Ecommerce glossary

AOV (average order value)

Average order value is the average amount a customer spends per order. It's one of the main levers on ad profitability: if each order is bigger, you can afford to pay more to win it. Free shipping thresholds, bundles and quantity breaks are the usual ways online stores raise it.

AOV = Revenue ÷ Number of orders

Backorder

A backorder is an order you accept for a product that's out of stock, to be shipped once new stock arrives. Unlike a stockout, the sale isn't lost, but the customer waits. Backorders work when lead times are short and predictable; long or uncertain delays tend to bring cancellations and support tickets.

Bill of materials (BOM)

A bill of materials lists every component, and the quantity of each, needed to make one unit of a finished product. Online stores use BOMs for kits and bundles: selling one bundle should deduct the right quantity of each component SKU from stock, and the BOM is what makes that possible.

Break-even ROAS

Break-even ROAS is the return on ad spend at which an ad campaign covers its own cost and makes zero profit, before overheads. Below it, every sale from the ads loses money. It depends entirely on your gross margin, which is why a 'good' ROAS for one store can lose money for another.

Break-even ROAS = 1 ÷ Gross margin (as a decimal)

CAC (customer acquisition cost)

Customer acquisition cost is what you spend, on average, to win one new customer. Paid CAC counts only ad spend and the customers it brings; blended CAC divides all marketing spend by all new customers. Comparing CAC with the gross profit a customer generates tells you how long each one takes to pay back.

CAC = Acquisition spend ÷ New customers acquired

Carrying cost

Carrying cost (or holding cost) is what it costs to keep inventory on hand: the capital tied up in it, storage, insurance, shrinkage, and the risk of it becoming obsolete. It's usually expressed as a percentage of inventory value per month or year. Slow-moving and dead stock rack up carrying cost without earning anything.

Churn rate

Churn rate is the share of customers you had at the start of a period who stopped buying during it. Subscription businesses see churn directly as cancellations. Most online stores have no cancel event, so 'lost' has to be defined by a repeat-purchase window, such as no order in 180 days.

Churn rate = Customers lost in period ÷ Customers at start of period

COGS (cost of goods sold)

Cost of goods sold is the direct cost of the products you sold in a period. For an online store that's usually the landed cost of stock: purchase price plus inbound freight, duties and packaging that ships with the product. COGS is subtracted from revenue to get gross profit, and it drives inventory turnover.

COGS = Beginning inventory + Purchases − Ending inventory

Contribution margin

Contribution margin is what's left from a sale after the costs that rise and fall with each unit: product cost, shipping, payment fees and similar. It's the amount each sale contributes toward fixed costs and profit. Looking at it per SKU shows which products actually pay their way once variable costs are counted.

Contribution margin = Price − Variable costs per unit · Contribution margin ratio = Contribution margin ÷ Price

CPA (cost per acquisition)

Cost per acquisition is what you pay in ad spend for each conversion, usually a purchase. In Google Ads, Target CPA is a smart bidding strategy that tries to hit an average CPA you set. A CPA target only makes sense when it's set below the profit each conversion brings in.

CPA = Ad cost ÷ Conversions

CPC (cost per click)

Cost per click is the average amount you pay each time someone clicks your ad. In Google Ads it's set by the auction, so it depends on your bid, your competitors' bids and your ad's quality. A lower CPC isn't automatically better; what matters is the profit those clicks go on to generate.

CPC = Ad cost ÷ Clicks

CTR (click-through rate)

Click-through rate is the percentage of people who saw your ad and clicked it. It's a quick signal of how relevant an ad and its targeting are to the people seeing it. A high CTR on unprofitable products just spends money faster, so read it alongside conversion rate and profit.

CTR % = Clicks ÷ Impressions × 100

Cycle count

A cycle count is a small, regular stock count covering a few SKUs at a time, instead of counting everything at once. Over a set schedule every product gets counted, with high-value and fast-selling items counted most often. It catches stock errors within weeks rather than once a year, without pausing fulfillment for a full stocktake.

Days inventory outstanding (DIO)

Days inventory outstanding is the average number of days it takes to sell through your inventory. It's another way of expressing inventory turnover, in days rather than turns. A rising DIO means more cash is sitting on shelves for longer, and it's often the first sign of overstock or dead stock building up.

DIO = (Average inventory ÷ COGS) × Days in period (= 365 ÷ Turnover for a year)

Dead stock

Dead stock is inventory that hasn't sold for a long time and isn't expected to sell at full price. Stores set their own cutoff, often 90 to 180 days without a sale. It ties up cash and keeps adding carrying cost, so it's usually better to clear it through bundles, discounts or liquidation than to wait.

Demand Gen

Demand Gen is a Google Ads campaign type for visual, image- and video-led ads shown to people who aren't actively searching, on surfaces such as YouTube, Discover and Gmail. It replaced Discovery campaigns. Ecommerce brands use it to reach new audiences, so it's judged on profit over a longer window rather than last-click sales.

EBIT (earnings before interest and taxes)

EBIT is a business's profit before interest and income taxes are subtracted. For most small online stores it's the same as, or very close to, operating profit: revenue minus cost of goods sold and operating expenses. It shows how profitable the core business is, regardless of how it's financed or taxed.

EBIT ≈ Revenue − COGS − Operating expenses

EOQ (economic order quantity)

Economic order quantity is the order size that minimises the combined cost of placing orders and holding stock. Ordering more at once means fewer orders but more inventory to carry; ordering less means the opposite. EOQ assumes steady demand, so supplier minimums and volume discounts can push the right answer away from it.

EOQ = √(2 × Annual demand × Cost per order ÷ Annual holding cost per unit)

FIFO (first in, first out)

FIFO is an inventory valuation method that assumes the oldest stock is sold first, so the oldest purchase costs flow into COGS first. When costs are rising, FIFO gives a lower COGS and a higher ending inventory value than LIFO. FIFO also describes a physical stock-rotation practice: ship the oldest units first.

GMROI (gross margin return on inventory investment)

GMROI measures how much gross profit each dollar tied up in inventory earns over a year. A GMROI of 4 means every dollar of stock, at cost, brings in four dollars of gross profit annually. It falls when stock sits too long, so it's a useful check on whether inventory is earning its keep.

GMROI = Annual gross profit ÷ Average inventory at cost

Gross margin

Gross margin is the percentage of revenue left after paying for the goods you sold. It shows how much each dollar of sales has left to cover marketing, overheads and profit. For an online store it's also what sets your break-even ROAS: the lower the gross margin, the harder ads have to work.

Gross margin % = (Revenue − COGS) ÷ Revenue × 100

Gross profit

Gross profit is the money left from sales after paying for the goods you sold, before any other costs. For an online store it's revenue after discounts and returns, minus the landed cost of the products sold. It has to cover ads, shipping, staff and every other cost before the business makes a profit.

Gross profit = Revenue − COGS

GTIN (Global Trade Item Number)

A GTIN is the globally unique product identifier behind a barcode. UPC, EAN, JAN and ISBN codes are all types of GTIN, and they're issued through GS1. Google Shopping uses GTINs to match your products to its catalog, and asks for one whenever the manufacturer has assigned one to the product.

Inventory turnover

Inventory turnover is how many times you sell through your average inventory in a period, usually a year. Higher turnover means stock converts to cash faster; very low turnover points to overstock or slow sellers. Dividing 365 by turnover gives days inventory outstanding, the same idea expressed in days.

Inventory turnover = COGS ÷ Average inventory · Average inventory = (Beginning + Ending) ÷ 2

Landed cost

Landed cost is the full cost of getting a product into your warehouse ready to sell: the supplier price plus freight, insurance, customs duties, brokerage and any handling fees. Using the supplier price alone understates COGS and overstates margin, especially for imported stock, so landed cost is the number to price and report from.

Lead time

Lead time is how long it takes from placing a purchase order to having the stock received and ready to sell. It includes supplier production, transit and receiving. Lead time feeds straight into the reorder point, and its variability drives how much safety stock you need, especially around peak season.

Lead time = Date goods received − Date order placed

LIFO (last in, first out)

LIFO is an inventory valuation method that assumes the newest stock is sold first, so the most recent purchase costs flow into COGS first. When costs are rising it produces a higher COGS and lower taxable profit than FIFO. LIFO is allowed under US GAAP but not permitted under IFRS.

MAPE (mean absolute percentage error)

MAPE measures how far demand forecasts were from actual sales, on average, as a percentage of actual sales. Lower is better, and forecast accuracy is simply 100% minus MAPE. Because it divides by actual sales, it breaks down for products that sell zero in some periods; WAPE is better for slow sellers.

MAPE = Mean of (|Actual − Forecast| ÷ Actual) × 100 · Forecast accuracy % = 100 − MAPE

Markup

Markup is how much you add on top of a product's cost to set its price, expressed as a percentage of cost. It's easy to confuse with margin, which is a percentage of price: a 100% markup is only a 50% margin. Pricing from a target margin avoids accidentally pricing too low.

Markup % = (Price − Cost) ÷ Cost × 100 · Price from target margin = Cost ÷ (1 − Target margin)

MER (marketing efficiency ratio)

MER, sometimes called blended ROAS, divides your store's total revenue by total marketing spend across every channel. Unlike platform-reported ROAS, it doesn't depend on any ad platform's attribution, so it's a useful cross-check. It shows overall marketing efficiency, but not which individual campaign is working.

MER = Total revenue ÷ Total marketing spend

MOQ (minimum order quantity)

Minimum order quantity is the smallest order a supplier will accept, in units or dollar value. MOQs can force you to buy more than demand justifies, which ties up cash and raises dead-stock risk. It's often negotiable, especially for repeat orders, mixed SKUs or a slightly higher unit price.

Net profit margin

Net profit margin is the percentage of revenue left as profit after every cost: COGS, operating expenses, interest and taxes. It's the bottom-line view of the whole business. Many store dashboards show a pre-tax figure and still call it net, so check what's been subtracted before comparing numbers.

Net profit = Revenue − COGS − Operating expenses − Interest − Taxes · Net margin % = Net profit ÷ Revenue × 100

Net revenue

Net revenue is what your store actually earns from sales after discounts, returns and refunds are taken off gross sales. It's the right starting point for margins, ROAS and profit, because gross sales overstate how much money came in, especially in months with heavy promotions. Sales tax collected isn't part of it.

Net revenue = Gross sales − Discounts − Returns and refunds

Operating margin

Operating margin is the percentage of revenue left after COGS and the costs of running the business, such as marketing, software, staff and rent, but before interest and taxes. It shows how profitable the store's core operations are, separate from how the business is financed or taxed.

Operating profit = Gross profit − Operating expenses · Operating margin % = Operating profit ÷ Revenue × 100

Overhead

Overhead is the cost of running the business that isn't tied to any single product or order: software and app subscriptions, salaries, rent, accounting and insurance. Most overhead is fixed in the short term. It isn't part of COGS, but it comes out of gross profit before you reach operating profit.

P&L (profit and loss statement)

A P&L, also called an income statement, summarises revenue, costs and profit over a period, such as a month or a year. For an online store it typically runs from revenue to COGS and gross profit, then operating expenses and operating profit, then interest, taxes and net profit.

Performance Max

Performance Max (PMax) is a Google Ads campaign type that runs a single campaign across Google's channels, including Search, Shopping and YouTube, with Google's automation choosing placements and bids. For online stores it's driven largely by the product feed. Because it optimizes toward the value you report, feeding it revenue rather than profit can scale unprofitable sales.

POAS (profit on ad spend)

POAS measures ad performance on profit rather than revenue: the gross profit from ad-driven sales divided by what the ads cost. A POAS above 1 means the ads earn more gross profit than they cost. Some tools subtract the ad spend first, which moves break-even from 1 to 0, so check which version you're reading.

POAS = Gross profit from ad sales ÷ Ad spend

Reorder point

The reorder point is the stock level at which you should place your next purchase order, so new stock arrives before you run out. It covers expected sales during the lead time plus a safety stock buffer. Recalculate it when sales velocity or supplier lead times change.

Reorder point = (Average daily sales × Lead time in days) + Safety stock

Replenishment

Replenishment is the process of restocking inventory to the level you need to meet demand. Common methods include reordering at a set reorder point, reviewing stock on a fixed schedule, min/max levels, and forecast-based ordering. The goal is to avoid both stockouts and cash tied up in excess stock.

ROAS (return on ad spend)

ROAS is the revenue your ads generate for every dollar spent on them. It measures revenue, not profit, so it can look healthy while a campaign loses money. Whether a ROAS is good depends on your gross margin; compare it with your break-even ROAS, or track profit on ad spend (POAS) instead.

ROAS = Revenue attributed to ads ÷ Ad spend

Safety stock

Safety stock is extra inventory held as a buffer against demand spikes and supplier delays, so you don't stock out while waiting for a reorder. The basic method uses your worst-case sales and lead time; the service-level method uses demand variability and a target in-stock probability.

Basic: (Max daily sales × Max lead time) − (Avg daily sales × Avg lead time) · Service level: Z × σ(daily demand) × √(Lead time in days)

Sell-through rate

Sell-through rate is the share of the stock you received that you actually sold over a period. It's a quick way to compare how products, variants or purchase orders are performing. A low sell-through rate on a SKU is an early warning that it's heading toward dead stock.

Sell-through rate % = Units sold ÷ Units received × 100

SKU (stock keeping unit)

A SKU is your own internal code for one specific sellable item, down to the variant: a medium blue t-shirt has a different SKU from a large one. Unlike a UPC or GTIN, a SKU is made up by you. Consistent SKUs make inventory counts, reorders and per-product margin reporting possible.

Stockout

A stockout happens when a product runs out and customers can't buy it. Unlike a backorder, the sale is usually lost, and ad spend pointed at that product is wasted while it's unavailable. Accurate reorder points and enough safety stock are the main defenses.

Stocktake

A stocktake is a physical count of the inventory you hold, compared with what your system says you should have. Differences, called variances, reveal shrinkage, receiving errors and miscounts. Some stores do a full count once or twice a year; others cycle count a few SKUs at a time throughout the year.

Vendor-managed inventory (VMI)

Vendor-managed inventory is an arrangement where the supplier monitors your stock levels and decides when to replenish, within limits you agree. It can cut stockouts and admin, but it means sharing sales data and giving up some control over cash tied up in stock. It's more common with large retailers than small brands.

WAPE (weighted absolute percentage error)

WAPE measures forecast error as total absolute error divided by total actual sales across all periods. Unlike MAPE, it still works when some periods have zero sales and doesn't exaggerate errors on small numbers, which makes it a better accuracy measure for slow-moving products and for groups of products.

WAPE = Σ |Actual − Forecast| ÷ Σ Actual × 100

Weighted average cost

Weighted average cost is an inventory valuation method that assigns every unit the same average cost, recalculated as new stock arrives. It sits between FIFO and LIFO and smooths out swings in purchase prices. Many inventory and accounting tools use it by default because it's simple to maintain.

Weighted average cost = Total cost of goods available ÷ Total units available