Gross Merchandise Value (GMV)

TABLE OF CONTENTS

• What Is Gross Merchandise Value (GMV)?

• Understanding Gross Merchandise Value (GMV)

• Advantages and Disadvantages of Gross Merchandise Value (GMV)

• Customer-to-Customer Retailers

• Example of Gross Merchandise Value (GMV)

• GMV FAQs

• The Bottom Line

What Is Gross Merchandise Value (GMV)?

Gross merchandise value (GMV) is the total value of merchandise sold over a given period of time through a customer-to-customer (C2C) exchange site. It is a measure of the growth of the business or use of the site to sell merchandise owned by others.

Gross merchandise value (GMV) is often used to determine the health of an e-commerce site's business because its revenue will be a function of gross merchandise sold and fees charged. It is most useful as a comparative measure over time, such as current quarter value versus previous quarter value.

GMV is also known as gross merchandise volume; both phrases indicating the total monetary value of total sales.

KEY TAKEAWAYS

• Gross merchandise value (GMV) refers to the volume of goods sold via customer-to-customer or e-commerce platforms.

• Gross merchandise value is calculated prior to the deduction of any fees or expenses.

• It is a measure of the growth of the business or use of the site to resell products owned by others through consignment.

• Analyzing GMV from one period to another allows management and analysts to determine the financial health of a company.

• GMV is not a true representation of a company's revenues, as a portion of the revenues goes to the original seller.

Understanding Gross Merchandise Value (GMV)

The gross merchandise value (GMV) is calculated prior to the deduction of any fees or expenses. It provides information that a retail business can use to measure growth, often on a month-over-month or year-over-year basis. Generally, a retail business can calculate the gross value of all completed sales, though merchandise returns may need to be removed from this number to provide an accurate calculation.

Accrued fees and expenses may include advertising, delivery, returns, and discounts.

To calculate GMV, simply multiply the number of goods sold by the sales price of the goods.

Advantages and Disadvantages of Gross Merchandise Value (GMV)

Advantages

Since retailers may or may not be the producers of the goods they sell, measuring the gross value of all sales provides insight into the company’s performance. This is especially true in the customer-to-customer market, where the retailer serves as a third-party mechanism for connecting buyers and sellers without actually participating as either.

It may also provide value to retailers in the consignment sector, as they never officially purchase their inventory. Generally, they are never the true owner of the items, as the person or entity that placed the item on consignment may return and claim the item if they so choose.

Disadvantages

Although GMV represents the total value of goods sold on a C2C exchange, it doesn't truly reflect the profitability of a company; primarily the true revenue that a company earns from fees.

Depending on the type of e-commerce site, GMV can also have other disadvantages. For example, if a company was an online retailer that produced and sold its own goods, it would not tell you the number of customers visiting a store or how much of revenue is from repeat customers, which are important indicators in terms of customer satisfaction, and thus the long-term health of the company.

Pros

• Provides insight into the company's performance

• Allows for comparison with competitors

• Simple and quick calculation to perform

Cons

• Not a true reflection of a company's actual revenue

• A limiting metric that does not take into consideration other factors, such as repeat customers

Customer-to-Customer Retailers

Customer-to-customer (C2C) retailers provide a framework, or system, for sellers to list items they have in inventory and for buyers to find items of interest. The retailer functions as an intermediary, facilitating the transaction, commonly for a fee, without actually being a buyer or seller at any point within the transaction.

Example of Gross Merchandise Value (GMV)

For example of C2C sites are eBay and Etsy. Say, during the first quarter of the fiscal year, eBay sold 100 goods. For simplicity's sake, all of those goods were priced at $5. For the first quarter, eBay's GMV would be 100 X $5 = $500.

Now, Etsy sold 80 goods, and again, for simplicity's sake, all of the goods were priced at $4. For the first quarter, Etsy's GMV would be 80 x $4 = $320.

In this example, eBay (EBAY) has a better GMV at $500 than Etsy (ETSY) does at $320. However, this does not tell the whole story. On these sites, a portion of the revenue has to go back to the seller that sold the goods; eBay and Etsy only keep the fees they charge, which is their actual revenue.

In this example, eBay charges a fee of 2%, and so it would bring in $10 ($500 x 2%). Etsy, on the other hand, charges a higher fee: 4% in this example. Etsy would bring in $12.80 ($320 x 4%). In this example, Etsy actually performed better because it brought in higher take-home revenues.

The Bottom Line

Gross merchandise value (GMV) is the total value of goods sold by a customer-to-customer (C2C) exchange site, but the metric is often applied to other types of retailers. Though GMV is a handy metric to calculate as it reports the total value of goods sold, it needs to be taken into consideration with other metrics, particularly for those companies that generate revenue through fees.