Aim Niche‐based species distribution models (SDMs) have become a ubiquitous tool in ecology and biogeography. These models relate species occurrences with the environmental conditions found at these sites. Climatic variables are the most commonly used environmental data and are usually included in SDMs as averages of a reference period (30–50 years). In this study, we analyse the impact of including inter‐annual climatic variability on the estimation of species niches and predicted distributions when assessing plant demographic response to extreme climatic episodes. Location Mediterranean basin, SE Iberian Peninsula. Methods We first characterized species niches with inter‐annual and average climate in the same environmental space. We then compare the respective capacities of climatic suitability obtained from averaged climate‐based and from inter‐annual variability‐based niches to explain population demographic responses to extreme drought. Furthermore, we assessed the relative increase in niche size when including climatic variability for a set of Mediterranean species exhibiting a wide range of distribution areas. Results We found that climatic suitability obtained from inter‐annual variability‐based niches showed higher explanatory capacity than average climate‐based suitability, especially for populations living in climatically marginal conditions, although both niches quantifications significantly explained species demographic responses. In addition, species with restricted distribution ranges increased relatively more their niche space when considering climatic variability, probably because in widely distributed species spatial variability compensates for temporal variability. Main conclusions The common use of climatic averages when characterizing species niches could lead to underestimations of species distribution and misunderstanding of demographic behaviour, with implications for conservation plans derived from SDMs, for example, overestimations of species extinction risk under climate change, or underestimations of alien species invasion’ risk. We highlight that including climatic variability in niche modelling can be particularly important when dealing with species with restricted distribution and populations at the margin of their species niche.