Gross Merchandise Volume

“Retailers” may refer to ecommerce stores or customer-to-customer (C2C) retailers, like eBay or Etsy. GMV is measured in dollars and used as a key performance indicator to measure the growth of a business in terms of sales. It can also indicate market demand for products and/or services.

In the past, many e-commerce companies used GMV as the primary measure of profitability. Today, most companies recognize that using gross merchandise volume by itself or instead of other metrics does not paint a full picture of profitability. Ecommerce companies can use GMV along with other sales and revenue metrics to understand how the business is functioning and growing.

How To Calculate Gross Merchandise Volume

Gross merchandise volume is calculated by multiplying how many products a company sold by the cost of those products. Using this calculation, GMV can also indicate a company's gross revenue. For example, if an online merchant sells 20 customized journals at $15 per journal, the GMV would be $300.

Gross merchandise volume is particularly useful when companies or online marketplaces use it to compare figures over time. They can use the GMV to compare current quarter sales vs. the previous quarter or year over year. In short, gross merchandise value helps companies better understand their sales numbers.

Looking at revenue in addition to GMV can be especially useful for C2C marketplaces, which serve as middlemen between sellers listing items for sale and buyers finding items they're interested in purchasing. Marketplaces enable these transactions and make their money from the fees they charge sellers. So if a marketplace calculates GMV as $300 for the month, the bulk of that may go to the seller of the goods. A more accurate view of the marketplace’s revenue would be to look at the fees it charges sellers to list their goods on the site.

The Downside of Using GMV

GMV can help a company understand how many items it is selling and the amount of revenue generated from selling those items. That said, it only offers a narrow glimpse into the profitability of a business. Gross merchandise volume doesn’t take into account the production, manufacturing, and advertising costs.

GMV also lacks discounts and return data, skewing the reflected net income. To accurately reflect their profitability, ecommerce companies must also consider these factors along with business costs like marketing and delivery expenses.

GMV is still valuable for companies to calculate a raw estimate of their earnings. It is also valuable in its role as a metric or unrefined way to predict growth. Still, companies should use gross merchandise value along with other financial metrics to get the most well-rounded and accurate picture of their financial health and growth potential.