Profitability

Gross Merchandise Value

What is the gross merchandise value (GMV)?

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The gross merchandise value (GMV), sometimes called the gross merchandise volume, is a metric used to describe the volume of sales your business makes. It is simply calculated as the total value of merchandise sold over a set period of time. If you are running a customer-to-customer (C2C) platform business, where you simply serve as a platform for individual businesses to sell their products, then GMV is a useful metric for gauging  the growth of your platform. We can then say that GMV is the total sales done through the platform over a set period of time.


You can calculate the GMV for either the individual product:


Or for all the products:


Why should you calculate GMV?

GMV is a simple but useful metric. There are three ways GMV can help you in making business decisions:

  1. Helps you track growth of your business. You know that your business is booming if you are reaching more customers and receiving more orders over time. That is best illustrated by the GMV. If your GMV increases over time, then your business is growing. 
  2. Helps you track which products perform well. You can calculate the individual GMV for each product and compare which ones perform well or not. A relatively high individual GMV for a product means that you should focus on selling them more as they are the best-sellers in your product catalog.
  3. Helps you gauge whether expansion is necessary. It is possible that even with high individual GMVs, certain products may still have more demand than your current supply. You can identify this with high GMVs hitting a ceiling. If that’s the case, then you should invest in expansion in order to grow further.

What are the precautions in using GMV?

GMV, just like any other metric, is not the ultimate measure of your business’ success. There are two main precautions in using GMV to make business decisions:

  1. Does not factor in cost. Each product incurs its own costs, from its production to its storage in the warehouses. Some products can be cheaply made but may be more expensive to store, while other products may be more expensive to produce but can be stored cheaply. The GMV does not reflect the cost for each item; thus the GMV cannot be used as an indicator of revenues. Other meaningful metrics should be used when trying to factor in the cost.
  2. Does not help you analyze your customers. GMV simply considers the total sales for each product. GMV does not give you additional data on who orders your products or where the orders are delivered. This means you cannot use GMV alone to plan targeted marketing campaigns. GMV will help you identify products that you should promote more, but the question of whom you should target with the ads is best answered by using other metrics.

How can you improve your GMV?

Even with both the strengths and weaknesses of GMV, it is still a useful metric for observing the growth of your business. Here are some of the ways that you can improve your GMV

  1. Offer free shipping. It’s as simple as that. You can either set free shipping days or set a minimum value for the customer to earn free shipping. 
  2. Offer bundles and bulk discounts. Bundles work not only to increase your revenue but also to sell items that would otherwise not be bought by themselves as they are either too cheap as to not make the shipping cost worth it or they are an accessory that is not often used. Bulk discounts will also entice your customers to spend more for the same item, especially those that give you high revenue. 
  3. Cross-sell while the customer is still picking items. This is called cross-selling. At the page for an item, you can add a box containing a list of related items to the one the customer is currently browsing. If you are running a C2C platform business with multiple sellers, another box containing other items by the same seller is helpful, especially if the shipping costs depend on the seller’s location as well.
  4. Offer top-notch customer experience. Nothing beats giving your customers a top-notch experience. This does not just involve excellent customer support but the entire process, from maintaining an easy to use online store to delivering them top-notch products. 


References

Gross Merchandise Value (GMV) Definition

Gross Merchandise Value (GMV) - Corporate Finance Institute

What is Gross Merchandise Value (GMV) and How to Increase It?

What is Gross Merchandise Value (GMV)? | How GMV Works (w/ Examples) 

Gross Merchandise Value: Definition, Advantages and Disadvantages | Indeed.com 

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Gross Merchandise Value

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  1. What is the gross merchandise value (GMV)?
  2. Why should you calculate GMV?
  3. What are the precautions in using GMV?
  4. How can you improve your GMV?
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What is the gross merchandise value (GMV)?

Image source


The gross merchandise value (GMV), sometimes called the gross merchandise volume, is a metric used to describe the volume of sales your business makes. It is simply calculated as the total value of merchandise sold over a set period of time. If you are running a customer-to-customer (C2C) platform business, where you simply serve as a platform for individual businesses to sell their products, then GMV is a useful metric for gauging  the growth of your platform. We can then say that GMV is the total sales done through the platform over a set period of time.


You can calculate the GMV for either the individual product:


Or for all the products:


3 Minutes

Why should you calculate GMV?

GMV is a simple but useful metric. There are three ways GMV can help you in making business decisions:

  1. Helps you track growth of your business. You know that your business is booming if you are reaching more customers and receiving more orders over time. That is best illustrated by the GMV. If your GMV increases over time, then your business is growing. 
  2. Helps you track which products perform well. You can calculate the individual GMV for each product and compare which ones perform well or not. A relatively high individual GMV for a product means that you should focus on selling them more as they are the best-sellers in your product catalog.
  3. Helps you gauge whether expansion is necessary. It is possible that even with high individual GMVs, certain products may still have more demand than your current supply. You can identify this with high GMVs hitting a ceiling. If that’s the case, then you should invest in expansion in order to grow further.

What are the precautions in using GMV?

GMV, just like any other metric, is not the ultimate measure of your business’ success. There are two main precautions in using GMV to make business decisions:

  1. Does not factor in cost. Each product incurs its own costs, from its production to its storage in the warehouses. Some products can be cheaply made but may be more expensive to store, while other products may be more expensive to produce but can be stored cheaply. The GMV does not reflect the cost for each item; thus the GMV cannot be used as an indicator of revenues. Other meaningful metrics should be used when trying to factor in the cost.
  2. Does not help you analyze your customers. GMV simply considers the total sales for each product. GMV does not give you additional data on who orders your products or where the orders are delivered. This means you cannot use GMV alone to plan targeted marketing campaigns. GMV will help you identify products that you should promote more, but the question of whom you should target with the ads is best answered by using other metrics.

How can you improve your GMV?

Even with both the strengths and weaknesses of GMV, it is still a useful metric for observing the growth of your business. Here are some of the ways that you can improve your GMV

  1. Offer free shipping. It’s as simple as that. You can either set free shipping days or set a minimum value for the customer to earn free shipping. 
  2. Offer bundles and bulk discounts. Bundles work not only to increase your revenue but also to sell items that would otherwise not be bought by themselves as they are either too cheap as to not make the shipping cost worth it or they are an accessory that is not often used. Bulk discounts will also entice your customers to spend more for the same item, especially those that give you high revenue. 
  3. Cross-sell while the customer is still picking items. This is called cross-selling. At the page for an item, you can add a box containing a list of related items to the one the customer is currently browsing. If you are running a C2C platform business with multiple sellers, another box containing other items by the same seller is helpful, especially if the shipping costs depend on the seller’s location as well.
  4. Offer top-notch customer experience. Nothing beats giving your customers a top-notch experience. This does not just involve excellent customer support but the entire process, from maintaining an easy to use online store to delivering them top-notch products. 


References

Gross Merchandise Value (GMV) Definition

Gross Merchandise Value (GMV) - Corporate Finance Institute

What is Gross Merchandise Value (GMV) and How to Increase It?

What is Gross Merchandise Value (GMV)? | How GMV Works (w/ Examples) 

Gross Merchandise Value: Definition, Advantages and Disadvantages | Indeed.com 

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