Gross Merchandise Value (GMV): Meaning & Definition
In the dynamic world of eCommerce, teeming with acronyms and buzzwords, the term Gross Merchandise Value (GMV) is much more than a collection of letters. This measurement enables us to find out more about the figures of individual companies in the online market sector.
In the following article, we will explore the exact definition of GMV to find out why this measure of marketplace matters for the eCommerce landscape.
What Is Gross Merchandise Value?
GMV, which stands for gross merchandise value, or gross merchandise volume, 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 similar to 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 wisher to gain deeper understanding of their business’s financial health and overall performance. Here are some compelling 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. Here you will find a simplified calculation of the GMV to visualize the process:
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 = Quantity of Sold Products * Price of each Product
GMV = (50 * $70) + (100 * $20) = $3,500 + $2,000 = $5,500
Attention, revenue and GMV may seem to be the same, but there are important differences. The revenue is a piece of cake of the GMV, in this case for example, 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 and Disadvantages 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:
- Analyse the performance of marketing campaigns,
- Insights of a company's financial performance,
- Comparison with competitors to identify opportunities of growth.
- Limited KPI - disregards returns and chargebacks,
- High focus on quantity which may lead to a 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
In conclusion, GMV is more then a set of letters. It is a measurement helping eCommerce business to earn a more detailed look on the finances of their company.
- 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: GMV = Quantity of Sold Products * Price of each Product
- Remember, the gross merchandise volume does not include returns, chargebacks, or seasonal fluctuations, so it should be used in conjunction with other financial and operational data to get a complete picture of business performance.