Gross merchandise volume (GMV) is another way for you to calculate your gross revenue that refers to the total volume in dollars of sales over a given time period on e-commerce sites such as eBay. This figure, which was commonly used in place of sales or revenue figures in the early days of e-commerce, has morphed into a somewhat outdated way that businesses measure the value of a company.
There are a few ways to calculate GMV. The most simple formula for a retailer is to take the sales price charged to the customer and multiply it by the number of items sold. In other words, if you sell 10 widgets in your eBay store for $100 each, your GMV would amount to $1,000.
The Downside of Using GMV
In terms of economics, GMV is a raw figure that doesn't offer much insight into the value of the items sold because it doesn't factor in any costs accrued by the retailer. Additionally, GMV doesn't include discounts or returns, or the cost of keeping and storing inventory before it's sold.
It's not even a good predictor of net sales, which is a more accurate representation of a company's overall financial health. Even for e-commerce sites like Amazon, the site’s revenue is not calculated based solely on the dollar value of items sold.
How GMV Could Be Used on eBay
In the context of eBay, GMV refers to the total volume of dollars of sales on eBay and eBay-branded trading websites in a given economic period. It is commonly used in reference to two kinds of information.
The first is the total volume of goods sold on eBay as a whole, across the entire website, as a measure of eBay's performance and status as a marketplace. The second way it is used is as an indicator of the total volume of sales by an individual seller over a recent period of time, as a method of monitoring sales performance and business health.
Depending on the context, a seller may be talking about either one or both. For example, "eBay's GMV is slightly down year-over-year, but I'm seeing much worse numbers in my own business, where the GMV has fallen 20% this month, as compared to last month at this time."
This is a flawed measurement, and if you're trying to determine the economic health of an eBay store or any other retailer, a figure like GMV isn't going to offer enough insight.
A More Accurate Alternative to GMV
If you're examining the earnings of a publicly-traded company, their quarterly SEC filings will tell you more about the company when you put them in context. Looking at a company's net income, for instance, doesn't really mean much unless you have something to compare it to. There are several questions worth asking that can provide more insight:
- Is this quarter's figure higher or lower than last year's figure for the same quarter?
- Is this a pattern of increased revenue, or has revenue been declining?
- Were there special factors in a given quarter, such as the sale of a property, that had a one-time impact on the company's bottom line?
Using GMV as a way to calculate a company's health just isn't a smart move, especially when there are other options.