What is gross merchandise value (GMV)?
Gross merchandise value (GMV) refers to the total value of merchandise sold over a given period of time (usually a quarter or a year). It’s used to measure a business’ growth.
How to calculate the gross merchandise value?
To calculate your gross merchandise value, you simply have to multiply the number of goods sold by the sales price of the goods.
Gross Merchandise Value Formula:
Gross Merchandise Value = Sales Price of Goods x Number of Goods Sold
Is GMV really important?
Gross merchandise value is an important measure of the overall health of a business (i.e. how quickly or slowly a business is growing, or whether it’s contracting). An increasing GMV is a sign that your business is doing well, while a decreasing GMV is a bad news.
The GMV is most useful when it’s used as a comparative measure over time (e.g. comparing current quarter sales against previous quarters).
However, gross merchandise value isn’t the only statistic you need to measure business performance. It only tells part of the story.
Instead of just relying on GMV to measure your business’s financial health, you should also take other ecommerce metrics (average order value, conversion rate, churn rate, and gross profit margin) into account.
How to increase your GMV?
To raise your gross merchandise value, you need to either sell more products or raise the prices of the products you’re selling. The first approach raises the “number of goods sold” side of the GMV equation, while the second approach raises the “sales price of goods.”
Selling more items, rather than raising the cost of them, is generally a more sustainable way to achieve GMV growth. That’s because a higher price will result in fewer sales over time.
Here are three ways to sustainably increase your gross merchandise value.
1. Offer free shipping
In the ecommerce space, there are few incentives more powerful than offering free shipping. It can mean the difference between a customer staying on the fence about a purchase to making a purchase that very day, especially if the free shipping offer is available for a limited time.
A particularly effective way of using free shipping to increase your gross merchandise value is by using a free shipping threshold. This means that you offer free shipping when someone spends more than a certain amount of money on their order—for example, you could offer free shipping on orders over $50.
If you choose this strategy, a dynamic free shipping bar is a great way to communicate this offer to your customer.
2. Cross-sell products
Cross-selling is another way to grow your total sales value and therefore your gross merchandise value.
To cross-sell, you offer customer items that complement the ones they’ve already put into their cart.
For instance, if you have a fashion website, offering a skirt or a vest that looks great with the shirt someone added to their cart is an example of cross-selling. When customers add these products to their cart, you’ll see both your average order value and gross merchandise value increase.
3. Offer bundles
Many ecommerce stores have a business model that relies on selling bundled deals to customers. Product bundles are usually more valuable than a single product, so you can maximize the total transaction value of a sale when customers choose to buy them.