Gross Merchandise Value
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Gross Merchandise Value
What is Gross Merchandise Value?
The Gross Merchandise Value (GMV) – alternatively known as gross merchandise volume – represents the total value of goods and services sold via a particular marketplace or online platform during a certain time frame, excluding all sorts of charges or discounts. This is an expansion metric and not a profitability one.GMV does not take into account how much of the total value is accounted for as revenue by the firm.
As such, if an online marketplace is able to arrange for 1,000 transactions, each having a value of $50, then the GMV of these transactions would be equal to $50,000. Nevertheless, the firm might have recorded only a small percentage of this figure as revenue.
How is GMV Calculated?
| GMV=Average Order Value×Number of Orders |
For businesses with different products and prices, GMV can be calculated by adding the value of all qualifying transactions during the selected period.
| GMV=∑(Unit Price×Units Sold) |
An online marketplace processes 10,000 orders in a month with an average order value of $75.
GMV = 10,000 × $75 = $750,000
That $750,000 is the total value of transactions flowing through the platform; not what the platform actually earns.
Why Do Companies Measure the GMV Metric?
- Indicates scale and market share: GMV indicates the size of the commercial activity taking place on the platform, which serves as an indicator of the importance of the platform in the buying/selling process.
- Helps in measuring marketplaces where the take rate is low: As the take rate is only 5–20%, the revenue doesn’t indicate how economically active the platform is.
- Appeals to the investor in the growth stage of financing: As growing marketplaces usually present themselves with the GMV first, as it grows faster than revenue and impresses more than revenue; even though an experienced investor will definitely ask for the take rate and revenue numbers as well.
- Helps in checking the health of the marketplace itself: Increasing GMV per buyer or seller is a sign of a healthier/more liquid marketplace.
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