To make the most of your retail store, you need one thing: profitability. To be profitable, you need to regularly assess your business’s health and look for ways to improve. Gross merchandise value (GMV) can help you with that.
By tracking your store’s performance through GMV and combining it with other metrics, you can fine-tune your marketing and pricing strategies, making real changes to your earnings and profitability.
What is gross merchandise value?
Gross merchandise value (GMV), also known as gross merchandise volume, measures the total sales dollar value of goods sold through an ecommerce store over a specific period, before subtracting expenses like discounts, returns, and shipping costs.
In simpler terms, GMV is the total money customers pay for your products or the total sales on your ecommerce site.
But don’t confuse GMV with profit. Profit is what you earn after subtracting all expenses, like inventory costs, operating costs, and marketing costs. While GMV shows your total sales, profit reveals what you keep after covering all costs.
How to calculate gross merchandise value
Here’s the gross merchandise value formula:
GMV = Selling Price of Items x Number of Items Sold
For example, if you sold 100 sneakers at $50 each, your GMV would be $5,000 (100 items x $50).
While GMV valuation helps you measure your sales growth over time, it doesn’t calculate your profit, because it doesn’t account for costs.
Consider the same example. If you spent $1,000 on marketing, $500 on shipping, and had $300 in returns, these $1,800 expenses aren’t deducted in GMV.
So, even though your GMV is $5,000, your actual earnings would be $3,200 ($5,000 - $1,800).
This is why GMV isn’t a true measure of financial health—it shows only total sales, not net profit.
Why measure gross merchandise value?
If GMV isn’t a great measure of how your business is actually doing, then why measure it? Here are some things GMV metrics can help do:
Show performance
GMV valuation gives you a quick and clear picture of your total sales volume over a specific period. For example, if your GMV increased from $50,000 in January to $75,000 in February, it means your sales volume is growing. This helps you see how well each of your products is doing, allowing you to promote successful products and make adjustments where needed.
Inform pricing strategy
GMV metrics help craft your pricing and marketing strategies. Suppose you sell two types of skirts: one priced at $20 and another at $50. Suppose the $20 skirt sells in higher volumes but contributes less to your overall GMV value. In that case, consider adjusting its price or offering it as part of a bundle to increase its revenue potential. GMV valuation ensures your pricing strategies align with market demand and profitability goals.
Here’s a look at a bundle offered by Paper Republic.
Identify trends
By monitoring GMV financials over different periods, like month over month or year over year, you can spot trends and patterns in customer behavior. For example, if your GMV spikes during the winter holiday season, you can plan by increasing inventory and running special promotions.
Check out the wedding season sale promoted by Bellona USA.
Attract investors
Investors often look at your GMV financials to gauge market demand and sales performance. For example, if your GMV has consistently grown from $100,000 to $500,000 over a year, it suggests a robust customer base and steady sales flow. It shows you can generate substantial revenue, making your business more attractive to investors.
GMV example
Say you sell handcrafted jewelry online.
In one month, you sold 200 necklaces at $50 each and 150 bracelets at $30 each. To calculate your GMV, multiply the number of each item sold by its price and add the amounts.
GMV calculation
Necklaces: 200 x $50 = $10,000
Bracelets: 150 x $30 = $4,500
Total GMV: $10,000 + $4,500 = $14,500
Compare GMV with two other metrics to see what they reveal.
Comparing GMV with revenue
Comparing GMV with revenue helps you understand things like the impact of discounting.
If you offered a 10% discount and your revenue was $13,050, you can see that while your GMV is $14,500, your actual revenue after discounts is lower.
Comparing GMV with customer acquisition cost (CAC)
Customer acquisition cost (CAC) is the total cost of acquiring a new customer. To calculate CAC, divide the marketing and sales expenses by the number of new customers acquired.
For example, if you spent $2,000 and acquired 50 customers, your CAC would be $40 per customer.
Analyzing GMV alongside CAC helps you understand the effectiveness of your marketing efforts.
If your GMV is $100,000 and you spent $10,000 to acquire 500 customers, your CAC would be $20 per customer. This means your marketing efforts are working, and the revenue generated from new customers likely exceeds the acquisition cost.
However, if your CAC was $80 per customer, your total CAC would be $40,000 ($80 x 500). This might indicate that your marketing efforts aren’t as efficient as they should be.
Tips to improve your gross merchandise value
Now that you know how the gross merchandise value formula is an important measure of your business’s health, here's how you can increase it.
Offer free shipping
This year, more than 50% of customers cited free shipping as their main reason to shop online. Psychologically, the word “free” makes people feel like they’ve won something, which helps build trust with shoppers. Dan Ariely’s experiment with Lindt truffles and Hershey’s Kisses illustrates the power of “free” and how people will choose the free version, even if it’s inferior.
Extra costs, including shipping, are the leading cause of a 70% shopping cart abandonment rate. Free shipping can persuade more shoppers to complete their purchases, leading to higher GMV.
But you can’t just increase GMV while taking on costs that dampen profits. Instead, consider tactics like setting a free shipping threshold slightly above your average order value (AOV)—the average amount customers spend per order.
Australian fashion brand Incu used Shopify’s Script Editor for cart and shipping price customizations. As a result, its online sales grew 300% year over year, and its conversion rate increased by 80%. Incu offers discounts for purchases above a certain value and clearly displays shipping costs across countries.
Upsell and cross-sell products
Imagine easily turning every purchase into a larger sale. Upselling and cross-selling can do just that by boosting your AOV and GMV.
Upselling involves suggesting a premium or feature-rich version of a product when a customer is considering a basic model. Use comparison charts on product pages to highlight the benefits of upgrading.
Cross-selling means suggesting related items that complement the main product. For instance, when a customer buys a travel-friendly coffee maker, AeroPress suggests a stand and a reusable coffee filter. According to McKinsey, cross-selling can increase sales and profits by 20% and 30%, respectively.
Without being too pushy, present upsells and cross-sells as helpful suggestions. During checkout, prompt customers to add related items, or offer a discount on an upgraded version. Limited-time discounts can encourage quick decisions.
Melbourne-based luggage retailer July used Shopify Scripts to offer tailored experiences like bundled products and personalized discounts. This (along with other changes) led to a 640% increase in sales from 2021 to 2022.
Observe how organically July upsells a personalizing option for its carry-on, cross-sells a related product, and offers premium package protection at a nominal fee.
Sell product bundles
Product bundling lets you provide a curated collection of complementary products, increasing your sales, AOV, and GMV. There are three main types of bundling. Pure bundling (items sold only as a bundle), mixed bundling (separate products sold at a discount when bought together), and price bundling (discounts for purchasing multiple items together).
Increase your AOV with Shopify Bundles, which lets you create fixed bundles and multipacks directly from the Shopify admin.
All-natural nutrition brand Tropeakascaled its business by collaborating with Shopify Solutions Partner Process Creative and incentivizing buyers to increase their order values. As a result, Tropeaka increased its AOV from AU$89 to AU$94 across 15,000 orders per month.
Observe below how Tropeaka promotes bundles through discounts.
Offer discounts
Who doesn’t love a deal? Discounts are a surefire way to attract customers. Offering discounts encourages more purchases and increases customer loyalty. But use them strategically to avoid harming your brand value or profitability. For example, you could offer discounts at the end of the quarter for seasonal stock clearance.
Providing discount codes to first-time buyers can entice them to purchase, as 80% of buyers say they’d be willing to try a new brand at a discount.
Additionally, offering personalized discount codes to cart abandoners through follow-up email reminders can help recover sales.
After moving to Shopify, fitness and nutrition brand BUBS Naturals witnessed a 100% rise in conversion rates, an 84% increase in repeat customer rates, and a 10% increase in revenue from its DTC site. With the help of Shopify, the company could offer tiered discounts by customer segments and turn off discount codes during sales periods.
Notice the different kinds of discounts on its website, from discounts on customer-selected bundles to discounts for subscribers versus one-time purchasers.
Reduce checkout friction
Some 22% of customers report abandoning their carts because the checkout process is too long or complicated. Streamlining your checkout process is a game changer for customer conversion and your GMV value.
Offer one-click or guest checkout options to avoid discouraging customers with lengthy processes. If you’re on Shopify, one-click checkout is already available.
Provide multiple payment options like debit and credit cards, mobile wallets (Shop Pay, Google Pay, Amazon Pay), and buy now, pay later options (Shop Pay Installments).
Slow shipping can turn away 23% of online shoppers. Partner with a reliable and fast 3PL provider like Shopify Fulfillment and offer multiple shipping methods.
Shop Pay can radically improve your checkout experience. Research shows that simply offering Shop Pay can increase bottom funnel conversion rates by 5% and convert up to 50% better than typical or guest checkouts.
German toy brand Schleich saw a 31% reduction in checkout abandonment and a 25% increase in orders after migrating to Shopify. Among other improvements, Shopify simplified its previously complicated checkout system. Observe Schleich’s smooth checkout system, including an interest-free installment option from Shop Pay.
Sell international
Going international is a no-brainer if you want to grow your sales and GMV. Fifty-two percent of online shoppers make international purchases, and cross-border sales grew by 22% in 2022. Around 35% of traffic to Shopify stores comes from international visitors.
Previously, selling to international buyers was difficult due to payment complexities, language barriers, and regional additions. But Shopify Markets has simplified the process. You can sell across geographies and scale internationally from a single Shopify store. Shopify Markets lets you create a localized shopping experience with storefront customizations, translations, more than 130 local currencies, and more.
Toilet paper brand Who Gives A Crap upgraded to Shopify to expand internationally. Using Shopify’s expansion store feature, it built three customized online stores for the US, the UK, and Europe, tailoring pricing, brand messaging, currency choices, and checkout processes.
As a result, the company saw a two-times year-over-year revenue growth, a 15% increase in conversion rates, and a 20% growth in customer lifetime value.
Use GMV to grow your ecommerce business
While a very simple metric, GMV can be a powerful indicator of your business’s health when you dig deeper and combine it with other numbers. Not only does it tell you what’s working and what needs improvement, it also helps you get there.
The key to sustainable growth is understanding GMV and finding ways to boost it without hurting your bottom line. We hope this guide and the Shopify tools we mentioned help you do just that.
Gross merchandise value FAQ
How do you calculate profit from GMV?
To calculate profit from the gross merchandise value formula, subtract the cost of goods sold, shipping, returns, and other expenses from your GMV. The remaining amount is your profit. Gross merchandise value calculation alone isn’t a direct indicator of profitability.
What is the difference between GMV and gross sales?
GMV and gross sales are often used interchangeably, but there is a slight difference. Gross merchandise value calculation includes the total value of all goods sold through your platform, including third-party sales. Gross sales only include the value of goods sold directly by your company.
What is the difference between gross merchandise value and net sales?
GMV gross represents the total value of all goods sold through your platform, including taxes and shipping fees, before deductions. Net sales refer to revenue after subtracting costs like discounts, returns, and third-party seller fees.
Can gross merchandise value be used to measure a company’s profitability?
Gross merchandise value calculation alone cannot measure profitability. While it shows the total value of goods sold, it doesn’t account for selling costs. To assess profitability, consider costs of goods sold, operating expenses, and other financial metrics along with GMV.
