Understanding Gross Merchandise Volume (GMV): The Key Metric for Ecommerce Success

Are you an online retailer looking to measure and grow your business? One of the most important metrics you need to understand is Gross Merchandise Volume, or GMV.

Often called "the top line" for ecommerce businesses, GMV is a powerful number that shows the total value of merchandise sold over a given time period. It helps you see the big picture of your sales volume and benchmark your performance against peers and competitors.

But what exactly goes into calculating GMV? How does it relate to other ecommerce KPIs? And most importantly, how can you improve your GMV to build a thriving online retail business?

In this in-depth guide, we‘ll cover everything you need to know about this critical metric. With real-world examples, formulas, data and practical tips, you‘ll walk away ready to put GMV to work to level up your ecommerce revenue. Let‘s dive in!

What is Gross Merchandise Volume (GMV)?

First, let‘s nail down a clear definition. GMV measures the total dollar value of products sold through your ecommerce site or marketplace over a certain time frame, typically a month, quarter or year.

The formula for calculating GMV is simply:

GMV = Number of Products Sold x Average Sales Price

For example, if you sold 1,000 items last month at an average price of $50 each, your monthly GMV would be:

1,000 x $50 = $50,000

This single metric sums up the total volume of merchandise that flowed through your business. Whether you sold 10 items at $1,000 each or 10,000 items at $10 each, what matters for GMV is the total value of goods sold.

It‘s important to note that GMV is based on gross sales, before any deductions. It does NOT account for things like:

• Discounts or coupons redeemed
• Refunds or returns processed
• Shipping costs paid by customers
• Sales tax collected on orders
• Payment processing or other fees

Those factors affect your net revenue, but not GMV. Essentially, GMV gives you a raw, unfiltered look at your total sales volume, while revenue shows the actual money that ends up in your account.

Both numbers are important to track, but GMV is often used as a "north star" metric because it measures the overall value and volume you‘re providing to customers. By monitoring GMV, you can easily see if your business is growing or plateauing in terms of total sales.

Why GMV Matters for Ecommerce Businesses

Okay, so GMV shows how much total stuff you sold. But why should ecommerce retailers care so much about this one number? Here are a few key reasons:

1. Measures overall business health and trajectory

Your GMV trend line shows if your business is growing, flat or declining. A consistently rising GMV means you‘re selling more and/or higher-value products over time. Conversely, a dip in GMV can be an early warning sign of trouble.

2. Allows for benchmarking and competitive analysis

Comparing your GMV against industry averages or similar retailers shows how you stack up. Are you outpacing your peers or lagging behind? This context helps you set realistic growth targets.

3. Informs budgeting and resource allocation

Your GMV helps determine how much you can afford to spend on things like marketing, inventory and staff as you scale. As a rule of thumb, you‘ll want to keep expenses well below your GMV to stay profitable as you grow.

4. Attracts investors, partners and employees

A high and rapidly growing GMV shows that your business has traction and momentum. This is catnip for VCs, acquirers, top talent and other partners who want to be part of a winning brand. Your GMV can be a powerful currency.

5. Provides insights for optimization

Segmenting your GMV by product category, marketing channel, campaign, region and more can highlight what‘s working and what‘s not. You can then double down on high-performing areas and adjust underperforming ones.

Ultimately, tracking GMV helps you keep your finger on the pulse of your ecommerce business and guides your most important decisions.

GMV Benchmarks by Ecommerce Model

Not all ecommerce businesses are alike when it comes to GMV. The volume and value of goods sold can vary widely based on factors like your niche, business model, average order value, margins, etc.

To put GMV ranges into context, here are some benchmarks for various types of online retailers:

Of course, these are broad generalizations and there will always be outliers in each category. But this gives you a rough sense of what GMV numbers are feasible and common for different tiers of ecommerce businesses.

For example, a solo entrepreneur running a dropshipping store might be thrilled to hit $50K in monthly GMV, while a venture-backed DTC brand may need to reach $3M+ per month to justify its valuation.

The key is to benchmark your GMV against similar companies and set realistic growth targets for your business type and stage. Don‘t compare apples to oranges!

What GMV Means for Marketplaces vs Single Retailers

It‘s also important to note that GMV is calculated and viewed differently for online marketplaces compared to traditional single-seller ecommerce sites.

In a marketplace model (think Amazon, eBay, Etsy), GMV represents the total value of merchandise sold across all third-party sellers on the platform. The marketplace itself doesn‘t own or sell the products directly, but instead makes money by charging fees on each transaction.

So for marketplaces, GMV is the top-line number that all other metrics flow down from, like:

• Gross revenue (GMV x take rate)
• Net revenue (Gross revenue – payment processing)
• Gross profit (Net revenue – cost of sales)
• Net profit (Gross profit – operating expenses)

Marketplaces are unique because a small take rate (say 5-15%) applied to a large GMV can still generate huge revenues. This is why companies like Amazon and Alibaba are so focused on driving up total platform GMV above all else.

In contrast, single-retailer ecommerce businesses care more about growing GMV profitably. Since they own the inventory and directly pocket the difference between revenue and costs, margins matter a lot more.

A single seller doing $100K/month in GMV at a 50% gross margin is likely healthier than one doing $200K/month at a 10% margin. For them, GMV is an important topline number, but not the whole story.

So while GMV is a crucial metric in both cases, marketplaces and single retailers use it in different ways to measure the health and trajectory of their respective business models. Keep this in mind as you track and optimize your own GMV.

GMV vs. Other Ecommerce KPIs

As important as it is, GMV is just one of many metrics that ecommerce retailers need to monitor. To get a complete picture of your business performance, you need to track GMV alongside other key numbers like:

• Net Sales Revenue: The total amount of money generated from sales after accounting for discounts, refunds, taxes and fees. This is what actually ends up in your bank account.

• Gross Margin: The percentage of revenue that you keep after deducting the direct costs of producing and selling goods (COGS). Gross profit and gross margin show the profitability and efficiency of your core operations.

• Average Order Value (AOV): The average dollar amount spent each time a customer places an order. Increasing AOV is key for growing GMV efficiently.

• Customer Lifetime Value (CLTV): The total amount of money a customer is predicted to spend with your business over their lifetime. Maximizing CLTV means getting customers to buy more often and for higher amounts.

• Customer Acquisition Cost (CAC): How much you spend to acquire each new paying customer, expressed as a dollar amount. Keeping CAC below CLTV is essential for sustainable growth.

• Conversion Rate (CVR): The percentage of site visitors who take a desired action, like making a purchase. Optimizing CVR means turning more browsers into buyers.

• Net Promoter Score (NPS): A standardized measure of customer satisfaction and loyalty. A high NPS means customers are likely to keep buying and referring others.

Together with GMV, these metrics form the core KPIs that every ecommerce business needs to track and improve. They all influence and impact each other.

For example, if you increase AOV and CVR while keeping CAC steady, your GMV and profitability should go up. If your gross margin slips, you‘ll need to grow GMV faster to generate the same gross profit. And so on.

The best ecommerce retailers track their whole KPI stack daily or weekly, watching how each number trends over time and adjusting their strategies accordingly. They know that growing GMV is important, but not at the expense of profitability, efficiency or the customer experience.

5 Proven Ways to Increase Ecommerce GMV

If you‘re like most online sellers, you‘re always looking for ways to drive more sales and grow GMV. Here are five tried-and-true tactics to consider:

1. Optimize your product mix

Analyze which of your products generate the highest GMV and profitability. Then find ways to sell more of those hero SKUs, whether by featuring them in your marketing, adjusting pricing and inventory levels, or negotiating better terms with suppliers.

GMV alone doesn‘t tell you much about the actual value each product is adding to your bottom line. By segmenting GMV and margin data, you can ruthlessly cut low performers and double down on winners to grow in the right direction.

2. Implement cross-selling and bundling

Look for opportunities to increase AOV by suggesting complementary products and accessories at checkout. By bundling related items together for a discount, you can convince shoppers to add more to their carts and increase overall GMV.

For example, if you sell smartphone cases, prompt customers to also grab a screen protector and charging cable as a bundle. Or if you sell barbecue grills, show a popup with discounted grill tools and spices. Little additions can add up to big GMV gains over time.

3. Run promotions strategically

Discounts and promotions can be a great way to incentivize first-time and repeat purchases. Offering threshold-based discounts (e.g. get 20% off orders over $100, or buy 3 get 1 free) encourages customers to spend more to unlock rewards.

Just be thoughtful about how and when you offer promotions, as too many discounts can eat into your margins over time. Use promotions as a lever to stimulate GMV when it makes sense, like around holidays or to clear out excess inventory.

4. Improve your checkout process

Cart abandonment is the silent killer of ecommerce GMV. For every 100 shoppers who add an item to their cart, 70 will abandon before completing the purchase on average! That‘s a huge chunk of potential GMV lost.

Checkout optimization can help you convert more of those would-be customers. Tactics like offering free shipping thresholds, displaying trust badges, enabling guest checkout, and using scarcity tactics can dramatically increase completed orders. Even small CVR increases here can have a huge impact on GMV.

5. Invest in email and SMS marketing

Email and text messaging are two of the most profitable channels for nurturing and converting customers over time. Building an engaged list of subscribers gives you a direct line to your most valuable audience.

Implement tactics like welcome series for new customers, post-purchase follow-ups, abandoned cart reminders, and regular promotional newsletters. You can also use email and SMS to gather customer feedback, reviews and user-generated content to fuel your future marketing. Every touchpoint is an opportunity to drive more GMV!

Wherever your starting point, these reliable strategies can help you kickstart GMV growth. Implement them consistently and watch your top line soar to new heights!

Real Ecommerce GMV Examples

Let‘s make things concrete with a few real-world GMV case studies. These examples show the wide range of GMV numbers that different types of ecommerce businesses generate:

• Kylie Cosmetics, the DTC beauty brand founded by Kylie Jenner, reached $420M in GMV in just 18 months after launching in 2015. The company‘s limited-edition product drops and social media hype helped drive massive sales from a loyal fanbase.

• Chubbies, a DTC apparel brand known for its retro-inspired men‘s shorts, hit $17.9M in GMV in 2016, just four years after launching. The company‘s irreverent marketing, customer-centric culture and referral program powered its rapid growth.

• Warby Parker, the DTC eyewear retailer, surpassed $250M in GMV in 2017, seven years after launching. The company‘s innovative home try-on model, omnichannel strategy and social impact mission helped it stand out in a crowded market.

• Wayfair, the online furniture retailer, generated $9.1B in GMV in 2018 across its family of brands. The company‘s vast product selection, tech-driven merchandising and logistics capabilities have made it a category leader.

• Etsy, the global creative marketplace, saw $10.3B in GMV in 2021 from its 7.5M active sellers. The platform‘s focus on unique and handmade goods, seller support and localization have helped it grow GMV consistently for over a decade.

As you can see, GMV numbers are as diverse as the ecommerce businesses that generate them. From scrappy startups doing a few million per year to global giants pushing billions, GMV is the metric that ties them all together.

No matter your niche or business model, you can learn from these examples and apply their growth strategies to your own ecommerce store. While your GMV targets may differ, the principles of driving more and bigger sales remain the same.

Ready to Grow Your Ecommerce GMV?

We‘ve covered a ton in this ultimate guide to ecommerce GMV. You now know:

• What GMV is and how to calculate it
• Why GMV is important for ecommerce businesses of all types
• How GMV compares to other essential ecommerce metrics
• Benchmarks and examples of GMV across different niches and models
• Practical tips and strategies for increasing your own GMV

With this knowledge, you‘re well-equipped to start tracking and optimizing GMV in your ecommerce business. Remember, this is a marathon, not a sprint. GMV growth comes from making steady improvements across your marketing, merchandising, and operations over time.

Start by setting a baseline and analyzing your GMV trends to date. How does your current GMV compare to benchmarks for similar businesses? What products, channels and campaigns are driving the most GMV? Where are the biggest opportunities for improvement?

Then make a plan to implement GMV-boosting strategies like the ones we covered. Prioritize based on impact and ease of implementation, and start executing. Check in on your KPIs weekly to see what‘s moving the needle.

Celebrate the wins and learn from the losses, then keep iterating and optimizing. With focus and persistence, you WILL see your GMV climb to new heights. And with it, more revenue, profitability and business growth will follow.

So what are you waiting for? Go put your newfound GMV mastery to work and happy selling!