The Importance of Gross Merchandise Value (GMV) in Business

Ethan Lu

February 17, 2023

Gross Merchandise Value (GMV) is a term used to describe the total value of products sold through a marketplace or an e-commerce startup. It is a metric used to measure the amount of goods or services that have been purchased by customers. In this blog post, we will take a deeper look at GMV, how it is calculated, and why it is important to track this metric for your business.

Calculating GMV can vary depending on the type of business. For a marketplace, GMV is traditionally calculated as the total value paid by the purchaser-side of the marketplace. This means that it does not include expenses such as marketplace fees, refunds, and other costs. However, for many companies, GMV is not the same as GAAP defined revenue. It is important to work with an experienced accountant to determine the best way to calculate revenue for your business.

For e-commerce companies, GMV is much more likely to be equal to product sales revenue. However, it does not include other costs such as shipping, transaction fees, ad platform revenue, handling, insurance, or other add-ons. Again, it is important to work with an experienced accountant to ensure that you are accurately tracking your revenue.

So, why is it important to track GMV? GMV provides a solid view of how much product or goods move through a company. For a retailer, who may not produce all of the goods that they sell, it helps to understand customer activity. It also helps businesses to identify trends and areas for improvement. By tracking GMV, businesses can see how much revenue is being generated and whether or not it is increasing or decreasing over time.

However, one major issue with GMV is that it can become a vanity metric. A high GMV does not necessarily mean that a company is profitable or successful. If a marketplace has a high amount of refunds, it can start to provide a false sense of value transacted through the platform. It is important to look at other metrics such as profit margin, customer acquisition cost, and customer lifetime value to get a more accurate view of a business's financial health.

In conclusion, GMV is an important metric for any business that sells products or services. It provides insight into how much revenue is being generated and can help identify trends and areas for improvement. However, it is important to remember that it is not the only metric that should be used to measure a business's success. By working with an experienced accountant and tracking other metrics, businesses can get a more accurate view of their financial health and make informed decisions for growth and success.

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