GMV Vs. NMV For Digital Startups And How To Evaluate Your Start-up ...

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GMV refers to Gross Merchandise Volume, It becomes a very commonly used terminology to reflect the value of online retail business being in initial stages when it is too early to have clarity on the revenues and profitability of the platform for a certain period.

GMV is the sum of sales volume transacting through the platform unlike the traditional understanding concepts of revenue recognition as per the financial standards.

On the other hand, NMV refers to Net Merchandise Value which is gross transactions value that occurred on your platform less all the costs and expenses incurred over a specific period like marketing expenses, refunds, or gateway payments.

As a business analyst or financial analyst at a venture fund the NMV is more like the “gross profit” for your platform. It excludes the direct expenses resulted from the transaction processing to have it registered on board.

How to decide on the value of your business using GMV?

Follow the below steps to build a valuation for your start-up using the GMV:

1) Start by research for proxy start-up projects in the same field or closer that have been gone through one or more fund-raising or investment rounds.

2) Calculate the valuation multiple for each start-up by dividing the project valuation amount by the annual GMV generated by each start-up.

3) Calculate the average multiple for all the projects among your selections.

4) Valuate your start-up similarly by multiplying your annual GMV by the average multiple calculated in step number three.

Please feel free to share your thoughts and view either in comments or on LinkedIn messages.

Or via my email: mohamed.yassin@analyticspad.com

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