Glossary
The words behind e-commerce profit
Each definition starts with a one-sentence answer, then the nuance.
A
- AOV (average order value)
- Average order value is total revenue divided by the number of orders in a period.A rising AOV is not automatically good: if the extra items carry thin margins, profit per order can fall while AOV rises. Track it next to profit per order.
- Attribution
- Attribution is linking an order to the ad campaign that brought the customer, usually through UTM parameters on the landing-page link.Marketplace orders, such as Amazon and eBay, never touch your own site, so they cannot carry a campaign. Honest reporting shows them as unattributed rather than assigning them to one.Profit-based ROAS
B
- Break-even ROAS
- Break-even ROAS is the return on ad spend at which a campaign earns exactly what it cost: 1 divided by your contribution margin.A 40% contribution margin needs a ROAS of 2.5 to break even. Returns raise the real figure.Break-even ROAS explained
C
- CAC (customer acquisition cost)
- Customer acquisition cost is the ad and marketing spend needed to win one new customer: spend divided by new customers.CAC only means something against what a customer is worth. Compare it with the profit on their first order and their repeat orders.
- COD (cash on delivery)
- Cash on delivery is a payment method where the customer pays the courier in cash when the parcel arrives, and the courier pays the seller later.For profit tracking, a COD order earns revenue when it is delivered, not when it is placed, because the buyer can refuse at the door.Cash-on-delivery profit tracking
- COD reconciliation
- COD reconciliation is checking that the cash a courier collected on delivery was paid back to you in full, parcel by parcel.Each settlement row is matched to its order by tracking number, and the difference between what you should have received and what was transferred is investigated.COD and courier reconciliation
- COGS (cost of goods sold)
- Cost of goods sold is the cost of the products you sold in a period: what you paid to buy or make them, plus the cost of bringing them to you.COGS excludes marketing, rent and salaries. It should be built from landed cost, not the supplier’s invoice price alone.Landed cost and COGS guide
- Contribution margin
- Contribution margin is the share of each sale left after the variable costs of that sale (goods, shipping, fees) but before ad spend and overheads.It is the margin that has to pay for advertising. Break-even ROAS is its reciprocal.
D
- Days of cover
- Days of cover is how many days current stock will last at the recent rate of sales: stock on hand divided by average daily sales.ProfitIQ measures it from each product’s real sales over the last 90 days.
- Dead stock
- Dead stock is inventory that has not sold for a long time and is unlikely to, tying up cash and storage.
G
- Gross margin
- Gross margin is revenue minus cost of goods sold, as a percentage of revenue.It shows how much of each sale is left after the product itself, before shipping, fees, ads and overheads. Net margin goes further.
L
- Landed cost
- Landed cost is the full cost of getting a unit ready to sell: the supplier’s price plus freight, duty, insurance and other charges.Landed cost and COGS guide
- LTV (customer lifetime value)
- Customer lifetime value is the total profit a customer is expected to bring over their relationship with your business.Measure it in profit, not revenue, or a customer who returns most of what they buy will look valuable.
M
- Marketplace fee
- A marketplace fee is the commission and charges a marketplace such as Amazon or eBay takes from each sale.Fees are stated per order in the marketplace’s own finance reports, and should be read from there rather than estimated.
- MER (marketing efficiency ratio)
- Marketing efficiency ratio is total revenue divided by total ad spend across every channel.Unlike ROAS, it does not depend on any platform’s attribution, so it is a steadier overall measure.
N
- Net profit
- Net profit is what is left after every cost: goods, shipping, fees, discounts, refunds, ad spend and operating expenses.ProfitIQ shows profit per order, and True Net Profit for a period after ad spend and expenses.How profit is calculated
O
- Operating expenses
- Operating expenses are the running costs of the business that are not tied to a particular order: rent, salaries, software, utilities.They belong to a period, so they are subtracted from the month’s profit rather than from each order.
P
- P&L (profit and loss statement)
- A profit and loss statement lists revenue and costs over a period and shows what was earned or lost.
- Payment processing fee
- A payment processing fee is what a gateway or card processor charges per transaction, usually a percentage plus a fixed amount.Fees vary by gateway, country and card type, and are often not returned when an order is refunded.
- Profit after ads
- Profit after ads is profit on earned orders minus ad spend: the measure of whether advertising pays for itself.It is deliberately not after operating expenses. True Net Profit is the figure that is.
- Purchase order (PO)
- A purchase order is a document you send a supplier listing what you want to buy and at what price, and the record of what you received.Receiving a PO is the moment cost should update, as a weighted average with what you already hold.Costs, stock and suppliers
R
- Revenue recognition (the earning rule)
- Revenue recognition is deciding when a sale counts as earned. For e-commerce, prepaid orders count when confirmed or shipped and cash-on-delivery orders when delivered.When does a COD order become profit?
- ROAS (return on ad spend)
- Return on ad spend is revenue attributed to ads divided by the money spent on them.ROAS contains no costs, so a high ROAS can still lose money. Compare it with break-even ROAS.Break-even ROAS explained
- RTO (return to origin)
- RTO is a parcel that is refused or cannot be delivered and goes back to the seller.For cash-on-delivery sellers it is among the largest hidden costs: the courier is paid both ways and no sale is made.What a return really costs
S
- SKU (stock keeping unit)
- A SKU is the unique code that identifies one specific product variant you sell, such as one size and colour.Profit is best measured per SKU, because two variants of one product can have very different costs.
U
- Unit economics
- Unit economics is the profit and cost of one unit of what you sell: one order, one product or one customer.
V
- Volumetric weight
- Volumetric weight is the weight a courier bills for based on a parcel’s size rather than its actual weight, usually length × width × height divided by a courier-set factor.The courier bills the larger of actual and volumetric weight, so an oversized box can cost more to ship than a dense one.
W
- Weighted-average cost
- Weighted-average cost is the blended cost per unit of the stock you hold: total money spent divided by total units.When a new delivery arrives at a different price, the average moves and later sales are costed at the new figure.Landed cost and COGS guide
- Withholding tax
- Withholding tax is tax a payer is required to deduct from a payment and send to the tax authority on the recipient’s behalf.In some countries, including Pakistan, couriers withhold income tax and sales tax from COD payouts. It is a legal deduction and should be separated from genuine shortfalls.Why COD payments come short
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