Shopify Ecosystem

Gross Merchandise Value (GMV) In 2022

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As a consumer product brand, tracking and optimizing the right metrics is crucial to success. Knowing which metrics to track helps determine profitability and the success of your marketing campaigns, optimizing your ad spend, and making better inventory decisions. 

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. 

What is GMV (Gross Merchandise Value)?

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.

How to calculate GMV

You can calculate GMV using a simple formula:

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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.

How GMV differs from net 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.

Why you shouldn’t rely on GMV alone

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.

Track GMV with 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. 

Contribution margin

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:

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To calculate CM as a dollar amount, you can use the formula:

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Inventory turnover

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, with the formula: 

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Customer acquisition cost

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

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:

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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

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. 

How to drive GMV growth

When it comes to increasing your gross merchandise value, try looking for ways to remove friction and encouraging customers to spend more. 

Offer free shipping

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:

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Focus on upselling & cross-selling

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.

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Make use of branded tracking pages

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.

Offer discounts based on order volume

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. 

Start a loyalty & rewards program

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:

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Personalize your marketing campaigns & website

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. 

Conclusion

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.

If you work to improve other crucial eCommerce metrics, like average order value, customer acquisition costs, and your contribution margin, the overlapping efforts will increase your GMV, too. 

How Daasity makes it easier to use data to grow your brand

Daasity is a powerful eCommerce analytics platform that helps retailers like you track, measure, and optimize the most crucial eCommerce metrics. Our platform collects data from all your channels and centralizes it to create a single, unified view, empowering you to make data-driven decisions.

Special thanks to our friends at Daasity for their insights on this topic.
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