GMV

Gross Merchandise Value (GMV): Meaning, Calculation & Benefits 

What is GMV? Learn how to calculate the GMV, its benefits, limitations, as well as why GMV is a useful metric for assessing eCommerce performance.

With intensification in eCommerce activity, it becomes important to track the development of a market or marketplace. GMV is a metric that proves useful in assessing the growth of as well as estimate projections for a specific market or platform.

In this article, we explain what GMV is, why it is important, and its benefits.

What Is Gross Merchandise Value? 

GMV stands for gross merchandise value, or gross merchandise volume. It is the total value of merchandise sold through a company's online platform in a given time period.

It includes the value of merchandise sold by both the first-party seller (i.e., the marketplace operator that sells its own products on that platform) and a third-party seller (i.e., sellers who do not own the marketplace but only use that platform to sell their products). GMV is the most commonly used measure of marketplace size.

Please note that the exact definition of GMV may vary from marketplace to marketplace. In general, GMV includes first- and third-party sales, as well as value-added tax (VAT). In some cases, GMV also includes returns, marketplace commissions, and service fees (such as shipping costs). 

Other metrics that are like GMV but have slightly different definitions include GTV (gross transaction volume), GOV (gross order volume), and NMV (net merchandise volume).

Why GMV Matters 

Tracking the GMV matters especially for retailers that wish to gain deeper understanding of their business’s financial health and overall performance. Here are some reasons why GMV matters:

• Performance Indicator: It is a key performance indicator (KPI) for eCommerce businesses, providing a quick snapshot of how well a platform is performing in terms of sales volume.
• Revenue Estimation: By tracking GMV trends, businesses can easier make decisions regarding pricing, marketing, and inventory management.
• Investor Confidence: A higher gross merchandise value can boost investor confidence and simplify the process of securing capital for startups as well as eCommerce companies.
• Benchmarking: Based on the gross merchandise volume, companies can compare themselves with their competitors and industry standards, to identify opportunities for improvement.

How To Calculate the Gross Merchandise Volume 

The GMV metric is the sum of all transaction of an eCommerce platform during a specific period. The formula for calculating the GMV is:

GMV = Quantity of Sold Products * Price of each Product

For example, an eCommerce business sold 50 Smartwatches for $70 each and 100 reusable water bottles for $20 each. To calculate the GMV for this business, we use the following formula:

GMV = (50 * $70) + (100 * $20) = $3,500 + $2,000 = $5,500

Importantly, revenue and GMV may seem to be the same, but there are notable differences. The revenue is a part of GMV. In the example above, the revenue could be 5% of the $5,500, corresponding to $275. Gross merchandise volume is a measure of transactional activity, while revenue reflects the actual financial impact.

Benefits of the GMV 

The eCommerce metric offers valuable insights into eCommerce performance and potential, but it comes with certain pitfalls:

Benefits of the gross merchandise value include:

• It helps analyse the performance of marketing campaigns
• It offers insights into a company's financial performance
• It allows comparison with competitors to identify opportunities of growth.

Limitations of the GMV 

GMV also has some limitations, such as:

• It can be a limited KPI, as it disregards returns and chargebacks
• It focuses on quantity which may lead to a bias of assessing quantity over quality
• Seasonal fluctuations make it difficult to establish an accurate forecast and budget.

Keep in mind that although GMV is a vital metric, it should be considered along with other financial and operational data to get a complete picture of the state of an eCommerce business.

Gross Merchandise Value (GMV): Key Takeaways 

• GMV is the total value of merchandise sold through a company's online platform in a given time period, including sales from both first-party and third-party sellers. It is the most commonly used measure of marketplace size.
• Gross merchandise value (GMV) is a vital metric for eCommerce businesses, providing insights into sales performance, revenue estimation, investor confidence, and competitive positioning.
• The formula to calculate it is: GMV = Quantity of Sold Products * Price of each Product
• Remember, GMV does not indicate or include returns, chargebacks, or seasonal fluctuations. Therefore, it should be used in conjunction with other financial and operational data to get a complete picture of business performance.