What Is GMV? A Complete Guide to the GMV Metric

GMV is a metric widely used in marketing, and more specifically in e-commerce. But not everyone understands what it means and why it matters. So in this article, MONA Media will pull together the key information about what GMV is and related topics. If you want to learn about GMV, don't miss the useful information below.

What is GMV?

GMV (Gross Merchandise Volume) – Gross Merchandise Value, or total transaction value, is a fairly common metric in e-commerce. GMV is typically used to measure the volume of goods sold through e-commerce platforms in the C2C model (Customer to Customer).

GMV is also one of the measures used to assess a company's finances. It gives the business a better overall view of its e-commerce website to set its growth direction going forward.

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GMV formula

GMV is usually calculated monthly or yearly. The GMV formula is:

GMV = total quantity sold of a product x price of that product

Example: A shop sells T-shirts, and in one month it sold 1 month sell 200 shirts at a price of 5 USD/item. So the shop's GMV for the month is 5 x 200 = 1.000 (USD). This 1000 USD can also be seen as the shop's total revenue for the month.

Common GMV examples

To make GMV and how to calculate it clearer, MONA will give a concrete example. In Vietnam's e-commerce, the two most prominent names are Shopee and Lazada.

• In one month Shopee sold 25,000 products at a selling price of 5 USD/item, so Shopee's GMV that month would be 125.000 USD. In the same month Lazada sold 20,000 products at a similar price of 5 USD/item, so Lazada's GMV would be 100.000 USD.
• Shopee's GMV is higher than Lazada's, but this metric alone does not show that Shopee's business performs better than Lazada's.
• Shopee charges a fee of 2% so Shopee actually collects 2% x 125.000 = 2500 USD. Lazada's marketplace, meanwhile, charges a fee of 4% so Lazada collects 4% x 100.000 = 4000 USD. In terms of business performance, Lazada is more profitable than Shopee.

What does GMV tell you?

GMV is commonly used to measure a company's business growth. GMV is also used to measure how effective an e-commerce platform is at selling products.

GMV in e-commerce is especially accurate in C2C markets, where the retailer is really only a third party connecting sellers and buyers and does not take part in the transaction directly.

To see its current financial position more clearly, a business should regularly analyze GMV across periods, for example comparing this year's quarterly GMV with the same quarter last year. That leads to better plans and strategies for the business's future.

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Why GMV matters in e-commerce

GMV plays a particularly important role in marketing, especially for e-commerce companies. Notable benefits GMV brings to a business include:

Calculating operating costs

GMV is usually calculated before deducting the business's operating costs. It gives the business key information for measuring growth over a set period (monthly, quarterly or yearly).

Calculating total sales value

With GMV, a business can calculate its total sales value in cases where the profit on goods needs accumulated costs to be worked out accurately. These can include steps such as product advertising, delivery, discounts, returns…

Gives the business a clearer view of performance

In e-commerce, retailers can hardly tell exactly who makes the goods they sell. So the GMV metric gives the business information and an overall view of its own performance.

From these benefits, GMV clearly plays a major role for online retailers today. It is more than a number reflecting how the business performs: it also drives operations and raises productivity, helps increase sales and keeps the business stable.

In e-commerce, GMV is the metric for performance and for the total value of products sold on a platform. For big marketplaces such as Shopee in particular, GMV reflects not only the volume of goods traded but also how well operations and marketing strategies are working.

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Limitations of the GMV metric

Besides the strengths above, GMV also has some limitations that can hold back a business's growth and operations.

In practice, some newly founded e-commerce companies with limited understanding and no specific strategy have used GMV in place of measuring sales revenue. This misunderstanding makes their results inaccurate. Specifically, GMV has these limitations:

Not the best way to predict net revenue

GMV is only a figure that shows roughly where a business stands financially. So it is not the best tool for predicting net revenue accurately.

Gives little information about the value of goods

The figure GMV shows is a raw number and does not say much about the value of the goods sold. The data GMV provides has little bearing on the retailer's costs.

GMV also leaves out related costs such as customer promotions, return costs, inventory storage… So GMV does not accurately reflect the value of the goods.

GMV also differs from one e-commerce platform to another. The best approach is to look at the overall GMV of each sales sector and from there understand your own business as a whole.

Other metrics that can replace GMV

Looking at GMV alone cannot assess how well a business performs overall. As analyzed above, relying on GMV is not the best or smartest move. You also need to analyze other metrics to get the most accurate view of how the business is doing.

Specifically, if a business needs information on the earnings and actual financial condition of a public company, checking its filings with the SEC (Securities and Exchange Commission) each quarter will give you the best overall view of those figures.

When checking growth, companies usually compare this quarter's revenue with the previous quarter's. A business needs to answer the questions “Did revenue go up or down? What caused the change, and what factors affected revenue during the period?”. Here you can use SEC data instead of GMV to assess the business more specifically and accurately.

However, using SEC data is complicated, and the calculation takes more effort and time than GMV. So a business can weigh up which metric best suits its own characteristics.

Understanding GMV helps a business assess its overall business performance. From there it can see where it falls short and find ways to improve productivity. We hope the information MONA Media provided above has given you a clearer view of the GMV metric.