Gross Merchandise Value (GMV)
What is GMV?
GMV stands for gross merchandise value (also known as gross merchandise volume). It is a metric used by online retailers to measure the total amount of products sold through an eCommerce website over a particular period of time.
GMV is calculated before the deduction of any fees, expenses and returned products. Therefore, it is used to reflect the gross revenue earned or the number of transactions handled by the eCommerce site, and not the net sales.
When you start an online store, GMV can be used as an indicator of performance, since it’s considered a measure of growth. Typical comparisons of GMV can be on a quarter-to-quarter, month-to-month or year-to-year basis, or during certain shopping events.
Businesses who use this metric to compare sales over time should aim to have their GMV increase. This reflects more sales, or the sale of more expensive items—both figures which indicate positive growth. Often, GMV is used along with other revenue figures to understand the bottom line of a business’s performance.
How is GMV calculated?
GMV is calculated by using the following formula which multiples the quantity of products sold with the average sales price per product:
GMV = Sales price x number of units sold
Let’s say you start an online T-shirt business and want to determine your GMV for the first month. If you sell ten shirts at $50 each, the GMV for your eCommerce site will be $500.
GMV does not include delivery fees, advertising costs, discounts or returns. In fact, merchandise that has been returned may need to be removed from the final sum to provide an accurate calculation.
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Retail models that use GMV
Since not all eCommerce retailers produce or come into physical contact with the merchandise they sell, measuring the GMV provides insights into the growth and performance of an online business Here are three examples of retail markets that use GMV as a metric:
C2C: In a customer-to-customer retail market, the e-Commerce website serves as a third-party platform, facilitating transactions between buyers and sellers. C2C retailers list the items they have in inventory on their site and send purchased items directly to buyers, without coming into contact with the actual merchandise.
Retail reseller: In this model, the online retailer purchases merchandise from manufacturers, producers or distributors and functions as an authorized reseller of the goods that the company has purchased.
Consignment: Consignment stores function as authorized resellers, usually for a fee, of merchandise belonging to another person or entity. They may house the merchandise in their retail location, but never officially purchase the inventory.
Is GMV an accurate metric?
GMV is calculated before business expenses or returns are deducted. Since GMV won’t provide the full picture of a business’ actual profit, this is not an accurate figure to use when measuring website performance. Rather, GMV will give you a good understanding of the growth of your eCommerce business and how much you’re selling.
Advantages and disadvantages of GMV
Although GMV is not a totally accurate measurement of growth, it can still be a helpful metric when growing your eCommerce business. Below are some of the advantages and disadvantages to keep in mind when using GMV:
Advantages
Simple calculation to use
Provides general insight into a business's performance
Makes it easy to compare growth over large periods of time
Allows for comparison with competitors
Disadvantages
Flawed metric that does not indicate true revenue
Does not reflect repeat customers or customer satisfaction
Not a sufficient metric for measuring long-term health of business
How to increase GMV
If GMV is a metric you’re tracking, you’ll want it to increase over time. Here are some tips on how to boost the GMV of your eCommerce website:
Upsell or cross sell products: Upselling products means convincing customers to buy a more expensive version of the item they are about to purchase. For example, offering the same products with better features, a bigger size or higher performance at checkout.
Cross-selling, based on a similar idea, means selling related products to those the customer is already purchasing at checkout. When successful, both of these strategies will increase a business’s sales and GMV.
Offer free shipping: Online shoppers are more likely to add items to their cart if they’re offered free shipping, thereby increasing your site’s GMV. To do this, you can offer free shipping during specific periods of time, or create a total price threshold for customers to reach in order to receive this special service.
Create bundles: Bundles are groups of complementary products sold together at a discounted price than if they were bought seperately. This strategy works because customers will purchase items with a bundle, and usually feel like they’re getting a great deal for their money.
FAQ (Frequently asked questions)
Is GMV the same as revenue?
Not exactly. Although they are often defined as the same thing. GMV is the total volume of sales a company makes over a set period. It doesn't include sales, offers or returns. If you sell a product of yours through a third party seller to a customer for $50, the seller would be able to claim this as $50 GMV for them. However in terms of revenue, $40 of the sale went to you as the supplier of the product and $10 went to the third party as their commission. This is how GMV and revenue differ.
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