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

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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