GMV is among the most-used metrics in the eCommerce industry. Whether you use this metric quarterly or annually, calculating and comparing it to other relevant KPIs will give you a clear overview of the health of your business and may even shed light on the products that you should be concerned about and those that bring you more customers and even profits.
Although it is mostly used by leading brands, GMV can be useful for online stores of all sizes. And, in fact, can be calculated automatically when accounting and inventory systems are set in place.
We will cover the basics of GMV — what it is and how to calculate it — and tell you about the benefits and dangers of using only this metric. But, because of the impact that this metric can have on your business, we also gathered advanced tips on how to boost your GMV in a simple and effective way.
What is gross merchandise value (GMV)?
Gross merchandise value, often shortened to GMV, is a term used in eCommerce that refers to the gross value of the total sales. These include cancelled orders, returns, and commissions. Anything that is intrinsically a part of the product. Shipping costs, taxes and any other aspect that doesn’t contribute to the financial growth of the company shouldn’t be included in a GMV calculation.
This metric can quickly give an overview of the financial health of an eCommerce company when compared to the costs of producing, distributing and running the business.
How to calculate GMV
To calculate the GMV , multiply the price point of the sold products by the number of products sold. You can follow the simple formula presented below:
GMV formula = Sales price of the products x Number of products sold
Most retailers have a catalog of dozens of products, in this case, you’ll need to account for all of the products of which you sold at least one unit and multiply it by its price. Thanks to automation tools, GMV can be quickly calculated, without the headaches caused by the use of discounts and the management of a wide catalog of products.
However, if your operations are still on the smaller side, you can still manually calculate the GMV of your business with the aforementioned formula.
How to track the gross merchandise value for your business
The GMV can be tracked automatically when the right automation tools are used. In this sense, working with inventory systems and accounting software is the best combination that any business can use to track the volume of sales and the price that customers pay for said products.
GMV vs. revenue
One of the dangers of relying solely on gross merchandise value as a metric for success or failure is the fact that it doesn’t account for the revenue that the company will be making.
For this reason, it’s important to keep operative costs behind the sale in mind and use alternative eCommerce metrics instead of tracking only GMV.
How to increase GMV: 4 bullet-proof techniques
Implement upselling and cross-selling strategies
One of the first steps you can take to increase your GMV is to implement marketing strategies to promote new collections, launches, special campaigns for events as well as discounted items.
This can be done in many different ways and we suggest you combine at least a few of them in order to reach its full potential.
For example, you can add a banner to your store to redirect price-sensitive buyers to your discounted section.
This can be easily implemented alongside the promotion of a new collection on the tracking page. Hereby, those customers who already showed a real interest in your store through a purchase, will be impacted by another call-to-action whenever they check on the status and location of their order.
This can be set up in a matter of minutes when you connect your online store to Outvio’s ecosystem.
Offer free shipping
Yes, we suggest offering free shipping, but not like most retailers (including yourself) do it.
This can be a bit tricky and needs to be carefully considered — and calculated properly — since free shipping, regardless of the quantity spent, can quickly transform sales into a source of greater cost than profit.
For international retailers and larger operations, this may be only possible to offer to clients in the same city, region or country. However, when we talk about cross-country shipments or more complex items, like furniture, this is impossible to offer without perceiving a clear impact on your GMV — and not the kind of impact you were looking for —.
For this reason, this strategy can only be viable if your items have average size and weight, meaning that your shipping methods and costs are standard, and if the more affordable products in your catalog already make up for the standard shipping costs.
Source: Nordstrom
Create product bundles or kits
Although it may not be a possibility for every retailer out there, product bundles or kits can be an easy and cost-effective way to increase the GMV without a considerable investment of resources.
This technique is at the core of many retailers, such as subscription boxes, but can be definitely taken advantage of by any business whose products are somehow related to each other. For instance, if you sell cosmetics, you can create a bundle with your top sellers or a kit where products with the same scent (or in the same format) are combined. You can even sell multiples of the same product at a small discount. Loyal buyers will appreciate the effort and, in terms of packaging, you won’t need to do much.
Source: Sephora
Introduce loyalty programs
Loyalty programs have existed for a long time already. However, in the last decade, a number of platforms have been created to reward buyers, across many online stores. I’m talking about cash-back platforms.
Even though more traditional loyalty programs, such as point collections, promotional codes and freebies will always work, partnering with cash-back programs is a good idea to offer more to your customers and potentially increase both your AOV and your GMV. It’s affordable and fast and, since it is commission-based, you’ll only pay whenever a customer makes a purchase while using the cash-back platform.
Conclusions
GMV is a great start, but a bad place to stop. Since this metric can’t be fully relied on — because it doesn’t take costs into account —, it needs to be tracked together with other key eCommerce KPIs in order to have a clear and trustworthy vision of the financial situation of your business.
Now that you know what gross merchandise value is and how to calculate it, the next step is to implement some or all of the ideas we shared that will help you increase the value of your sales without dramatically increasing the costs associated with them.
