Gross Merchandise Value (GMV): Everything You Need to Know

One of the most important metrics to calculate and consider when running an e-commerce business is Gross Merchandise Value (GMV). It is used to determine the progress of an e-commerce site as a comparative financial metric by enabling online store owners to review the total sales volume from one recording period and compare it to another.

In today’s blog post, we will do a deep dive into the meaning and usage of Gross Merchandise Value through practical examples, going over its benefits and drawbacks, and comparing it to many other business metrics for better comprehension.

If you own an e-commerce store or operate an online marketplace, read on to learn the importance of understanding and properly incorporating Gross Merchandise Value into your business strategy.

Let’s begin.

What Is Gross Merchandise Value (GMV)?

Gross Merchandise Value, also referred to as gross merchandise volume, is the total order value of all merchandise sold throughout a given time period. It is considered an important key performance indicator (KPI) in the e-commerce industry and customer-to-customer (C2C) marketplaces. It is typically measured quarterly or yearly and does not include any additional fees or other expenses.

Gross Merchandise Value Formula

GMV is calculated using the following formula:

Gross Merchandise Value = Number of Transactions x Average Order Value (AOV)

• Number of Transactions - The total number of individual transactions that have occurred within a specific time frame.
• Average Order Value (AOV) - Monetary value of transactions within a given period.

Average order value is calculated by dividing the total revenue by the number of orders, i.e.:

Average Order Value (AOV) = Total Order Value ÷ Total Number of Orders

How to Calculate Gross Merchandise Value

Many world-renowned e-commerce and online marketplace companies, such as Alibaba Group, eBay, and Shopify, use Gross Merchandise Value in their financial calculations. They include it in their financial reports because this key metric is useful for assessing the performance of their businesses.

When wanting to calculate your own Gross Merchandise Value you should employ the formula we explained above. But, before you do that, first determine a few factors for your calculation, including:

• Identify the time period: Determine the time period for which you wish to calculate. This can be a specific month, quarter, or year,
• Compile data: Collect data on all transactions within the chosen time period,
• Calculate the AOV: Utilize the AOV formula we mentioned before to define the monetary value of the transactions needed for the Gross Merchandise Value formula.

Calculating the Gross Merchandise Value of your business will allow you to scale the growth of your operations and the effectiveness of your marketing strategies. It also provides needed insight into sales and patterns for a better understanding of customer purchase behaviors.

GMV Calculation Examples

Now that we have gone over the formula and basics of calculating GMV, let’s look at a couple of examples to help you easily understand how it works.

Example #1:

Let’s say an e-commerce store sells pens at 5 dollars each.

In the fiscal year of 2023, it has sold a total of 1,000 pens through 100 transactions.

That is a total of 5,000 dollars in revenue.

Now, the AOV would be:

5000 ÷ 100 = 50 dollars.

So, the Gross Merchandise Value would be:

100 x 50 = 5000 dollars.

Example #2:

Suppose another e-commerce store sells shoes at 60 dollars a pair.

In the last quarter, it has sold 120 pairs of shoes through 60 transactions.

That is a total of 7,200 dollars in revenue.

The AOV would be:

7200 ÷ 60 = 120 dollars.

And the GMV would be:

60 x 120 = 7200 dollars.

Note that in both examples the total revenue and Gross Merchandise Value are the same amount. This is because we are using simple examples where the stores have one product as a source of income.

In more complex business models there are several different revenue streams which are then summed up equal to the total revenue amount. In those cases, GMV oftentimes is different than the total revenue since it focuses solely on the value of goods sold. We will elaborate more on this comparison later on in the blog post.

GMV Advantages

Like with anything else, Gross Merchandise Value has its benefits and drawbacks. Let’s delve into each to simplify your decision-making process when evaluating if you should implement Gross Merchandise Valu into your financial calculations and reports.

Employing Gross Merchandise Value has shown many advantages for business owners, such as:

• It helps measure the growth and progress of a company with a comparison of different recorded time periods,
• It can help analyze the current financial state of a company,
• It is an especially useful tool for retailers who don’t produce the products they sell. It is also helpful for those serving as a third party for connecting buyers and sellers,
• The Gross Merchandise Valu calculation is quick and straightforward,
• It can help increase sales by providing valuable insight for creating more buying opportunities, and
• Additionally, using GMV is often free of charge, making it a cost-effective tool for businesses of all sizes.

GMV Disadvantages

Furthermore, let’s take a look at GMV’s shortcomings and how its functionality can be improved to drive more sales and success to your online business. Some disadvantages include:

• The Gross Merchandise Value amount is prior to any deductions related to fees and other expenses. These may include taxes, discounts, delivery fees, product returns, and other side costs,
• It fails to depict the profitability of the company, i.e. the net income the company takes away from its sales,
• It gives no insight into repeat and lost customers,
• It is only a raw estimate of company earnings when used by itself, and
• You cannot use it to determine whether you should alter product prices since it does not take into account margins.

Having this in mind, it is in your best interest to use Gross Merchandise Value in conjunction with other financial metrics in order to obtain the most accurate understanding of your company’s financial health and growth potential.

What is GMV in Retail?

In retail, GMV refers to the total value of products sold by retailers in a specific time frame. This usually pertains to traditional brick-and-mortar stores as opposed to online transactions.

It is most often associated with the overall sales of physical stores measuring the value of purchased goods by customers in-store. Of course, it is utilized as a crucial metric for retailers to scale the performance of their sales activities.

What is GMV in Marketing?

On the other hand, Gross Merchandise Value in marketing is used as a metric that represents the total value of products or services sold through a marketing channel or platform in the chosen period of time. In this case, Gross Merchandise Value establishes the performance and effectiveness of marketing strategies and campaigns.

It is a helpful tool for marketers to define what is driving sales and success to the business and where they can make alterations for better results.

What is GMV in eCommerce?

When used for the financial analytics purposes of an e-commerce business, Gross Merchandise Value takes into account the goods or services transacted through an online platform. In this way, e-commerce Gross Merchandise Value is specific to products sold through digital channels such as website sales and mobile apps.

It can prove particularly beneficial for this industry as there are many different ways of gaining revenue through e-commerce platforms such as selling products you do not manufacture yourself, for those serving as third-party connecting buyers and sellers, those profiting off of subscription business models, and more.

GMV vs Revenue: What's the difference

As we mentioned before, Gross Merchandise Value and Revenue, also referred to as Gross Revenue, have some overlap and can cause confusion between individuals new to the business, so, let’s explain their differences a little further.

• GMV specifically measures the value of goods sold during a specified time period,
• Revenue is a broader metric considering all sources of income and providing a view of a company’s overall financial performance, and
• GMV is most often used in e-commerce, while revenue is used in all industries.

Both metrics are important and are often used alongside other ones to better determine a business’s financial health.

GMV vs Sales

While both Gross Merchandise Value and Sales serve as financial metrics in business, they represent different concepts. These are GMV’s main characteristics:

• GMV refers to  the total order value of all merchandise sold,
• It is calculated by multiplying the number of transactions by the Average Order Value (AOV), and
• It covers overall transaction volume and economic activity, excluding deductions like discounts, returns, or taxes.

On the other hand, sales are characterized by:

• Specifically referring to the revenue generated from the actual exchange of goods,
• The sales of a company are calculated by multiplying the number of units sold by the unit's price, and
• They measure the monetary value of sold items, representing the income generated through the sale of goods or services.

So, Gross Merchandise Value puts an emphasis on overall transaction volume, while sales measures the revenue through individual sales. Gross Merchandise Value is most often used by e-commerce or online marketplace businesses, but sales can be applied to any business that sells products or services.

GMV vs ARR (Annual Recurring Revenue)

Annual Recurring Revenue (ARR) is a metric most often used in subscription-based business models and it represents the annual value of recurring revenue from subscriptions that are expected to continue in the future.

It is calculated by multiplying the monthly subscription revenue by twelve.

The key differences between GMV and ARR are:

• GMV measures the value of all transactions, while ARR focuses on recurring revenue,
• GMV is most associated with e-commerce and marketplaces, while ARR is mostly used for subscription-based business models, and
• GMV is not tied to a fixed time frame, while ARR is an annual metric.

GMV vs GPV (Gross Payment Volume)

Gross Payment Volume (GPV) measures the total amount processed in transactions through payment systems or platforms. It provides insights into the total monetary volume of transactions.

The distinguishing factors between GMV and GPV as financial metrics include:

• In comparison to GMV containing the total value of goods transacted, GPV focuses specifically on the monetary volume of all processed payments,
• GPV is most relevant to payment processing platforms and financial service providers, as opposed to GMV being mostly used by e-commerce and online marketplace businesses,
• GMV includes the value of all sold goods, while GPV is simply the total sum of all processed payments which may include fees, financial transactions, and other such payment-related activities.

GMV vs TPV (Total Payment Volume)

Total Payment Volume (TPV) is a similar term to Gross Payment Volume (GPV) with both being used in the context of financial transactions. But they do show multiple important differences, especially within different industry and company preferences, and with that TPV is also different from Gross Merchandise Volume.

Total Payment Volume (TPV) is a broad term encompassing all transactions processed by a payment getaway regardless of the platform.

Its main distinctions to GMV are the following:

• By definition they represent different values, with GMV portraying the total value of goods transacted on a platform and TPV doing the same but for payments processed through a payment system, and
• GMV is applied by e-commerce and online marketplaces, while TPV is applied in the financial sector by payment processors.

GMV vs NMV (Net Merchandise Value)

A business’ Net Merchandise Value (NMV) is the amount left when you deduct all expenses and fees from Gross Merchandise Value (GMV). It essentially calculates your profit over a specific time period.

Its formula is the following:

NMV = GMV - All expenses and fees

The expenses and fees may include advertising expenses, payment gateway fees, marketing costs, refunds, discounts, etc.

Having GMV in its calculation formula explains that NMV is an extension of GMV of sorts, portraying a more detailed look into profits as opposed to just the total value of goods sold.

GMV vs MRP (Maximum Retail Price)

While some of these terms may overlap and can be quite complicated to differentiate especially for beginners in the business, others such as GMV vs MRP are completely different in what they represent and are used for.

Maximum Retail Price (MRP) is the highest price that can be legally charged for a product as determined by the manufacturer. Its purpose is to serve as the upper limit for a product’s retail price.

This type of pricing guideline ensures fair pricing for consumers and it is much more commonly used in traditional retail settings, as opposed to GMV being prevalent among e-commerce businesses.

GMV vs GMS (Gross Merchandise Sale)

Gross Merchandise Sales (GMS) is another term used interchangeably with Gross Merchandise Value (GMV). Same as GMV, GMS represents the total value of goods sold on a platform and their calculation methods align.

GMV is a more widely used term, based on industry and company preferences and practices, but GMS stands for the same concept.

GMV vs GTV (Gross Transaction Value)

Gross Transactional Value (GTV) is the calculation of revenue in relation to commissions. It is especially useful to businesses that operate on commissions, as it equals the number of items sold times the price collected.

For comparison, GMV is the total money from everything sold in a marketplace, while GTV is how much money the marketplace itself makes from fees. It is most often used by e-commerce companies with markets where many sellers do business.

GMV vs AOV (Average Order Value)

Average Order Value (AOV) is the average value of each transaction or order on a platform, i.e. the typical amount spent by a customer in each order.

It is part of the GMV calculation formula and their differences are the following:

• GMV is the total value of all transactions serving as a representation of the platform’s performance, while AOV focuses on the value of individual transactions,
• GMV is used for assessing a platform’s overall performance and growth, while AOV gives insight into understanding customer spending patterns.

Does GMV Include Tax?

As we mentioned before, the Gross Merchandise Value amount is prior to any deductions related to fees and other expenses, such as taxes, discounts, delivery fees, product returns, and other side costs.

FAQ

What Does GMV Mean

Gross Merchandise Value (GMV), also referred to as gross merchandise volume, is the total order value of all merchandise sold throughout a given time period.

What is the difference between Gross Merchandise Volume and Gross Merchandise Value?

Gross Merchandise Volume is another term used interchangeably with Gross Merchandise Value. They refer to the same concept and are used interchangeably.

How Gross Merchandise Value is calculated for E-Commerce?

Gross Merchandise Value in the context of e-commerce and the marketplace model is calculated using the following formula:

Gross Merchandise Value = Number of Transactions x Average Order Value (AOV)

• Number of Transactions - The total number of individual transactions that have occurred within a specific time frame.
• Average Order Value (AOV) - Monetary value of transactions within a given period.