GMV (Gross Merchandise Value) is one of many ecommerce metrics, and while each metric provides unique insights into your business model, but learning about GMV is especially important. Why? Because it helps monitor total revenue growth.
Once you know what GMV is and how it’s calculated, you can begin to strategize how you’ll use this data to increase sales. In this post, we’ll explain what GMV is, how to calculate it, and how to increase your gross merchandise value.
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What is the meaning of GMV?
GMV means gross merchandise value. The GMV meaning is defined as the total value amount of sales transactions within your ecommerce business during a specific period, such as a quarter or year.
How is GMV calculated?
In order to calculate gross merchandise value multiplying the sales price by the sales quantity gives you the GMV for your company. For example, if you sell 50 shirts for $100 each, your GMV is $5,000:
50 shirts x $100/shirts[Sales Price x Sales Quantity] = GMV
Although GMV sounds similar to revenue and total sales, it’s technically different.
Is GMV same as revenue?
Gross revenue is the money generated by selling gross merchandise or services. For example, commission income adds to your revenue because you provide a service. But it doesn’t add to your gross merchandise value unless you’re maintaining the inventory yourself.
Is GMV same as net sales?
To calculate net sales, you subtract sales returns, allowances, and discounts from revenue. But you don’t deduct any of these expenses to calculate the GMV.
What is the difference between GMV and GTV?
Gross Transaction Value (GTV) is a total value that equates to the number of items sold across all sellers in a marketplace multiplied by the gross value received in a given period. This is the net merchandise value or average amount per retail business. Gross merchandise value gmv, is calculated similarly but per retail company.
Why is GMV a critical metric?
Understanding gross merchandise value (GMV) is important because it helps provide a sense of your ecommerce business’s financial performance over time. If your GMV grows at a decent pace (which may vary based on your industry), you can gauge how well your strategies are working.
For example, Shopify’s GMV time series shows a consistently growing GMV, with marked growth during the initial months of the pandemic:
These insights help Shopify understand revenue behavior and how internal and external factors like the economy impact revenue.
You can also compare your absolute GMV and GMV growth rate with your competitors. A comparison of current quarter sales for example, provides more context on how well your business is doing and if there’s potential for the ecommerce site to grow more and faster in a given period.
Note: Make sure you compare your GMV with other online merchants that’s in the same industry and the same ecommerce business size. If you’re a young company, comparing your gross merchandise value, gross merchandise volume, or other corporate finance metric with Shopify would be inappropriate.
Consistent growth in gross merchandise value means you’re increasing merchandise sold or selling more expensive items. That’s great — a growing gross merchandise value translates to bottom-line growth. If your business analysis reveals room for improvement, you can implement various strategies to increase your gross merchandise value.
How to increase your GMV
Here are seven strategies and best practices that can help increase your GMV:
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1. Offering free shipping
You don’t have to offer free shipping at the cost of shrunk margins. Free shipping can be a win-win.
80% of customers expect free shipping when ordering over a certain threshold. Setting the right threshold ensures you deliver on your customer’s expectations and generate enough profit to cover shipping costs.
Offering free shipping based on items sold or total sales value is the most common tactic to increase gross merchandise value for the business. Splash this message across your ecommerce store to encourage customers to increase their average order value to qualify.
Recommending complementary items to products a customer is interested in is a great way to boost your gross merchandise value and also reduce advertising costs. It improves the customer experience by leading them to products they might actually need and increases their average order value.
You can also extend the customer’s shopping experience with a branded tracking page. Add a tracking page to keep customers visiting your ecommerce website for longer. Recommend related products or attractive discounts on your company tracking page to increase gross revenue.
Another added benefit is that it reduces your customer acquisition cost. Increasing the total transaction value from one customer instead of acquiring a new customer is always cheaper.
3. Product bundles
Product bundles allow customers to buy complimentary products under a single SKU (stock-keeping unit). For example, someone purchasing a razor might also need razor blades. Bundled deals helps increase such products sold while also moving inventory.
Companies often sell product bundles for a lower sales price than the total of their individual prices.
Harrys makes good use of product bundling. The men’s grooming brand offers razor handles as a single product and also as part of a shaving set.
The Winston handle costs $20. The Winston Set, which includes the handle, blade cartridges, shaving gel, and travel cover — all for $25:
Thanks to product bundles, Harrys moves merchandise sold faster and increases GMV while customers get a sweet deal.
Want to use the product bundling strategy on your Shopify online store? It’s easy with Infinite Options — an app that helps create product bundles and add infinite product options across your e commerce store.
4. Offer discounts based on order volume
Volume discounts are helpful because competing with lower prices is tricky. Assuming a 20% gross profit, reducing the price by 5% requires a 33.3% increase in sales quantity to offset the effect of the reduced price on your bottom line.
That’s a risky proposition. If you don’t sell 33.3% more, you might still increase your GMV, but you’ll reduce your gross and net income.
That’s where volume discounts help. For example, say you offer 10% off to customers who order 4 or more pieces of your product with an original price of $100. At $90 ($100 – 10% discount), you’ll reduce your $20 per unit gross profit to $10. However, you’ll make a minimum of $40 ($10 per unit x 4 units) for each discounted order.
This way, volume discounts help you increase GMV without reducing your gross profit.
5. Start a loyalty and rewards program
Customers trust their friends and family more than ads and marketing collateral. A loyalty and rewards program encourages customers to refer others in exchange for a reward. This increases your GMV over time.
You don’t necessarily need an extensive rewards program that requires maintaining rewards points balances like Amazon. A simple referral program can be just as effective.
For instance, Omsom has a simple, effective referral program. The brand offers $5 off on your next Omsom order for every friend you refer. Your friend also gets $5 off on their first order.
6. Elevate the customer experience
44.5% of companies believe customer experience is a primary differentiator. To stay competitive, you need to offer personalized experiences.
According to McKinsey, personalized experiences can improve conversion rates by 10% to 15%. But the benefits don’t end at conversion.
When you offer customers a memorable experience, they’ll return to you for future purchases thus, increasing their customer lifetime value. Your customers will tell their friends about their experience, acting as brand advocates too.
You can use many strategies to improve customer experience. For example, you can provide shoppers with a personalized list of your bestsellers. If you sell fashion, allowing them to sort this list by location can further personalize their experience.
7. Offer Personalized Products
Personalized products are a great way to increase your business’s gross merchandise value gmv.
By offering products that can be customized with a customer’s name, initials, uploaded files, or other personal details, you can make each customer feel like they’re getting a one-of-a-kind item that was specifically made for them.
This can help increase your conversion rate, as customers will be more likely to purchase something if they feel it is unique to them. Additionally, personalized products often come with a higher price tag, which means you’ll be able to increase your accrued fees on these goods sold.
Personalizing products isn’t an option for every online retailer but, if you’re looking for ways to boost your business’s bottom line, consider offering personalized products to your customers.
Examples of businesses that have successfully increased their GMV
Here are examples of brands that have successfully increased their GMV using one or more of the strategies explained in the previous section:
Nguyen Coffee Supply
Nguyen encourages customers who can’t decide on a flavor to try all three flavors by offering a discounted product bundle. Instead of just one pack, shoppers can buy three packs at a discount and find a flavor they love.
Valour offers free shipping on orders over $50. This message appears throughout Velour’s site, encouraging shoppers to get their cart value up to $50 and save on shipping.
Cross sell products for high-value items often purchased as a single item. For example, you’ll probably want to buy new sheets and pillows when buying a mattress. Casper puts all mattress-related items at the bottom of the mattress product page with an attractive title — “Elevate your sleep game”.
Approach GMV from multiple fronts
Instead of relying on just one strategy, use multiple strategies to increase your gross merchandise value. This ensures diversification of efforts and helps achieve tangible results faster. Implementing these strategies can feel overwhelming if you’re new to business performance, but focusing on financial metrics for the business can make the job easier.
If you’re interested in learning about other financial metrics to help you business and it’s financial health, read our other article: 17 Ecommerce Metrics Shopify Store Owners Need to Track
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