GMV Meaning: How to Calculate Gross Merchandise Value

GMV means gross merchandise value or gross merchandise volume. This corporate finance acronym refers to the total sales cost of goods that a company takes in as gross revenue. GMV is a popular metric when it comes to online retailing and e-commerce businesses.

Studying their GMV enables companies to track how well they’re doing from a sales perspective, especially when they take into account other valuable metrics and key performance indicators (KPIs).

For example, suppose a company sells saxophones online for $100 an instrument. Over the course of one month, they sell ten saxophones. During the following month, they manage to sell twenty. The GMV for the first month would be $1,000, while the GMV for the second month would be $2,000. By comparing the two variables against each other, the company discovers they brought in twice as much GMV the second month as they did for the first.

To calculate GMV, use this simple formula: sales price of goods x number of goods sold.

Imagine your company sells $20 umbrellas (i.e., the sales price of goods) and you sell 100 of these over the course of three months (i.e., the number of goods sold). You would multiply 20 by 100 to receive a valuation of $2,000 (i.e., your GMV or gross merchandise value) for the period in question.

Calculating GMV enables you to determine your total revenue for a given period of time, but doing so leads to other benefits as well. Assessing GMV in your online retail model could:

1. 1. Provide insight into sales performance: By taking stock of the number of items your company sells for a specific cost, you get the hard data itself as well as the ability to extrapolate additional details from it. You see both how much you made from your e-commerce website and any additional factors that might have influenced your GMV, too. For example, consider whether you changed anything about your advertising from one month to the next that might have pulled in additional transactions and led to a higher GMV.
2. 2. Serve as a point of comparison: Utilize GMV as a comparative measure between different periods and metrics. For example, consider your gross sales (as stated by GMV) in relation to your net income (the amount of GMV you get to retain as a business without paying for advertising costs, refunds, shipping, labor, and the like).
3. 3. Supplement other valuable metrics: GMV is just one metric you can use to get a handle on the number of transactions your company conducted over a given period and what they mean for your business. It serves a better purpose as a consideration among many metrics rather than a bottom line assessment of your company.

Figuring out your gross merchandise value (GMV) goes a long way in helping you assess the financial health of your business, but there are other important barometers to consider, too. Here are five additional KPIs and metrics to keep in mind:

1. 1. Average order value: Knowing the number of goods a specific person purchases from your e-commerce store is helpful, but knowing the average amount of money you can expect from all potential consumers can prove an even more telling metric. Tracking average order value (AOV) enables you to make speculative yet informed projections about a wider array of consumers than GMV alone does.
2. 2. Conversion rate: While GMV shows you how much you’ve sold, it doesn’t tell you how long it takes to convert a potential consumer to an actual customer. Your conversion rate (CVR) gives you a better idea of what it takes to entice a new person to increase your GMV over a given period of time.
3. 3. Customer acquisition cost: Increasing the number of customers you can expect to buy your products often comes at a price. Your customer acquisition cost (CAC) is the total amount of money it costs your business in marketing and advertising to bring in just one new customer. Alternatively, your churn rate shows you how often you can expect to lose customers over a period of time. Both these metrics show how various factors might eat into your GMV, leaving you with a lower amount of revenue than you had originally.
4. 4. Customer lifetime value: Calculating gross profits gives you a bird’s-eye view of your business, but zeroing in on the value specific customers provide can prove even more useful. By taking stock of the customer lifetime value (CLV), you can build your business model around the consumers you know you can rely on the most.
5. 5. Net merchandise value: A close cousin to GMV, net merchandise value (NMV) subtracts from gross revenue to arrive at a net sales profit margin. Your NMV shows you how much money you’ll have left over after using portions of your GMV to cover all the costs of running an e-commerce site.

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