For those unaware, GMV refers to gross merchandise value and it is typically used by e-commerce companies for valuation. The calculation for GMV is straightforward. It is simply the total volume of sales over a period of time. But it is precisely because the calculation is so straightforward, there are limitations.
Breaking down the GMV
When an item is ordered, it is captured as part of the gross market value. Unless of course payment was never processed. But even if an order is placed, there are many possibilities that the order was not a profitable one. For instance, the customer might cancel during a free cancellation period if applicable or the desired item was out of stock. Even after delivery, there are some stages to pass before it is a confirmed sale. For example, the customer could reject the goods. Also, free returns are commonplace in today’s competitive e-commerce landscape. In fact, a return would actually put the merchant deeper in the red, as there are reverse logistics costs.
In short, a sale is only final when the customer no longer has the option to cancel.
Learn to look beyond the surface
So the next time somebody presents amazing numbers, dig a little deeper. It might not be as rosy as it seems after all.
