Reference
Ecommerce Profit & Pricing Glossary
Plain-English definitions of the margin, fee, fulfillment, and advertising terms every online seller runs into, each linked to the calculator that puts it to work.
3
- 3PL (Third-Party Logistics)
- An outside company that warehouses your inventory and picks, packs, and ships orders for a fee. It trades a per-order fulfillment cost for not running your own warehouse.
A
- ACoS (Advertising Cost of Sale)
- The percentage of ad-attributed sales revenue spent on advertising. ACoS = ad spend divided by ad revenue, times 100. Common on Amazon; a lower ACoS means more efficient ads.Break-Even ROAS Calculator
- AOV (Average Order Value)
- The average dollar amount a customer spends per order. AOV = total revenue divided by number of orders. Raising AOV spreads fixed shipping and fee costs across more revenue.
B
- Break-Even Point
- The sales volume or price at which total revenue exactly covers total cost, so profit is zero. Below it you lose money, above it you profit.Break-Even Calculator
- Break-Even ROAS
- The minimum return on ad spend needed to avoid losing money on an order. It is the inverse of your contribution margin ratio: thinner margins require a higher break-even ROAS.Break-Even ROAS Calculator
C
- CAC (Customer Acquisition Cost)
- The average cost to acquire one paying customer, usually dominated by advertising spend. If CAC is higher than your contribution margin, each new order loses money.Product Margin Calculator
- Chargeback
- A forced reversal of a payment when a customer disputes a charge with their bank. Chargebacks cost the sale, the product, and often an extra fee, and hurt your processor standing.
- COGS (Cost of Goods Sold)
- The direct cost to produce or acquire the product you sold: manufacturing, materials, and inbound freight. COGS excludes marketing, shipping to the customer, and platform fees.Gross Margin Calculator
- Contribution Margin
- Revenue left after subtracting all variable costs (COGS, fulfillment, fees) but before fixed costs and advertising. It is the money available to pay for ads and overhead.Product Margin Calculator
D
- Days of Inventory (Days of Cover)
- How many days your current stock will last at the current sales rate. Days of cover = units on hand divided by average daily units sold.
- Dropshipping
- A model where a supplier ships products directly to your customer, so you hold no inventory. Margins are usually thin because supplier prices are high and competition is fierce.
E
- EOQ (Economic Order Quantity)
- The reorder quantity that minimizes the combined cost of ordering and holding inventory. Larger orders cut ordering cost but raise storage cost; EOQ balances the two.
F
- FBA (Fulfillment by Amazon)
- Amazon stores, picks, packs, and ships your inventory for a per-unit fulfillment fee based on size and weight, plus monthly storage fees. It removes shipping work but adds cost.Product Margin Calculator
- FBM (Fulfillment by Merchant)
- You store and ship your own orders instead of using a marketplace fulfillment service like FBA. You pay your own postage but avoid FBA fulfillment and storage fees.
- Free Shipping Threshold
- The cart minimum a customer must reach to unlock free shipping. Set correctly, it lifts average order value enough to cover the shipping you absorb.
G
- Gross Margin
- The percentage of revenue left after COGS only. Gross margin = (revenue minus COGS) divided by revenue, times 100. It looks healthy because it ignores fees, shipping, and ads.Gross Margin Calculator
K
- Keystone Pricing
- A simple rule of doubling the wholesale cost to set retail price, giving a 50% gross margin. It rarely leaves enough for fees, shipping, and ads in modern ecommerce.Markup Calculator
L
- Landed Cost
- The true all-in cost to get a unit into your warehouse: product cost plus freight, duties, tariffs, customs, and handling. Using only the factory price understates COGS.
- LTV (Customer Lifetime Value)
- The total profit you expect from a customer across their entire relationship with your store. A healthy business keeps LTV well above CAC (often 3:1 or higher).
M
- Markup
- The percentage added on top of cost to reach the selling price. Markup = (price minus cost) divided by cost, times 100. It is always a larger number than the equivalent margin.Markup Calculator
- MER (Marketing Efficiency Ratio)
- Total revenue divided by total marketing spend across all channels. Unlike ROAS, MER measures blended, whole-account ad efficiency rather than a single campaign.
- MRR (Monthly Recurring Revenue)
- Predictable subscription revenue recognized each month. For subscription commerce, MRR net of churn is the core growth metric.
- MSRP (Manufacturer Suggested Retail Price)
- The price a manufacturer recommends retailers sell an item for. It anchors discounting and protects margins across a distribution channel.Wholesale Margin Calculator
N
- Net Profit Margin
- The percentage of revenue that remains as actual profit after every cost: COGS, fulfillment, fees, ads, and returns. This is the number that reaches your bank account.Product Margin Calculator
O
- Offsite Ads
- Marketplace advertising (notably on Etsy) that promotes your listings across the web and charges a percentage fee only when it drives a sale, on top of standard fees.
- Operating Margin
- Profit after both variable costs and fixed operating expenses (rent, salaries, software), divided by revenue. It reflects the profitability of the whole operation, not just one order.
P
- Payment Processing Fee
- The fee a gateway (Stripe, PayPal, Shopify Payments) charges to move money, typically around 2.9% plus a fixed amount per transaction. It applies to shipping charged, too.Shopify Fee & Profit Calculator
- Print on Demand (POD)
- Products are printed and shipped only after an order is placed, through a partner like Printful or Printify. No inventory risk, but base print costs cap your margin.POD Profit Calculator
R
- Referral Fee
- The commission a marketplace charges on each sale, often a percentage of the total including shipping. Amazon and Walmart referral fees vary by product category.Channel Comparison Calculator
- Reorder Point
- The inventory level at which you should place a new order to avoid stocking out during the supplier lead time. Reorder point = average daily sales times lead time, plus safety stock.
- Return Reserve
- Money set aside per order to cover expected returns and refunds. On a 5% return rate you effectively lose 5% of revenue plus the shipping and handling on those orders.Product Margin Calculator
- ROAS (Return on Ad Spend)
- Revenue generated per dollar of advertising. ROAS = ad revenue divided by ad spend. A 4x ROAS means $4 of sales for every $1 of ad spend.Break-Even ROAS Calculator
S
- Sales Tax Nexus
- A connection to a state (physical or economic, such as a sales threshold) that obligates you to collect and remit that state’s sales tax. Nexus rules vary by state.
- Sell-Through Rate
- The percentage of received inventory sold in a period. Sell-through = units sold divided by units received, times 100. Low sell-through ties up cash in slow stock.
- SKU (Stock Keeping Unit)
- A unique identifier for each distinct product variant you sell. Tracking margin at the SKU level reveals which products actually make money.
T
- TACoS (Total Advertising Cost of Sale)
- Ad spend as a percentage of total sales, not just ad-attributed sales. Falling TACoS over time signals that ads are building organic momentum.
W
- Wholesale
- Selling products in bulk to retailers at a discount off retail, so they can resell at a profit. Wholesale margins are thinner per unit but move higher volume.Wholesale Margin Calculator
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