Gross Merchandise Value

Updated on March 26, 2024
Article byRutan Bhattacharyya
Edited byRutan Bhattacharyya
Reviewed byDheeraj Vaidya, CFA, FRM

Gross Merchandise Value (GMV) Meaning

Gross merchandise value or GMV is the total value of the products sold, usually by E-commerce businesses and online retailers, over a certain duration. This metric is an indicator of a company’s growth and gives an idea of its performance over time. Moreover, it helps determine a business’s health.

Gross Merchandise Value

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Businesses calculate GMV before deducting the fees and expenses associated with selling their products. Typically, expenses include discounts, cost of delivery, marketing costs, returns, etc. This metric is most useful when businesses utilize it as a comparative measure between different durations. For instance, companies can compare the value of the products sold in the current and previous quarters.

Key Takeaways

  • The gross merchandise value definition refers to the total value of the products sold by businesses during a set timeframe. Usually, E-commerce businesses and online retailers use this metric to get an idea of their growth over time.
  • Considering GMV is not enough to get an idea of a business’s health and growth as it does not consider various aspects like costs and profitability.
  • GMV and revenue are not the same; the latter is a part of the former.
  • One must not consider fees and expenses like shipping charges and advertising costs when calculating business gross merchandise value.

Gross Merchandise Value Explained

The gross merchandise value definition refers to the overall value of the goods sold by a company over a particular period. Usually, businesses compute it every quarter or year. Its use is most common in the e-commerce industry.

This financial metric enables businesses to compare the sales figures recorded over different periods. Also known as gross merchandise value, GMV helps organizations quantify their growth from a sales standpoint.

Usually, e-commerce businesses use GMV and other key financial metrics to assess growth and operations. In other words, organizations do not solely rely on GMV to assess their health and performance. This is because this metric only indicates how much the business is growing. It does not reveal whether the company is generating any profit from the real value of its products sold.

For instance, if an organization’s main growth metric is GMV, it may focus on offering more high-value products as the price can boost its overall transaction value. Nevertheless, the margins on such big-ticket offerings could be lower than on cheaper products. Therefore, this financial metric is not necessarily a correct representation of an e-commerce business’s performance. It cannot help determine if the company is selling too little or too many products as it does not consider its margin.

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Formula

Individuals can use the following formula for gross merchandise value calculation:

GMV = Product Price x Sales Volume

Calculation Example

Let us look at this gross merchandise value example to understand the concept better.

Suppose GoodShoes, a footwear manufacturing company, sold 20,000 shoes in the financial year 2022. To keep it simple, let us consider that the price of every product is $50.

Using the formula, one can compute GoodShoes’s GMV for FY 2022.

GMV = $50 x 20,000, i.e., $10,00,000

Gross Merchandise Value vs Revenue

Individuals new to the business world often have confusion regarding revenue and GMV. Not knowing the key differences between the two concepts can cause one to take incorrect business decisions. Moreover, it will impact a company’s chances of raising funds from venture capitalists or angel investors. So, let us look at the distinct characteristics of these two financial metrics to understand the difference.

Gross Merchandise ValueRevenue
GMV is always higher than revenue.Revenue is always lower than GMV; it is a part of GMV.
The use of GMV is mostly common in E-commerce industries.This metric is used in all industries.
GMV measures the overall value of the products sold by a company.It measures how much a business generates by selling its products.

Advantages And Disadvantages

Let us look at the benefits and limitations of gross merchandise value for business:

Advantages

  • This metric can help compare a company’s performance in two different periods from the sales standpoint. It can also indicate if a business has grown and by what percentage.  
  • It allows e-commerce businesses to compare their performance with their peers.
  • The gross merchandise calculation process is quick and straightforward.

Disadvantages

  • GMV considers only the sales volume and the cost to customers. Hence, it does not reflect profitability. Businesses must also factor in the business costs, like the cost of delivery, marketing expenses, etc., to know whether they are profitable.
  • This metric does not express the true value of the products as it does not factor in the production costs.

Lastly, GMV does not give a clear picture of a business’s health as it does not consider various factors, such as the following:

  • Marketing or advertising costs.
  • Revenue generated from repeat buyers.
  • The total number of website visitors.
  • Production costs.

Frequently Asked Questions (FAQs)

What is difference between GMV and NMV?

A business’s net merchandise value or NMV is the amount remaining after one deducts all expenses and fees from GMV of a particular duration, for example, a quarter or a year. The formula is as follows:
Net Merchandise Value = GMV – All Expenses And Fees
The expenses and fees vary across different companies. That said, usually, the costs include advertising expenses, payment gateway charges, refunds, discounts, etc.

Is gross merchandise value a good metric?

GMV is useful as it provides insight into a business’s performance in terms of sales. However, this metric is best used with other financial metrics as it doesn’t consider multiple factors like production costs, product margins, etc. Moreover, it doesn’t reflect a business’s actual revenue and profits.

How do you grow gross merchandise value?

E-commerce companies and online retailers can increase their GMV by using different strategies. Some of them are as follows:
– Improving the customer experience
– Offering free Shipping
– Giving Discounts based on the order volume
– Offering product bundles
– Starting a rewards and loyalty program
– Offering Personalized products

This has been a guide to what is Gross Merchandise Value (GMV) & its meaning. We compare it with revenue and explain its formula, calculation example, advantages. You can learn more about it from the following articles –

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