What is Gross Merchandise Volume? What is the formula and why it is important

There’s been a lot of talk about Gross Merchandise Volume (GMV) lately, and if you operate in the e-commerce sector, it’s likely something you are familiar with. If that is not the case, then understanding GMV can be a key factor for success when assessing overall performance and making future business decisions. If you are unfamiliar with what GMV involves or why it matters to your business, don’t worry – we’ll break it all down for you so that you have an easy-to-understand guide on this influential industry measure.

What is Gross Merchandise Volume?

Gross Merchandise Volume (GMV) is a term used in e-commerce to refer to the total dollar amount of goods and services sold through online sales platforms over a specified time period. It is an important metric for evaluating the performance of retailers as it captures the overall market size as well as changes in volume over time.

GMV includes all transaction value or cost including delivery fees, returns, discounts granted, taxes etc. and does not take into account how much of that volume was converted into profit by the seller. It is different from net revenue, which takes into consideration commission charges and other expenses incurred by retailers.

Why Is It Important For Startups To Track Their Gross Merchandise Volume?

Gross Merchandise Volume (GMV) is an important metric for startups because it evaluates their success in terms of the total amount of goods and services that have been sold or exchanged within a certain period of time.

Tracking GMV helps startups easily identify what is popular among their customers—whether it be a particular product, service, or category—and also aids in forecasting when they need to purchase more inventory and plan marketing campaigns.

Just as importantly, tracking GMV can help startups determine which customer groups are most profitable and provide insight into potential customer acquisition strategies.

In short, keeping track of the startup’s GMV allows them to continuously refine their processes and create sustainable growth.

How do you calculate Gross Merchandise Volume?

In order to calculate GMV, you essentially need two components: the sale price of the goods and the number of goods actually sold. Then you simply have to multiply those two values together, and presto! You have your GMV figured out.

For example, let’s say that a store sold 100 items for $25 each — this would mean that the GMV for this transaction would be $2,500 ($25 x 100). Easy, right? Knowing how to calculate your GMV is a great asset for any individual running an e-commerce business; it can help you make more informed decisions about your inventory and budgeting moving forward.

Here’s the formula:

GMV = Sales Price of Goods x Number of Goods Sold

What factors affect Gross Merchandise Volume?

There are several factors that affect Gross Merchandise Volume (GMV), a key metric for e-commerce businesses. Some of those include:

Conversion Rate:

GMV is directly related to a business’s conversion rate, or the percentage of visitors who make a purchase on the website. The higher the conversion rate, the more likely it is that customers will be making purchases and driving up GMV.

Average Order Value:

Another important factor in GMV is the average order value (AOV). A higher AOV means that customers are spending more on each purchase, driving up overall GMV.

Customer Retention:

Loyal customers are crucial to a business’s success and its ability to drive up GMV. Customer retention strategies like loyalty programs and discounts can help encourage repeat purchases and boost GMV.

Marketing:

An effective marketing strategy is essential for driving up GMV. This can include campaigns like email marketing, social media advertising, search engine optimization (SEO) and more. These strategies are designed to reach potential customers and encourage them to make a purchase.

Seasonality:

Some businesses experience seasonal fluctuations in their GMV, depending on the time of year. For example, businesses may experience a spike in sales around holidays or back-to-school season. Understanding and anticipating these trends can help e-commerce businesses maximize their GMV.

Ultimately, there are many factors that affect GMV for e-commerce businesses. By understanding these factors and leveraging them effectively, businesses can drive up their GMV and maximize their success.

What is a good Gross Merchandise Volume?

A good Gross Merchandise Volume (GMV) depends on its industry and business model, as well as its business lifecycle. For instance, an e-commerce store may have a GMV of $50 million after one year of operation, while a brick-and-mortar store selling high-end fashion items might only hit a GMV of $10 million after five years in operation. Each is considered a good GMV given their respective businesses’ unique circumstances.

It’s important to remember that GMV isn’t the same as net profit, which can be achieved with lower GMVs through efficient cost management strategies. If you’re wondering what constitutes a good GMV for your business, consider potential buyers and the value you provide them before attempting to answer that question.

Example of Gross Merchandise Volume

Some examples of GMV are given below:

Example 1

On C2C sites, such as eBay and Etsy, GMV (Gross Merchandise Value) is an important metric to measure performance. For example, in the first quarter of the year, eBay sold 100 goods at $5 each, resulting in a GMV of $500 ($5 x 100). Likewise, Etsy sold 80 goods at $4 each, resulting in a GMV of $320 ($4 x 80). On the surface, eBay’s higher total suggests better performance. But this overlooks the fees that both companies keep from the sale.

In this example, eBay charges 2%, which comes to $10 ($500 x 2%). Meanwhile, Etsy charges 4%, which comes to $12.80 ($320 x 4%). In this scenario, Etsy performed better because it brought in higher take-home revenues. Thus, GMV is only one part of assessing performance; fees also play a major role in determining the final bottom line for C2C sites.

Example 2

The chart below shows the Gross merchandise volume of china’s eCommerce market from 2008 to 2018 (in Trillion yuan). From this chart we can see how the eCommerce market in China has evolved and increased over the years.

Strategies to Increase Gross Merchandise Volume

Some strategies to increase GMV include:

Utilize discounts and promotions

Discounts and promotions can significantly increase your GMV. Consider providing incentives like free shipping, percentage-off coupons, or bundling products together to encourage customers to purchase more items from your store.

Create product bundles

Product bundles are a great way to increase GMV. By bundling products together, you can offer customers a better value and make it easier for them to purchase everything they need in one fell swoop.

Optimize your product pages

Make sure that each of your product pages is optimized for conversion. Include relevant images, detailed descriptions, and persuasive copy to entice shoppers to purchase your products.

Encourage customer reviews

Customer reviews are an effective way to build trust and increase sales. Encourage shoppers to leave honest, positive reviews on your product pages to help boost GMV.

Experiment with pricing strategies

Try experimenting with various pricing strategies like dynamic pricing, price anchoring, and sale prices to see what works best for your store. This will help you to maximize GMV and drive more sales.

Leverage social media

Social media is a powerful tool for boosting GMV. Leverage platforms like Facebook, Instagram, and YouTube to connect with customers, showcase your products, and encourage them to purchase from your store.

These are just some of the strategies you can use to increase GMV. By implementing the right tactics and leveraging the right channels, you’ll be able to drive more sales and maximize your store’s profits.

Conclusion

GMV is an important metric for any ecommerce business. By understanding what it is and how it’s calculated, you can make informed decisions about your marketing and sales strategies. If you’re not sure where to start, our team of experts can help you get started. Contact us today to learn more about how we can help you grow your business.