So going back to our example above if those 10 products you sold for $100 cost you $75 to make or purchase, you’re only making $250 profit. GMV, using the calculation above, can be seen to also represent gross revenue. For example, if an online company sells 15 customized notebooks at $10 per notebook, the GMV would be $150. In addition, the insights derived can be utilized to create more accurate pro forma projection models based on the implied growth trajectory, i.e. estimate the market traction using historical transaction data.
We detail 3 easy ways such as offering free shipping, product bundles and cross-selling strategies. Average Order Value (AOV) tracks the average amount a customer will spend each time they place an order. It’s simply calculated by dividing the total revenue by the number of orders.
- For eCommerce websites, this will be one of, if not the most important KPI to track.
- Today, e-commerce companies typically utilize GMV in combination with other sales and revenue metrics to understand how their company is operating and growing.
- Over the 24-hour period on November 11 – or Singles’ Day – Alibaba generated US$25.3 billion in GMV.
- This usually pertains to traditional brick-and-mortar stores as opposed to online transactions.
- Calculating the Gross Merchandise Value of your business will allow you to scale the growth of your operations and the effectiveness of your marketing strategies.
So if a marketplace calculates GMV as $300 for the month, the bulk of that may go to the seller of the goods. A more accurate view of the marketplace’s revenue would be to look at the fees it charges sellers to list their goods https://personal-accounting.org/gross-merchandise-volume/ on the site. GMV can help a company understand how many items it is selling and the amount of revenue generated from selling those items. That said, it only offers a narrow glimpse into the profitability of a business.
Gross Merchandise Value Example Calculations
Both metrics are important and are often used alongside other ones to better determine a business’s financial health. In more complex business models there are several different revenue streams which are then summed up equal to the total revenue amount. In those cases, GMV oftentimes is different than the total revenue since it focuses solely on the value of goods sold.
- A growth rate that’s too fast can kill a business, especially if it’s fairly new.
- GMV, using the calculation above, can be seen to also represent gross revenue.
- In particular, GMV is a critical KPI most often tracked in the eCommerce industry and customer-to-customer (C2C) marketplaces.
- It is a measure of the growth of the business or use of the site to sell merchandise owned by others.
- The gross merchandise value is calculated prior to the deduction of any fees or expenses.
- In the context of eBay, GMV refers to the total volume of dollars of sales on eBay and eBay-branded trading websites in a given economic period.
Gross merchandise value (GMV) is often used to determine the health of an e-commerce site’s business because its revenue will be a function of gross merchandise sold and fees charged. The gross merchandise value is calculated prior to the deduction of any fees or expenses. It provides information that a retail business can use to measure growth, often on a month-over-month or year-over-year basis. Generally, a retail business can calculate the gross value of all completed sales, though merchandise returns may need to be removed from this number to provide an accurate calculation.
Consider using other eCommerce KPIs to get a more balanced and accurate view of your performance:
The point is to show them very clearly what advantage they get from making that small change. This is because the general gauge of whether your business is doing well is how much you’re selling. This is a flawed measurement, and if you’re trying to determine the economic health of an eBay store or any other retailer, a figure like GMV isn’t going to offer enough insight.
GMV vs ARR (Annual Recurring Revenue)
Instead, the seller will send the item directly to the buyer once the financial portion of the sale is complete. Gross merchandise value is the total value of merchandise sold over a given period of time through a customer-to-customer exchange site. It is a measure of the growth of the business, or use of the site to sell merchandise owned by others.
How to Calculate GMV
The Company has updated its definition of GMV to include all paid transactions on its platforms inclusive of shipping fees and taxes. Previously, eBay reported GMV regardless of whether the buyer and seller actually consummated the transaction. This change has been enabled by the increased visibility derived from the Company’s transition to managing payments globally. When you calculate GMV, you need to use the raw numbers, before you deduct accrued expenses. These are your product discounts and promotions, advertising and marketing costs, order shipping and delivery costs, and order returns. One of the most important metrics to calculate and consider when running an e-commerce business is Gross Merchandise Value (GMV).
Net sales therefore gives you a more accurate number, but takes more time to figure out. Gross Transactional Value (GTV) is the calculation of revenue in relation to commissions. It is especially useful to businesses that operate on commissions, as it equals the number of items sold times the price collected. Most e-commerce companies, especially when they first became popular, used the metric instead of revenue and/or sales data.
Distribution of gross merchandise volume (GMV) of online stores in 2022, by cart size and annual revenue
It may also provide value to retailers in the consignment sector, as they never officially purchase their inventory. Even though the items are often housed within a company’s retail location, the business functions as the authorized reseller, often for a fee, of another person’s or entity’s merchandise or property. Generally, they are never the true owner of the items, as the person or entity that placed the item on consignment may return and claim the item if they so choose. In many of these customer-to-customer sales, the retailer facilitating the transaction never comes in contact with any of the physical merchandise.
When you calculate GMV, you’re more conscious of your financial performance. You can make better-informed decisions about your future operations and strategy. Offering the best quality customer service you can will always make customers want to shop with you. Happy customers who get their questions answered and feel cared for often refer you to friends. One way to upsell is to show variations with slightly higher prices, emphasizing their amazing features. One way to cross sell is to add that all-time-favorite “frequently bought with” section to your product pages and shopping cart page.
If it’s growing, it means you’re either selling more, or you’re selling more expensive items both of which should be good for your bottom line. However, the margins on such products are often much lower than cheaper products such as clothing. So as you can see, it’s not necessarily an accurate representation of an eCommerce company’s performance. Calculating your GMV in this way will give you a good idea of how much growth your business is experiencing as it looks at how much you are actually selling. However, you shouldn’t rely on it solely as the one formula to determine how healthy your company is. The GMV, an abbreviation for “Gross Merchandise Value”, is defined as the total volume of revenue generated across a given period of time.
