Why gmv is important?
GMV is a good indicator of your eCommerce store's growth because it measures your sales volume and value—revealing how well your store is performing over time. GMV is also known as Gross Merchandise Volume, and it's best to calculate it once per financial quarter, or once a year at the absolute minimum.
One of the key metrics to focus on is Gross Merchandise Value (GMV). It's an important metric for tracking growth, and you can obtain a clear picture of your brand's health by combining it with other crucial metrics.
Gross Merchandise Value (GMV) is a metric used to determine the total value of your sales over a given period. GMV is a good indicator of your eCommerce store's growth because it measures your sales volume and value—revealing how well your store is performing over time.
GMV is also known as Gross Merchandise Volume, and it's best to calculate it once per financial quarter, or once a year at the absolute minimum. Calculating your GMV regularly helps you compare your store's performance over time and determine if the number of transactions handled is increasing.
You can calculate GMV using a simple formula:
So, if you sell 2000 pairs of shoes at $50 each, your GMV would be $50 x 2000 = $100,000. This $100,000 is also the gross revenue made on these sales.
GMV calculations don’t include expenses associated with the sale of products, including marketing, advertising, shipping, and manufacturing costs.
Therefore, GMV is not an accurate indicator of your net sales or total profit.
You'll need to track GMV alongside profitability metrics, like customer lifetime value (CLV) and customer acquisition costs (CAC), to get a more holistic picture of your eCommerce store's health.
Since GMV doesn't account for additional expenses (such as manufacturing and advertising costs), it's not always the best metric for tracking the overall health of your business. This is because GMV doesn't reveal your true profitability or gross revenue, so there are situations where a high GMV may not indicate positive performance.
For example, if you're selling big-ticket items, your GMV will be high. But big-ticket items are expensive to sell–often involving hefty marketing and advertising costs–so, your additional expenses might be piling up.
Growing eCommerce brands, in particular, can usually benefit more from selling large volumes of small-ticket items, as the profit margins are typically higher.
So, to get a full picture of your business performance, it's important to observe GMV alongside other key metrics.
Here are some other eCommerce metrics that you can track with GMV to gain a more comprehensive view of your brand's performance.
Your contribution margin (CM) is simply your gross profit margin minus variable costs.
Variable costs include expenses that fluctuate with time, such as marketing, production, and utility costs. Knowing your contribution margin is important because it helps you track profitability on a unit basis.
There are two ways to calculate your contribution margin: either as a ratio or as a dollar amount.
For the former, you can use the formula:
To calculate CM as a dollar amount, you can use the formula:
Inventory turnover is the rate at which your company uses and replenishes inventory. Tracking your inventory turnover helps you make more strategic decisions across your operations, such as with marketing, pricing, manufacturing, and reordering products.
Inventory turnover is usually measured as a ratio, by dividing COGS by average inventory value:
Your customer acquisition cost (CAC) is the amount spent to acquire a given number of customers, divided by the total number of customers.
Tracking CAC is vital because it gives you insights into the success of your marketing and advertising efforts. If your CAC is high, it might mean your advertising efforts need work, e.g. you could be targeting the wrong audience.
Conversely, if your CAC is low, you might want to expand your advertising budget to acquire more customers.
Customer lifetime value (CLV) is your brand’s gross margin per customer over their lifetime with your brand.
Like CAC, CLV is time-dependent. it's typically calculated over 6,12, 24, and 36-month windows.
There are different ways to calculate your customer lifetime value. We recommend using a two-step formula:
Keep in mind that you'll end up with an average customer lifetime value over a specified duration. So, you'll need to continually track and update the metric.
Average order value (AOV) is the average amount a customer spends per order. You can calculate AOV by dividing your gross sales by the number of valid orders, over a given time period.
A high AOV is a positive indicator of profitability, as it indicates your customers are spending more on your business.
If your AOV is low, it might mean you need to increase your store's personalization and marketing efforts, e.g. by improving your upsell and cross-sell strategies or handing out coupons.
When it comes to increasing your gross merchandise value, try looking for ways to remove friction and encouraging customers to spend more.
Offering free shipping can help you increase your average order value by removing friction.
Some customers may shy away from spending more if they have to pay shipping fees, and many buyers expect free shipping at higher spending thresholds.
Your free shipping model doesn't have to be one-size-fits-all, either. You can offer free shipping above a specific threshold to incentivize customers to spend more, or you can give the option in specific local regions.
For example, Holland Cooper offers free delivery on orders above £99 in the UK:
Upsell and cross-sell offers are an excellent way to increase revenue without ramping up your marketing budget. Upselling alone can increase your revenue by 10-30% on average, and to get the best results, you should focus on personalization.
Personalized upsell and cross-sell offers encourage customers to buy by recommendation products pertaining to their interests and needs.
Nguyen Coffee Supply, for example, encourages customers to try all three of their coffees if they can’t decide among them.
The advantage of branded tracking pages is they keep customers on your turf, as opposed to FedEx’s or UPS’ tracking pages. With a branded tracking page, you can strengthen your brand image and also leverage post-purchase marketing opportunities.
For example, you can make personalized upsell and cross-sell recommendations based on the buyer's purchase history, encouraging them to buy again.
Similar to offering free shipping at a certain threshold, offering discounts on larger order volumes can help you drive up average order values. You can even personalize the discounts so they appear based on user behavior.
Did your customer just order three bars of chocolate? Hit them with a pop-up of your special discounted bundle of six.
Loyalty & rewards programs are table stakes at this point–customers have come to expect them and around 75% of them prefer companies that offer them. If you're launching a loyalty or rewards program, there's plenty of room to get creative:
For example, you can choose between offering customers rewards for purchasing specific items (especially big-ticket products) or for referring their friends.
Harper Wilde, for example, shows customers six ways to earn points on their loyalty program page:
Customer experience has become one of the most vital brand differentiators, and the key to the ultimate CX? Personalization.
By doubling down on segmentation, you can tailor your marketing campaigns to your customer's specific interests and buying behavior, delivering deeply personalized experiences.
Moreover, modern websites also boast robust personalization features. Whether it's tailored cross-sells, upsells, or pop-ups that appear based on user behavior, there are plenty of opportunities to get creative and boost conversion rates.
GMV is a valuable eCommerce metric that's worth tracking, but as you might have noticed, optimizing it requires a more holistic approach, by focusing on multiple parts of your business.
