Gross merchandise volumes (GMV) is yet another method to calculate your gross revenue, which refers to the total amount that sales are in dollars for the course of a certain time on online shopping websites such as eBay. This number is commonly used instead of revenue or sales figures during the beginning of online shopping and has evolved into a more outdated method that companies to measure the value of their business.
There are several methods to determine GMV. The most basic formula for retailers is to determine the cost charged to the buyer and divide it by the number of products sold. For example that if you sold 10 widgets through the store on eBay store at $100 each the GMV will be $1,000.
The Downside of Using GMV
When it comes to economics GMV represents a rough number that provides no insight into the worth of the merchandise sold since it doesn’t include any expenses incurred through the retailers. Furthermore, GMV doesn’t include discounts or returns, or the costs of storing and keeping inventory before selling it.
It’s also not a reliable indicator of net sales which is the most accurate gauge of an organization’s financial health. Even with e-commerce websites such as Amazon, its revenue isn’t calculated only on the value in dollars of the items sold.
How GMV Could Be Used on eBay
Within the context of eBay, GMV refers to the entire amount in dollars that are sold on eBay and other eBay-branded trading sites during a specific economic time. It is often used to refer to two kinds of data.
The first is the volume of products sold on eBay in general and across the entire site as a way to measure the performance of eBay and its status as an online marketplace. Another way in which it is employed is to be an indicator of the overall volume of sales made by a single seller over a particular period, and as an indicator of the performance of sales and business health.
Based on the situation, sellers could be talking about the other. For instance, “eBay’s GMV is slightly down from year-to-year, but I’m seeing significantly worse numbers for my business, in which the GMV is down 20% this month when compared to the previous month.”
This is an inaccurate measurement that is not a good one to use if you’re trying to assess the health of the economy that an eBay store, or any other retailer, a number like GMV won’t provide enough information.
A More Accurate Alternative to GMV
If you’re looking at the profits of a publicly-traded company and their monthly SEC filings will reveal more about the company if you consider them. The net income, as an example, does not tell you much unless you know what to compare it with. There are a variety of questions worth asking to gain more information:
- Does this quarter’s number show more or less than the figure from last year for the same period?
- Are you seeing an increase in revenue or is it the case that revenue has been falling?
- Did you encounter any unique factors in the quarter you were studying, for example, the selling of a house, which had a singular impact on the bottom line?
Utilizing GMV to assess the health of a business isn’t the best choice if there are alternatives.