Gross Merchandise Value (GMV): Definition, Importance and How-to
By Indeed Editorial Team
Published 5 May 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Companies regularly measure their sales performance to monitor their success. One way professionals do this is by calculating the total revenue a specific product generates. If you're interested in a sales and business development career, you can benefit from understanding this concept. In this article, we discuss what GMV is, describe why it's important, explain how to calculate it and list the pros and cons of using this concept.
What is GMV?
GMV stands for gross merchandise value and describes a metric used by many e-commerce sites to determine their total sales. It measures the total monetary number of sales for all products over a specific time period. If a company has an e-commerce site, calculating the gross merchandise value can show you how successful the sales platform is during a certain period. It can also show you the gross value amount for individual products, which can help you compare product performance. These business insights can help a company make key business decisions on product development and pricing.
Why is GMV important?
Measuring gross merchandise value is important for tracking the success of products and helping to understand the impact of business decisions. Whether you sell products or facilitate customer-to-customer sales, understanding the volume and value of those sales can help you with:
Determining whether sales meet company goals
This calculation can determine the total value of the sales a company makes during a specific period, which you can compare to a company's sales goals. This can help offer specific insight into a company's success and offer quantitative evidence of a sales team's progress. A company's senior management can use this metric to compare the performance of sales teams and can compensate them accordingly, such as with commissions or bonuses.
Creating new business goals
This metric can help a company's management adjust sales goals to better reflect existing internal resources and capabilities and the trends of a market. If a company or sales team is consistently falling short of its sales goal, they may be unrealistic or inadequate resources are being provided. If a team is exceeding its goals, a company can consider increasing them to keep that team motivated.
Understanding which products customers want
Calculating this metric for different products can provide insight into which products customers prefer. This is especially helpful when comparing two similar items because if one has a considerably higher gross merchandise value, the company may save money by discontinuing the item that doesn't sell as well. For example, if you work for a restaurant that sells two types of chicken sandwiches, one fried and one grilled, the restaurant may save money and preparation effort by only offering the one that sells better.
Analysing strategic decisions
A company can consider providing additional resources or adjusting strategies related to its underperforming products. For example, they may conduct surveys to understand what customers don't like about a product and adjust those features. This metric can help analyse the effects of any decisions made to improve the sales of a product.
Tracking business growth
This calculation provides a simple metric that can help track a company's growth. You can use the progression of this metric throughout multiple periods to create visual elements, such as graphs, to display company growth. This can help with presentations to investors and other employees to explain company goals for each quarter.
How to calculate it
Professionals use a simple formula to calculate gross merchandise value:
GMV = Total volume of sales x product price
To calculate gross merchandise value using this formula, follow these steps:
1. Determine goals
Before calculating this metric, it's important to define why you're calculating and what you're using it for. This can help you understand what information to look for. For example, if you're calculating the performance of a specific product across a year, you need the sales volumes and average price of a product in each month of the year you're analysing.
2. Conduct research
You may be required to conduct research to find each value that you need for this equation. Consider looking for sales reports and browsing a company's websites and product advertisements to find mentions of sales volumes and prices of their products. You can also consider contacting a company's sales team directly.
3. Input the values
After conducting research, input the values into the formula. For example, if you're completing this calculation for noise-cancelling headphones that cost $800 each and the company sold 100 pairs within the month, your equation may look like this:
100 x 800 = 80,000
You may repeat this calculation depending on the number of periods you're analysing. For example, if you're tracking monthly sales across a year, you're required to perform this calculation 12 times for each month.
4. Analyse the results
Once you complete the calculation, you can begin analysing the results for your intended purpose. You can consider using spreadsheets to apply this formula to a list of sales volumes and product prices. Spreadsheets can also easily help you compare the performance of different products and generate visual data, such as line charts or bar graphs.
Pros of calculating gross merchandise value
Measuring gross merchandise value offers many advantages. Some common pros include:
Tracking growth over time
Keeping records of gross merchandise value can help you review sales information from previous periods. By comparing current values to previous ones, you can determine if a company has grown and by how much. You can also compare this with other statistics, such as customer trends, advertising campaign reactions and product popularity. Comparing these different metrics can help you identify any correlations between business decisions and company performance.
Identifying product trends
Companies can use gross merchandise value to compare the performance of product lines on an ongoing basis. This allows a company to identify trends in which products customers prefer. For example, if a company notices the gross merchandise value of a product line increasing across multiple months, they can perform further market research to analyse if there's a new trend in the market.
Determining whether a company needs expansion
You may also find it helpful to learn whether the current workforce can accomplish a company's goals or if they may need more resources. When you find the gross value of sales, you can determine if a business requires:
more facilities to accommodate employees
additional supply lines
Once you've decided whether the business requires any of these upgrades, you can update share your ideas with your supervisor and professionals to collaborate on adjusting the budget to better reflect the company's new goals.
Displaying value to investors
You can use the gross merchandise value to show potential investors the value of a business. Displaying this metric can help you demonstrate why investing in a company may be beneficial. You can also use the gross merchandise value to create reports for current investors and update them on the value of their investments. This can help a company build its relationship with investors, which can help ensure the business maintains funding.
Cons of calculating gross merchandise value
While making this calculation can be helpful for offering business insights, it's important to consider how you're using it. Gross merchandise value only measures one aspect of a business. Understanding the potential drawbacks of using the gross merchandise value can help you know when it's not applicable. Here are some common cons:
Doesn't include business costs
The gross merchandise value only measures the total value of the products sold. This means it doesn't factor in any business costs, such as:
discounts or coupons
These can all affect the actual amount of profit generated by a company. It's important to not use this metric alone to assess the success of a company or product. For example, a company may have a product with high gross merchandise value but low profit margins.
Doesn't provide customer insight
While the gross merchandise value can show the growth of sales, it doesn't provide any information regarding customers, such as how many there are, how often they visit stores or how much they purchase. It may give a false representation of growth if there are repeat customers with large orders. For example, a company may notice an increase in gross merchandise value because of a one-time large purchase order and may incorrectly assume their customer base is growing. It's crucial to consider customer metrics when analysing the growth and health of a company.
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