GMV has become a vital metric in e-commerce and retail. It captures the total value of goods flowing through a business. This is extremely useful for growth evaluation. High GMV typically means a company moves more products, though revenue may still be needed for profits. GMV offers visibility into the volume and velocity of sales. This is crucial for data-driven decisions in online retail and marketplaces.
What is GMV?
Gross Merchandise Value (GMV) means the total value of goods sold via any medium over a period of time. It gives an estimate of sales volume. But it is not pure revenue as it includes things like shipping fees and returned merchandise. GMV offers an understanding of growth trends and market share when comparing businesses. Monitoring GMV helps you set targets and analyze performance across departments, products, or regions.
Why is GMV Important?
GMV gives companies insight into sales activity and performance. A rising GMV signifies products move faster and market share expands, pointing to healthy growth.
For example, if a retailer's GMV grew 15% year-over-year, they likely acquired more customers.
Even a stable high GMV suggests an efficient sales process. Tracking GMV also helps planning - spikes represent opportunities around promotions or inventory needs. Whereas dips indicate when to revisit pricing or marketing strategies. This key financial metric enables data-informed decisions, not guesses. It helps with production scheduling, warehouse staffing, and forecasting demand. The precise GMV targets enable managers to monitor the achievement of goals.
You may compare GMV across products, geographies, or sales channels to identify strengths. These metrics also help calculate customer lifetime value or the effectiveness of ad campaigns. It shows business health. Rapidly growing small businesses use GMV to demonstrate traction. Established brands could highlight GMV to attract investment for expansion plans.
What are the Key Aspects/Features of the GMV?
GMV differs from net revenue as it encapsulates total sales activity, not just income.
For example, Shopify recently reported its GMV grew over 50% to $54.1 billion in 2021. This includes credits, returns, and other adjustments lowering actual revenue to around $23.7 billion. Still, the sizable GMV indicates Shopify facilitated huge transaction value for merchants last year.
GMV accounts for the complete transaction lifecycle. It starts with the maximum order value, including taxes, shipping, discounts, gift wrapping, etc. You then deduct product returns, order cancellations, and bad debt to represent final sales movement.
How to Calculate GMV?
GMV represents total sales before accounting for expenses and other financial overhead.
Here's the formula for calculating GMV:
GMV = Sale Price of Items x Number of Items Sold
For example, if a retailer sold 5,000 units at $10 per unit in December 2022, its December GMV equals $50,000 (5,000 * $10).
To calculate GMV, add up gross sales per order—including product cost, taxes, shipping, wrapping, warranties, and discounts. You can omit service fees, interest or commissions.
Platforms like Shopify and Amazon track GMV automatically. For self-managed stores, you can use analytics tools like Bluecopa to import all transaction data from your e-commerce site, POS system, marketplace accounts, etc. into one dashboard.
What are the Benefits of the GMV?
Monitoring GMV keeps your business data-driven. It quantifies sales volume with a single number. This makes it easy to communicate growth weekly or yearly. You can run custom reports to break down GMV by product line, geography, or channel. Comparing these percentages over time shows what performs best so you can double down on winning categories.
For example, if apparel GMV rises 20% year-over-year while accessories stay flat, you may fund more clothing products or marketing next season. With this, you can adjust business operations to optimize efficiency and profits.
What are the Challenges of the GMV?
GMV has limitations to contextualize appropriately. High GMV doesn't guarantee profit - losing money on every sale could tank the company. External variables also cause fluctuations, making direct comparisons misleading.
For example, e-commerce GMV typically surges before holidays as people shop online for gifts; 35% of annual retail GMV happens in Q4. You must account for seasonal or macroeconomic impacts when estimating future GMV. Additionally, GMV calculates all transactions regardless if customers return items later. So unfulfilled purchases overstate sales capacity.
What are the Tips/Best Practices for Using GMV?
Here are some tips for effectively using GMV:
- Monitor consistently: Track GMV continually to detect rising or falling momentum
- Account for adjustments: Factor in returns, refunds, and cancellations for accurate GMV
- Analyze over time: Compare GMV over set periods to uncover trends
- Context is key: View GMV contextually with profitability, traffic, and conversion rates
- Set informed targets: Set GMV goals but use them holistically with other key data points
- Segment your data: Break down GMV by category, affiliate links, and regions to see what performs best
- Focus on growth rates: Look at GMV percent changes rather than just total values
- Consider external factors: Consider external impacts like holidays, promotions, seasonality
GMV is a valuable sales activity metric every e-commerce business should monitor. However, GMV alone lacks full context. You can combine GMV trends with gross profit margins, revenue growth, website analytics, and market data to ensure informed business decisions. These comparisons over time and across segments also boost the utility of GMV.
Discover how Bluecopa can empower your financial team with real-time insights and data-driven strategies to improve key financial metrics like GMV for your online market place.
FAQs
1. Is GMV the same as revenue?
GMV differs from revenue. Revenue nets out costs, overheads, returns, and fees whereas GMV measures gross transaction value. Still, monitoring GMV helps guide business strategy when paired with profitability metrics, conversion rates, etc.
2. How often should GMV be tracked?
You should track it daily, weekly, or monthly. E-commerce may track daily this holiday season to monitor promotions. SaaS companies may view by quarter during earnings reports.
3. Can GMV predict profitability?
While positive GMV growth signals customer traction, losses can quickly erode gains. So GMV alone cannot determine profitability or overall performance.
4. Does GMV include GST?
GMV captures the maximum order total before discounts. This includes taxes, shipping, gift wrapping, warranties, less returns and cancellations. So GST calculates into the total sales value used for GMV.
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