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What is Gross Merchandise Value and why is it important to your eCommerce business? We break down what GMV means, how you can calculate it, and how you can improve your GMV.

When you are running an eCommerce website or deal with any kind of retail, it is vital to know what GMV is. Also known as Gross Merchandise Value or Gross Merchandise Volume, this important figure tells you the total value of goods you have sold over a certain period. This is a good metric to keep in mind when working on ways to increase sales and expand your company’s bottom line.

Below, we’ll take a look at everything GMV: what it is, why it is so important, and how you can improve your own GMV while making sales to satisfied customers.

Gross Merchandise Value (GMV) is a metric that measures your total value of sales over a certain period of time. It’s a metric that is most commonly used in the eCommerce industry and is also sometimes referred to as Gross Merchandise Volume.

GMV can be used to determine the overall health of an eCommerce business, and a good indicator of growth. This is because it measures the volume and value of merchandise sold or the number of transactions handled. So if your GMV is up, business should be good!

According to the Corporate Finance Institute, eCommerce GMV should be measured at least once per year, if not once per financial quarter. However, it’s important to note that the Gross Merchandise Value calculation is made before the deduction of fees and expenses associated with the sale of products. This includes things like the cost of delivery, discounts, advertising costs, and returns, etc.

GMV is at its most useful when it’s being used as a comparative measure over time. This could be comparing current quarter sales vs the previous, or year on year. Ultimately, Gross Merchandise Value is another way companies can understand and put a figure on their sales numbers.

The simplest and most common way to calculate GMV is by using the formula below. This simply takes the price charged to the customer and multiplies it by the number of items sold:

Gross Merchandise Value =  Sales Price of Goods x Number of Goods Sold

So let’s say you sell 10 products for $100 each, your Gross Merchandise Value would amount to $1,000.

Calculating your GMV in this way will give you a good idea of how much growth your business is experiencing as it looks at how much you are actually selling. However, you shouldn’t rely on it solely as the one formula to determine how healthy your company is.

This is because while Gross Merchandise Value tells you how much you’re growing, it doesn’t tell you whether or not you are actually profiting off the real value of the items you sell.

For example, if GMV was your company’s primary growth metric, you may focus on more expensive, big-ticket products as the sales price of these products will help boost your total transaction value.

However, the margins on such products are often much lower than cheaper products such as clothing. So as you can see, it’s not necessarily an accurate representation of an eCommerce company’s performance.

So going back to our example above if those 10 products you sold for $100 cost you $75 to make or purchase, you’re only making $250 profit.

You won’t be able to use this formula to determine if you are selling your items for too much or too little as it doesn’t take into account margins. Number seven on our list below can help you do that!

Yes, it’s still an important metric as it essentially calculates your total gross sales value. Of course, you want this figure to be relatively high as sales are the lifeblood of any eCommerce business.

When you use this figure comparatively, you want it to be growing, whether it’s year-on-year or quarter vs quarter. If it’s growing, it means you’re either selling more, or you’re selling more expensive items both of which should be good for your bottom line.

But as we mentioned above there are other financial metrics that can help determine the performance of your eCommerce business.

1. Net Merchandise Value (NMV) is what you get after you deduct all the fees and expenses from your Gross Merchandise Value over a period of time. It’s a more realistic look into how your business is actually performing as it takes into account costs, refunds, etc.

NMV =  GMV – All Costs (marketing, refunds, gateway payments)

2. Customer Acquisition Cost (CAC) is calculated simply by dividing all costs spent on acquiring customers (including software costs, eCommerce merchandising tools included, marketing team salaries, etc.) by the total number of customers acquired in the time period the money was spent.

So let’s say you spent $5,000 on marketing in one month and acquired 500 new customers. Your CAC would be $10.

CAC = Total Marketing Spend / Number of acquired customers

This is an important metric as it essentially tracks the effectiveness of your advertising, and how much you are paying to get new customers. If this figure is too high, you’ll be eating into margins and wasting your budget.

3. Customer Lifetime Value (CLV) works out the amount of money customers will spend with you over the entire life of your relationship. To calculate CLV you’ll need to define LTV first, that is Lifetime Value:

LTV = AOV x Number of transactions x Retention time period

CLV = LTV x Profit margin

CLV essentially tells you if your e-commerce customer retention efforts are paying off and how much the customers like your product or service. The higher this number, the greater your profits will be. If it’s low, you know you need to work on your customer retention strategy, or that something in your product or service isn’t meeting customer expectations.

4. Average Order Value (AOV) tracks the average amount a customer will spend each time they place an order. It’s simply calculated by dividing the total revenue by the number of orders.

AOV = Revenue / Total Number of orders

It’s clear you want this number to grow as it means your customers are spending more money with you, again this links back to CAC and increasing your CLV. If the amount is low you may need to look into ways of increasing your AOV.

5. Conversion rate (CVR). For eCommerce websites, this will be one of, if not the most important KPI to track. Conversion rate is an important metric that shows how your overall website is converting visitors into customers.

CVR = Number of transactions / Number of sessions

6. Profit Margin per Product (PMpP) will help you determine which products to push, how much you can discount, and where to keep a closer eye on things because margins are tight.

Product margin per product is easy to calculate. For example, if you sell a product for $25, and it costs $20 to make, the gross profit margin is 20% ($5 divided by $25).

PMpP = (Product price – Product cost) / Retail price

7. Net Promoter Score (NPS) is a customer loyalty and satisfaction metric. The score is taken from asking customers how likely they are to recommend your product or service to others on a scale of 0-10.

Satisfied customers mean returning customers so again the Net Promoter Score metric can help improve lifetime value and average order values as customers will be willing to spend more with you as they know the product or service will deliver.

So if GMV is one of the financial metrics you are tracking, you’ll want to see this figure increasing. Since gross merchandise volume is the direct measurement of your growth, it only makes sense that smart e-commerce business owners will be looking for ways to improve it.

Need some ideas on boosting your Gross Merchandise Value? Here are a few:

A study by UPS showed that 58% of online shoppers are willing to add additional items to their order if it means they get free shipping… Offering free shipping either across the board or after customers have reached a certain price threshold can be a great way to boost your GMV and your sales overall.

Not to mention this will increase the base value of your average order, as customers will start to add more items in order to qualify for free shipping.

Cross-selling is a powerful way to get customers to buy more. The best part is, you don’t have to do much to convince them; it’s the customer that makes the final decision to buy more and expand their shopping cart.

You can add a “frequently bought with this item” window on your product pages, or even offer some accessories as last-minute add-ons on the checkout page. You’d be surprised how much this can boost your GMV!

Another great way to encourage your customers to buy more (without being too pushy about it) is to offer bundles and packaged deals. Not only is this effective for getting rid of some of your less-popular inventory, but it also can significantly improve your GMV.

Customers will be happy to invest in a bundle since they are getting more products than usual for a price that is much better than usual, so they will feel that they are getting a great deal. Meanwhile, you are making bigger average sales, getting rid of old inventory, and boosting your GMV. It’s a win-win situation!

So whilst GMV will be a good metric to look at to determine total sales value and if this is improving, it needs to be used in conjunction with other metrics to give you a true picture of business performance.

It is critical to consistently measure your growth over each month to determine what you may be doing right or wrong. By creating more buying opportunities for customers using smart cross-selling strategies for adding bundled deals, you will be encouraging more activity on your website.

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In order to effectively manage and run a successful organization, leadership must guide their employees and develop problem-solving techniques. Finding a suitable solution for issues can be accomplished by following the basic four-step problem-solving process and methodology outlined below.

Diagnose the situation so that your focus is on the problem, not just its symptoms. Helpful problem-solving techniques include using flowcharts to identify the expected steps of a process and cause-and-effect diagrams to define and analyze root causes.

The sections below help explain key problem-solving steps. These steps support the involvement of interested parties, the use of factual information, comparison of expectations to reality, and a focus on root causes of a problem. You should begin by:

Postpone the selection of one solution until several problem-solving alternatives have been proposed. Considering multiple alternatives can significantly enhance the value of your ideal solution. Once you have decided on the "what should be" model, this target standard becomes the basis for developing a road map for investigating alternatives. Brainstorming and team problem-solving techniques are both useful tools in this stage of problem solving.

Many alternative solutions to the problem should be generated before final evaluation. A common mistake in problem solving is that alternatives are evaluated as they are proposed, so the first acceptable solution is chosen, even if it’s not the best fit. If we focus on trying to get the results we want, we miss the potential for learning something new that will allow for real improvement in the problem-solving process.

Skilled problem solvers use a series of considerations when selecting the best alternative. They consider the extent to which:

Leaders may be called upon to direct others to implement the solution, "sell" the solution, or facilitate the implementation with the help of others. Involving others in the implementation is an effective way to gain buy-in and support and minimize resistance to subsequent changes.

Regardless of how the solution is rolled out, feedback channels should be built into the implementation. This allows for continuous monitoring and testing of actual events against expectations. Problem solving, and the techniques used to gain clarity, are most effective if the solution remains in place and is updated to respond to future changes.

You can also search articles, case studies, and publications for problem solving resources.

Innovative Business Management Using TRIZ

Introduction To 8D Problem Solving: Including Practical Applications and Examples

The Quality Toolbox

Root Cause Analysis: The Core of Problem Solving and Corrective Action

One Good Idea: Some Sage Advice (Quality Progress) The person with the problem just wants it to go away quickly, and the problem-solvers also want to resolve it in as little time as possible because they have other responsibilities. Whatever the urgency, effective problem-solvers have the self-discipline to develop a complete description of the problem.

Diagnostic Quality Problem Solving: A Conceptual Framework And Six Strategies (Quality Management Journal) This paper contributes a conceptual framework for the generic process of diagnosis in quality problem solving by identifying its activities and how they are related.

Weathering The Storm (Quality Progress) Even in the most contentious circumstances, this approach describes how to sustain customer-supplier relationships during high-stakes problem solving situations to actually enhance customer-supplier relationships.

The Right Questions (Quality Progress) All problem solving begins with a problem description. Make the most of problem solving by asking effective questions.

Solving the Problem (Quality Progress) Brush up on your problem-solving skills and address the primary issues with these seven methods.

Refreshing Louisville Metro’s Problem-Solving System (Journal for Quality and Participation) Organization-wide transformation can be tricky, especially when it comes to sustaining any progress made over time. In Louisville Metro, a government organization based in Kentucky, many strategies were used to enact and sustain meaningful transformation.

Quality Improvement Associate Certification--CQIA

Certified Quality Improvement Associate Question Bank

Lean Problem-Solving Tools

Problem Solving Using A3

NEW Root Cause Analysis E-Learning

Quality 101

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