GMV or Gross Merchandise Value is the sum total of products and services traded over a particular period of time through a consumer-to-consumer exchange platform.
It is referred to as the amount of the growth of a corporation, or usage of the exchange site to trade merchandise retained by other people; while the Bottom Line denotes a firm’s net remunerations and net earnings per share (EPS). The “bottom” defines the comparative position of the net income amount on a corporation’s revenue statement.
GMV is also known as Total Order Value – a measure used to value wired or online retail dealings in their preliminary phases. In terms of finances, GMV is an amount that doesn’t propose much understanding into the price of the items retailed, or helps in any cost accrued by retailer.
GMV doesn’t comprise of discounts, returns and cost upkeep and storage of an inventory. Thus, it does not prove to be a good predictor of net sales; Govind Srikhande, Managing Director of Shopper’s Stop referred to GMV as “Gross Miscalculated Value”, also adding “It is something that can drive valuations, but not the bottom line.”
Formerly, firms used to get high multiples for GMV, but lately, investors are giving more value to the bottom line. A company would gain a healthier bottom line at the cost of GMV, and thus, market share.
Similarly, as bottom lines get improved, one will get better multiples for bottom line. It is believed that in the coming years, individuals will pay money for the bottom-line.
Healthy Businesses Are Driven By Bottom-Line
Market conditions and the company’s strategy and procedures eventually combine to generate the incomes and expenditures from which the bottom line is derived.
The bottom line is referred to as the net income that is reported at the bottom of the income statement that requires a layout, although there are multiple types of income layouts, all of the layouts result with net income at the end of all the calculations.
Bottom line can be used to issue expenses to shareholders as an enticement to uphold ownership; this payment is known as dividend. Alternately, the bottom line is utilized to purchase stock and retire equity again.
A firm could simply keep all revenues reported on the bottom line to use in product improvement, location extension or any other means of refining the firm.
Unit Economics Contributes To A Healthy Bottom-Line, Leading To A Sustainable Business Model
The word unit economics is a term used to measure the business worth, that is measured via Lifetime Value (LTV) and the cost of acquiring customer (CAC) and the more LTV you get for acquiring one customer, more profit falls to the bottom line
While sustainability often has been the objective of industries, non-profits and administrations lately, the bottom line recording can be a significant tool to maintain sustainability goals. The bottom line statistics are an important element of the management team’s record.
Progressive and developing profitability over a period of time is evidence to a variety of factors, comprising: a good marketplace and consumer selection, the formation and distribution of products and services appreciated by customers, operational allocation of venture capital in provision of targeted consumers, well-organized control of costs in organization and macroeconomic factors.
GMV Only Indicates Usage Of The Product/Service, But Does Not Signify The Viability Of Product
GMV is the total sales value of the products sold. GMV is misleading as this number relies essentially on the product mix.
Further, an industry is hypothetically expected to lay prominence on advanced margins after a few years in maneuvers, because booking profits is the ultimate goal.
Conversely, if the emphasis is only on increasing GMV, then the company will focus on selling high volumes of great ticket size products, overlooking the margins. For example, selling ten attires with a high margin will certainly have lower GMV than retailing ten electronic devices at a comparatively lower margin.
In India, e-commerce start-ups have been setting impractical internal GMV targets to contend with other retailers in the market and to motivate higher evaluations, thus wholly missing the point of generating profits.
Excessive concessions and cash backs are provided to promote the GMV further, disregarding margins in the course.
The Management’s focus should be more on a business that is sustainable and controllable. There are no arguments over undermining the prominence of consumer acquisition for trades and businesses in order to improve their market stake, but spending in a more accountable and imaginative way can only do this.
Published on Trak.in
