What is Gross Merchandise Value (GMV)?
Gross Merchandise Value (GMV) is the sum of all merchandise sold across a given period – most often tracked by e-commerce companies and customer-to-customer (C2C) marketplaces.
- What is the definition of gross merchandise volume (GMV)?
- How do you calculate the gross merchandise volume (GMV)?
- What are the drawbacks to the gross merchandise volume (GMV) metric?
- How is gross merchandise volume (GMV) different from revenue?
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Gross Merchandise Value (GMV) Formula
GMV, an abbreviation for gross merchandise value and often used interchangeably with “gross merchandise volume,” is defined as the total volume of revenue generated across a given period of time.
In particular, GMV is a crucial metric to track for e-commerce companies such as:
The formula for calculating GMV consists of multiplying the number of total transactions by the average order value (AOV).
- Gross Merchandise Value (GMV) = Number of Transactions x Average Order Value (AOV)
The number of transactions is self-explanatory, while the AOV is the amount spent on average per customer order.
For a more granular calculation of GMV, the sale price of goods – separated by each product segment – can be used instead of the AOV.
Interpreting Gross Merchandise Value (GMV)
GMV can help measure the growth of a company and gauge the prevailing market demand for the company’s products/services.
By assessing the changes in GMV year-over-year, you can determine the financial health of the company – in particular, project the future growth trajectory with more accuracy (i.e. quantify market traction).
Drawbacks to Gross Merchandise Value (GMV)
The shortcomings of the gross merchandise value (GMV) are similar to gross revenue (i.e. as opposed to net revenue), as the amount is prior to deductions for fees and expenses.
Like gross revenue, GMV neglects the following:
- Delivery Fees
- Product Returns
- Additional Side Costs (e.g. Maintenance Per Warranty)
Therefore, since the GMV metric does NOT factor in any returns and discounts, the metric requires more in-depth diligence as GMV is a “raw” metric.
While GMV can provide insights regarding the revenue potential of the company, it fails to depict the profitability of the company.
In other words, the amount of revenue generated that flows down and reaches net income (i.e. “bottom line”) is left unknown.
Furthermore, GMV as a standalone metric is not too practical as the value fails to give information about:
- Repeat Customers – Recurring Purchases vs One-Time Purchases
- Churn Rate –% Lost Customers
- Customer Concentration – % Revenue Contribution
Gross Merchandise Value (GMV) Calculation Example
For example, let’s assume that an e-commerce company sells t-shirts for $20 on Amazon with a commission rate to Amazon of 10%.
If the company sells 50k shirts for the year, the GMV comes out to $1 million.
- GMV = $20 * 50k = $1 million
Here, we see the earlier point that GMV is part of gross revenue, but NOT net revenue.
The revenue split is as follows:
- E-Commerce Company: $900k
- Amazon (10% Commission): $100k