GMV vs revenue: why the big number is not the real one

Gross merchandise value, or GMV, is the total value of goods or services sold on a platform in a period, before the platform takes its cut and before most deductions. If shoppers buy products worth ₹100 crore through an online marketplace in a month, the monthly GMV is ₹100 crore, even though the marketplace may keep only a few crore of it.

GMV is a measure of activity, not of earnings. It tells you how much trade flows through the platform. Startups like it because it is large and it grows fast, and it is a fair way to show that people are using the product. The trouble starts when GMV is mistaken for the company's sales.

Revenue is the money a company earns from doing its business. A marketplace does not own the goods, so it does not earn the full price. It earns a commission, a delivery or convenience fee, an advertising fee from sellers, and sometimes fees for payments or logistics. These together are its revenue.

The share of GMV the platform keeps is called the take rate. If a platform has ₹100 crore of GMV and earns ₹12 crore in revenue, its take rate is 12%. Take rates differ widely by sector. A platform that only connects buyers and sellers may keep a few percent, while one that also runs delivery, storage or payments can keep much more. The take rate is covered in its own guide, and it is the bridge between the two numbers.

There are several reasons. First, GMV usually counts orders when they are placed, and some of them are later cancelled, returned or refunded. A company that reports gross figures can show a big number that shrinks once returns are removed. Some firms report GMV net of returns, others do not, so two companies' GMV are not always comparable.

Second, GMV can be pushed up with discounts. If a platform pays shoppers to buy, GMV rises, but revenue and profit may fall. Third, taxes may or may not be included. Fourth, GMV can include sales that do not touch the company's own systems at all. The number is useful, but it must be read alongside revenue, take rate and losses.

• Check whether GMV is before or after returns and cancellations
• Check whether GST and delivery charges are included
• Compare GMV growth with revenue growth: revenue should grow at least as fast
• Look at the take rate over time, not just once

Accounting rules decide how a company shows its sales. If the company is acting as an agent, only arranging the sale, it records just its commission as revenue. This is called net revenue. If it acts as the principal, buying the goods itself and selling them on, it records the full sale price as revenue and the cost of the goods as an expense. This is gross revenue.

So the same flow of money can look very different. An online store that buys stock and resells it will show revenue close to GMV. A marketplace that never owns the stock will show revenue far below GMV. Neither is wrong, but you cannot compare their revenue figures directly. Indian companies follow Indian accounting standards, and listed ones have to explain their revenue policies in their filings.

Large Indian internet companies that have filed for public listings have shown the gap clearly. In their documents, GMV, or a close cousin such as gross order value, is a large figure and revenue is a fraction of it, with the fraction depending on the model: food and grocery delivery, ride hailing, online shopping and travel each have a different pattern.

When you read a draft prospectus on StopDown or elsewhere, look for the section on key performance indicators. GMV usually appears there along with its definition. The definition is important, because companies choose it themselves. If the definition changes from one year to the next, treat the trend with care.

A headline such as 'startup crosses ₹1,000 crore GMV' means shoppers spent ₹1,000 crore through the platform. It does not mean the company earned ₹1,000 crore, and it does not say if the company makes a profit. Ask three follow-up questions: what is the revenue, what is the take rate, and is the business losing money on each order?

Useful comparisons are GMV growth against revenue growth, revenue against losses, and the take rate against the cost of delivery and marketing. A company whose GMV doubles while its losses triple is growing in a way that investors may question. One whose GMV and revenue grow together and whose losses shrink is on a healthier path.

Pair GMV with the number of orders, the average order value and the share of repeat buyers. Together they show whether growth comes from more customers, bigger baskets or the same people returning. Repeat buyers are the sign of a lasting business.

Also look at the contribution margin, which shows what is left per order after variable costs. A platform can have a rising GMV, a stable take rate and still lose money on every order if its delivery and discount costs are high. GMV is the starting point of the story, not the end of it.