What is Gross Merchandise Value?
Gross Merchandise Value (GMV), also referred to as gross merchandise volume, is the total amount of sales a company makes over a specified period of time, which is typically quarterly or yearly. GMV is calculated before accrued expenses are deducted. The accrued expenses include costs associated with advertising/marketing, delivery costs, discounts, and returns.
Breaking Down Gross Merchandise Value
Gross Merchandise Value is a metric most commonly used by e-commerce companies. It functions primarily as a comparative financial metric for such businesses, enabling them to review total sales volume from one recording period (whether it’s four times per year or once per year) to the total sales volume from the next recording period. Ultimately, the metric is designed to help companies understand and put a figure on the growth of their business in terms of sales.
GMV is measured in dollars. Most e-commerce companies, especially when they first became popular, used the metric instead of revenue and/or sales data. Ultimately, using GMV as a standalone reference or instead of other metrics became widely considered as ineffective. Today, e-commerce companies typically utilize GMV in combination with other sales and revenue metrics to understand how their company is operating and growing.
How to Calculate Gross Merchandise Value
Gross Merchandise Value can be calculated in a number of different ways. The simplest and most often used version is given below:
Gross Merchandise Value = Sales Price of Goods x Number of Goods Sold
GMV, using the calculation above, can also then be known as gross revenue. For example, if an online company sells 15 customized notebooks at $10 per notebook, the GMV would be $150.
The Negative Aspects of Using GMV
While Gross Merchandise Value can be useful for a company in terms of understanding how many items are being sold and the amount of revenue being generated from them, it ultimately provides unrefined data that doesn’t really express the true value of the goods being sold. This is because the costs and expenses associated with the production, manufacturing, and advertising for the items are not factored in.
Returns and discounts are also not included in the GMV figure, meaning the net income the company ultimately takes away from its total sales is not accurately represented.
Gross Merchandise Value, in and of itself, can be a valuable figure to use as a raw estimate of company earnings, as well as its function as a metric or unrefined predictor of growth. Still, it’s wise for a company to use GMV in conjunction with other financial metrics in order to get the most accurate and well-rounded picture of the company’s financial health, as well as its potential for growth.
Thank you for reading CFI’s explanation of Gross Merchandise Value. CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.
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