Do you know how to calculate gross merchandise value?
Just picture it – your latest marketing push for your online shop is a hit. Orders are flooding in and you’re over the moon. But now you’re scratching your head, trying to figure out how to measure this triumph.
That’s where Gross Merchandise Value, or GMV, steps in. When you work out your GMV, you get a clear picture of the total worth of all the products sold from your site over a certain period.
So, why is this little number so important, and how can it help you plan for your business’s future? Stick around as we break down what GMV is, how to calculate it, and why it might just be the key to taking your online business to the next level.
Let’s understand in this blog, how to calculate Gross Merchandise Value.
Key Takeaway :
Gross Merchandise Value (GMV) is the total value of all the products sold by an online business in a given period, calculated by multiplying the price of products by the number of items sold. GMV is important because it provides a clear snapshot of sales performance, aids in shaping effective pricing and marketing strategies, facilitates trend identification, attracts investors, and aids in setting sales goals. However, GMV should not be the sole focus, and other essential ecommerce KPIs should also be prioritized to truly understand a store’s performance.
What is Gross Merchandise Value? (GMV)
Understanding Gross Merchandise Value (GMV) might sound a bit complicated, but really, it’s all about getting a handle on the total value of everything sold by an online business in a given period. What’s key to remember here is that this total doesn’t take into account any costs, refunds, or even whether the sales were profitable. So, in a nutshell, GMV is all about measuring the total value of sales, which can be quite a helpful way to gauge the overall health and growth of your online business. also, GMV allows ecommerce customer service teams to prioritize resources, streamline processes, and deliver exceptional service to customers.
GMV and revenue differ; revenue is the amount left once deductions are subtracted from the GMV.
So, how exactly do we figure out the GMV? Well, it’s pretty simple. Just take the sales price of your goods and multiply it by the number of goods sold. This will give you your total gross sales value, or your GMV.
But remember, to truly understand how your business is performing, you can’t just look at GMV alone. It would help if you also considered other metrics like Net Merchandise Value (NMV), Customer Acquisition Cost (CAC), and Average Order Value (AOV). So, knowing what GMV is and how to calculate it can give you valuable insights into your business’s health and growth. But it’s even more beneficial when used along with other key metrics.
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How to Calculate Gross Merchandise Value? [Formula]
Understanding Gross Merchandise Value (GMV) is straightforward: simply multiply the price of your products by the number of items sold within a certain period to get your total sales, offering a snapshot of your online business’s performance. However, GMV is just one piece of the puzzle, as it doesn’t reflect returns, discounts, or other costs, representing only gross sales revenue.
Incorporating metrics like Net Merchandise Value (NMV) and Conversion Rate (CVR) for a more rounded view of your business’s health is advisable. Enhancing your GMV can involve strategies such as offering free shipping for orders over a specific amount, creating product bundles to encourage larger purchases, and optimizing your website’s design to boost conversion rates, all contributing to increased sales and a higher GMV.
Formula to Calculate GMV
To calculate Gross Merchandise Value (GMV), you can apply this formula:
GMV = Sales price of goods × Number of items sold
For instance, if you sell an item for $100 on Etsy and Etsy charges a 10% commission, Etsy’s GMV is $100. From this sale, you earn $90 in revenue, and Etsy earns $10 in revenue.
However, if you sell an item for $100 on your website, both your GMV and revenue amount to $100.
Why GMV is Important?
Getting a handle on GMV, or Gross Merchandise Value, can boost your understanding of your business’s sales performance and trajectory. GMV is the total value of all the products you’ve sold in a certain period. It’s like a yardstick for the growth and performance of your online business.
So why should you care about GMV?
- Performance Snapshot: GMV provides a clear, straightforward view of sales volume, aiding in quick assessment of product or service performance.
- Pricing and Strategy Insights: Analyzing GMV helps in shaping effective pricing and marketing strategies to boost sales.
- Trend Identification: Access to GMV data across different periods, products, or platforms facilitates easier detection of market patterns and ecommerce trends.
- Investor Attraction: GMV is a key metric for investors evaluating a business’s growth potential, making it crucial for securing investment.
- Sales Target Baseline: Utilizing GMV as a reference point aids in setting sales goals and tracking progress towards achieving them.
What are the Advantages and Disadvantages of GMV?
Thinking about incorporating Gross Merchandise Value, or GMV, into your business plan? It’s important to understand the whole picture before making a decision.
Sure, GMV can give you a quick look at your company’s growth and offer useful insights into potential buying opportunities. But, and this is a big but, it doesn’t give you the whole financial picture.
GMV doesn’t take into account things like profitability, returns, or discounts. This means it could give you an inflated idea of your financial performance.
Advantages of GMV
Why should you keep an eye on your business’s GMV? There are plenty of good reasons. Let’s chat about four key ones:
- Business Growth Indicator: GMV serves as a health check, offering a snapshot of sales volume to monitor business performance.
- Predictive Tool: Acts as a financial crystal ball, highlighting sales patterns and identifying trends for informed decision-making.
- Useful for All Sellers: Beneficial for both big retailers and third-party sellers to understand product popularity and inventory management.
- Opportunity Creator: By tracking GMV, businesses can gain insights into customer behaviour, tailor marketing strategies, and ultimately increase sales opportunities.
Disadvantages of GMV
- Excludes Returns and Discounts: GMV does not account for returns, discounts, or additional costs like taxes and delivery charges, potentially overstating financial health.
- Overlooks Profitability: This may mask underlying profitability issues due to its focus solely on sales volume.
- Ignores Customer Retention/Churn: Provides no insight into customer retention or churn rates, crucial for assessing long-term business viability.
- Lacks Pricing and Margin Insight: Offers no help in determining product pricing strategies or understanding profit margins, as it doesn’t consider the cost of goods sold.
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How to use GMV Properly?
To maximize the value of GMV, integrate it with other critical Key Performance Indicators (KPIs) for a comprehensive analysis:
- Revenue Analysis: Pairing GMV with actual revenue reveals the effects of returns, discounts, and fees, showing how sales volume translates into net income.
- CAC Comparison: Matching GMV with Customer Acquisition Cost (CAC) assesses your ecommerce strategy’s efficiency and calculates the return on investment (ROI).
- AOV Exploration: Examining GMV alongside Average Order Value (AOV) uncovers ways to boost revenue through increased purchase size or frequency.
- Churn Rate Impact: Linking GMV with churn rate evaluates how customer attrition affects sales, indicating if high sales volume is undermined by losing customers.
- Customer Satisfaction Correlation: Merging GMV with CSAT and Net Promoter Score (NPS) metrics can illuminate the relationship between customer satisfaction and spending, guiding strategies to enhance both.
Conclusion: A final take on GMV
GMV can be a useful metric for those selling on marketplaces like Etsy, Amazon, or Alibaba. However, it’s crucial to remember that GMV shouldn’t be your sole focus. Prioritizing other essential ecommerce KPIs is key to truly understanding your store’s performance.
Moreover, boosting GMV is one thing, but maintaining high-quality customer service as orders increase is another. Prioritizing customer satisfaction is essential to providing an exceptional shopping experience, which, in turn, positively impacts your bottom line.
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