GMV vs profit: the four numbers every seller should know
By Muhammad Awais · · 5 min read
Most seller dashboards lead with GMV or gross sales. It is the easiest number to grow and the least useful on its own. A shop can double GMV and make less money, because every extra order also brings product costs, fees, shipping, returns, commissions and ad spend.
1. Gross sales
Orders multiplied by average order value. It tells you demand, not health.
2. Net sales
Gross sales minus returns and refunds. If returns are 8% and you plan as if they were zero, every later number is overstated.
3. Contribution margin
Net sales minus the costs that rise with every order: product cost, fulfilment and shipping, and marketplace and payment fees. Contribution before advertising tells you how much each sale leaves to pay for ads and overheads. Contribution after advertising is what is left once ad spend is paid.
4. Operating profit
Contribution after advertising minus fixed operating costs such as software, salaries and rent. This is what the business actually earns.
A worked example
- 1,200 orders at $38 = $45,600 gross sales
- 5% returns → $43,320 net sales
- Product $13,200, fulfilment $7,800, fees (8% of net) $3,466 → contribution before ads $18,854 (about 43.5% of net sales)
- Ads $7,000 → contribution after ads $11,854
- Other costs $4,500 → operating profit $7,354, a 17% margin on net sales
The same arithmetic gives a break-even ROAS: gross sales divided by contribution before ads, about 2.42 here. Ad campaigns returning less than that are growing revenue while shrinking profit.
What to do with this
- Calculate contribution margin per product, not just for the whole shop
- Set a break-even ROAS before scaling any campaign
- Report net sales and contribution weekly alongside GMV