenges in the output market are critical for the increased marketed surplus to enhance the demand for improved varieties.