Glossary
WALK THE TALK
New to the lingo? Here is an explanation of every e-commerce term you will ever need to keep up with the conversations in the business.
Choose a starting letter
A
- Affiliate Marketing
- A system where you reward partners (affiliates) for each visitor or customer brought about by the affiliate's marketing efforts.
- Attribution Model
- An Attribution Model in e-commerce assigns credit for sales and conversions to different touchpoints in a customer's purchase journey, providing insights into channel effectiveness and aiding marketing optimization.
- Average Order Value (AOV)
- The average amount spent each time a customer places an order.
B
- Break-Even Point
- The Break-Even Point, is when all revenue minus all costs, yield no profit or loss. It's crucial for businesses to track as it indicates the minimum sales required to cover costs and start earning profit.
- Broken Size Curve
- A broken size curve in e-commerce happens when one or more of a product's variant(s) is out of stock, often reducing the conversion rate.
C
- Cart Abandonment Rate
- The percentage of online shoppers who add items to their cart but leave without completing the purchase due to a change in mind, usually because of high hidden costs like shipping fee.
- Churn Rate
- The percentage of customers who stop using your online store during a certain timeframe.
- Click-through-rate (CTR)
- CTR, or Click-Through Rate, measures the proportion of users who progress from one stage to another in a process, such as from seeing an ad to clicking on it, or opening a newsletter to visiting a linked e-commerce site.
- Contribution Margin
- The Contribution Margin, a crucial profitability metric, is the leftover from Gross Sales after deducting all the direct costs of fulfilling the orders. Some argue that it is the same as Net Gross Profit 3, taking marketing spending into account. In contrast, others say marketing spending should not be part of calculating the contribution margin.
- Conversion Funnel
- A customer's journey through a sequence of steps designed to lead to a desired action, typically a purchase.
- Conversion Rate (CR)
- The percentage of visitors who take a desired action, generally making a purchase.
- Cost of Goods Sold (COGS)
- The cost of goods sold signifies the total expense of purchasing the products sold, meaning the cost appears first when you sell the product.
- Customer Acquisition Cost (CAC)
- Customer Acquisition Cost (CAC) is one of the most critical KPIs in e-commerce. It measures the total cost of acquiring a new customer. To track your CAC, you need to know your marketing spend and the number of new customers who have placed an order. CAC is not cost per order since that includes returning customers as well. Understanding and optimizing your CAC is crucial for driving profitable growth in your e-commerce business.
- Customer Lifetime Value (CLV, LTV or CLTV)
- Customer Lifetime Value (CLV) is usually a prediction of the total value an e-commerce business can expect from a single customer account.
D
- Data-Driven Attribution Model
- A Data-Driven Attribution Model uses machine learning to assess each touchpoint's role in a customer's purchase journey. This provides a comprehensive understanding of marketing effectiveness and guides intelligent optimization of marketing spend in e-commerce.
- Dropshipping
- A fulfillment method in which an e-commerce business doesn’t keep the products it sells in stock. Instead, the e-commerce purchases the product after the customer has purchased the item from the e-commerce. The third party that the e-commerce buys the item from also ships it directly to the customer. This allows for low overhead costs and attention to fulfillment while putting more emphasis on paid marketing.
E
- E-commerce Retention Rate
- Retention rate in e-commerce measures the percentage of customers who continue to make purchases over a specific period of time. Depending on which e-commerce vertical you are in, your retention rate is more or less critical to assure sustainable and profitable growth since, typically, customer acquisition is more expensive than keeping existing customers.
- Engaged Session
- In the context of website analytics, an engaged session refers to a visitor's active interaction with a website for a given duration. This may include clicking on links, scrolling, or filling out forms. An engaged session usually implies that the visitor is actively interested in what your website has to offer and, therefore, exploring it.
- epROAS
- epROAS is another word for Profit ROAS, pROAS, and POAS. All describe the Profit Return on Ad Spend. The "e" stands for expected, and it takes the expected return rate of the products into account to tell a more accurate story about the actual Profit Return the ad spend will yield in the end.
F
- Fulfillment
- The process of receiving goods from suppliers, packaging the items, branding it, and then shipping orders to customers. Fulfillment also handles the returning part of the process from the customer back to the warehouse.
G
- Gross Profit 1
- Gross Profit 1 is a company's profit after deducting the Cost of Goods Sold, which represents the costs associated with purchasing its products. This figure does not include fulfillment, marketing, or overhead costs such as rent, utilities, salaries, or returned items.
- Gross Profit 2
- Gross Profit 2 measures profitability after accounting for the costs and fulfillment costs associated with purchasing its products. Fulfillment costs include storage, order processing, packaging, and shipping expenses. Like Gross Profit 1, this figure does not consider the impacts of marketing or overhead costs such as rent, utilities, and salaries. Returned items are also not deducted in the calculation of Gross Profit 2.
- Gross Profit 3
- Gross Profit 3 encompasses the profitability measure that includes the product purchasing costs, fulfillment costs, marketing costs associated with promoting the products, and general marketing expenses. It still does not consider overhead costs such as rent, utilities, and salaries. Like Gross Profit 1 and 2, returned items are not deducted in the calculation of Gross Profit
I
- Impression
- Impression, or a view of something, is often used for ads. It answers the question, “How many times have my ad(s) been viewed?” The term used is not views but Impressions. Views are generally used when it's about video ads. An impression does not require any action by the viewer; one viewer can have many impressions of the same ad.
- Influencer Marketing
- A marketing strategy where brands partner with individuals with strong social media following to promote their products or services. These individuals, known as influencers, typically have a niche audience that aligns with the brand's target market. This acts as a paid acquisition of warm leads and increases brand awareness among the community.
L
- Last Click Attribution
- The Last Click Attribution Model in e-commerce gives full credit for a sale to the final touchpoint before a purchase. Because of its simplicity, it undervalues earlier customer interactions that could have significantly influenced the buying decision.
- Linear Attribution Model
- The Linear Attribution Model in e-commerce assigns equal credit for a sale or conversion to all customer interactions on their buying journey. While it recognizes each interaction's value, it may oversimplify as not all touchpoints equally influence the final purchase decision.
M
- Machine Learning Attribution Model
- A Machine Learning Attribution Model, another name for a Data-Driven Attribution Model, within the e-commerce context, is a powerful tool that employs machine learning algorithms to accurately assign credit to different touchpoints along a customer's purchasing journey.
N
- Net Gross Profit 1
- Net Gross Profit 1 is an e-commerce KPI. It is the result after subtracting returns and the cost of goods sold from Gross Sales.
- Net Gross Profit 2
- Net Gross Profit 2 is Gross Sales subtracted by returns, the cost of goods sold, and the fulfillment costs.
- Net Gross Profit 3
- Net Gross Profit 3 is an e-commerce company's operational profitability. It is calculated by subtracting returns, the cost of goods sold, fulfillment costs, and marketing costs from Gross Sales.
- Net Sales
- A company's Net Sales are the Gross Sales minus any returns.
P
- PnL
- PnL stands for Profit and loss, and the more formal word is Income Statement.
R
- Remarketing or Retargeting
- Remarketing or retargeting is an online advertising strategy that targets users who have previously visited your website or shown interest in your products.
- Return on Ad Spend (ROAS)
- Return on Ad Spend (ROAS) measures how much revenue you make for each dollar spent on advertising. ROAS has severe limitations when used in isolation, which can hurt a company's profitability and brand.
S
- SKU (Stock Keeping Unit)
- A unique identifier for each product variation in your store. Commonly referred to as variant. By having an organized and orderly way to track products, you will be able to track the sales of the products better and manage your inventory well.
W
- Wasted Ad Spend
- Wasted Ad Spend refers to the marketing budget that was "wasted," i.e., which did not yield the desired result.
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