Anuv has a platform for delivery of stationery items. Noted below is the depiction of how the platform operates:
Through Anuv’s business model, let us understand –
- GMV,
- GTV,
- Net Revenue,
- Gross Revenue, and
- Take Rate
But before that, here are some assumptions which will be used in the calculations:
- Anuv charges a 5% commission on every transaction.
- During the period of July 2023, 1000 products were sold and each order was of only a single product.
- There is only one product that is priced at $50.
- A flat delivery fee of $5 applies to every order.
GROSS MERCHANDISE VALUE ( GMV):
GMV is the selling prices of all products multiplied by the number of products sold from the platform.
In simpler terms, GMV is the total value of sales generated in the market by the platform and is important to understand the platform’s performance.
For our business, GMV would be:
GMV = Total number of products sold * Price per product
GMV = 1000 products * $50 = $50,000
Anuv’s platform only facilitates the process of selling the product from the seller to the customer, they never owned those products in their inventory.
GMV is only the total value of goods that are sold through Anuv’s platform.
In case of multiple products and multiple sellers, the GMV would still be calculated the same way by multiplying the number of products sold and their selling price.
GROSS TRANSACTION VALUE (GTV):
GTV contains the entire financial transactions alongside sales within the business, considering not only sales but also transaction-related charges, like delivery fees.
GTV is important as it takes into account the complete monetary flow of sales within a business.
To calculate GTV:
GTV = Total number of orders *(order cost + delivery fees)
GTV = 1000 orders * $55 = $55,000
GTV would be the aggregate money that is flowing through the platform. While for the example we’ve only taken delivery fee, this could further include commissions and related charges exchanged at the time of sales to complete the transaction.
GROSS REVENUE:
Gross Revenue gives us Anuv’s actual recognized revenue i.e. revenue recognized by the core business model in this case being commissions on sale of items.
For Anuv’s business Gross Revenue would be:
Gross Revenue = (Total number of products sold * Commission per product)
Gross Revenue = 1000 * (5% of $50) =$2,500
Assuming that the delivery fees charged goes entirely to the delivery partner.
Anuv’s actual earnings come through the commission he charges, it does not include the revenue that is made by the seller or the delivery partner, but the revenue the platform generates for itself.
Gross revenue does not eliminate the expenditure and losses incurred by him, but it is just the value of what he actually makes before those deductions.
NET REVENUE:
The summer break has ended and students will be going back to school now, seeing this opportunity Anuv planned to give a 2% additional discount over every order placed during the month, now this discount is being offered by the platform to the customer and not the seller, which means the seller would still be expecting his original cost after commission deduction.
Net revenue is where we will reduce those discounts and calculate the revenue Anuv would be making now.
Now for every transaction he is getting a 5% commission and giving a 2% discount
This means 5% * (1000 * $50) — 3% * (1000 * $50)
Net revenue would be = $1,000
For every order now the customer will be paying 2% less on the original price while the seller would still be receiving his original price with commission deduction.
For this example we’ve taken into consideration just the discounts, but net revenue further takes into consideration the impact of return of sales as it directly affects the sales numbers.
TAKE RATE:
The commission Anuv takes over each purchase made through his platform is called the take rate, and that is the actual revenue the platform generates over each transaction.
The take rate defines the gross revenue made over the Gross Merchandise Value/ Gross Transaction Value, i.e. the actual revenue realized over the revenue that is transacted. In Anuv’s example, over the transacted volume of merchandise being $ 50,000, Anuv makes a commission of $2500, making his take rate to be 5%
To summarize:
- GMV reflects the total value of good which is being sold though Anuv’s platform which under the given assumptions is $50,000
- GTV captures the end to end chain of monetary activity on the platform which includes commission as well as delivery fees charged and amounting be $55,000
- Gross Revenue reflects the actual revenue Anuv generates as a part of his core revenue model before any deductions, here that is $2,500
- Net revenue would be the revenue Anuv would be making after we reduce the discounts which he would be providing on his platform. Here after a 3% discount his net revenue is $1000.
- And the take rate is the commission over each transaction which is 5% ($2.5) for Anuv.
Now that we know what the numbers are, in the next part we will apply to understand this in real life scenarios.
Author:
Meemansa Suri
