eCommerce Terms Explained!




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As a complete beginner in any new field, there are always words, terms and acronyms which are confusing. Not understanding these terms in the early stages can make it very difficult to learn as many of the words are completely foreign to newbies. It’s like learning something new but the person teaching you is speaking Japanese 10% of the time.

Think of this article as your eCommerce dictionary.

What is a Chargeback?

A chargeback is when a consumer requests from their bank that a transaction is reversed that was made from their bank account. This can happen when a buyer didn’t receive their purchase, doesn’t recognize the charge, the charge was made without permission or the product wasn’t as described.

As a retailer to many chargebacks can result in extra fees, your ability to accept credit card payments and your account being frozen or canceled. To avoid chargebacks simplify provide good customer service, quality products, fast shipping and no shady business.

What is SEO?

Search engine optimization (SEO) is a way of optimizing a website to improve its ranking on search engines for free organic traffic. Each website is crawled regularly by bots who collect information which is then analyzed by algorithms that are all based around giving the best possible user experience.

Even a fully optimized website can take between 6 to 12 months for Google to start trusting it enough to rank it high enough to drive traffic. There are said to be more than 200 different factors Google will analyze to decide where websites rank.

There are many different people online teaching you every trick to help improve your SEO. At the end of the day, Google is smart and can’t be tricked. Their goal is to give the user the most valuable content possible to keep them coming, so this should be your goal too.

What is MOQ?

Minimum order quantity (MOQ) is the smallest amount of a single product that can be purchased at once. This term is generally used when purchasing inventory in bulk from a manufacturer as they want to move stock on quickly and efficiently.

What is SKU?

Stock keeping unit (SKU) is a unique code every product has been assigned which is primarily used for inventory management, tracking information and assist with sales analytics. Each variant of each product will have its own SKU which is usually 7 to 8 alphanumeric digits in length.

What is Customer Acquisition?

Customer acquisition is the process of bringing new customers to your store. This goal is to acquire as many of the right customers to a store at the lowest possible price in terms of advertising costs which is referred to as customer acquisition costs (CAC).

What is ROAS?

Return on ad spend (ROAS) is how online retailers measure the effectiveness of their ad investments. It’s essentially the amount of revenue generated for each dollar spent on advertising. If $1 is spent on ads and $2 is made from the ads, this is what is referred to as a 2 ROAS. 

The higher the ROAS the better for the online retailer. Most retailers use this metric to decide if they will continue running ads, if they will make some changes to their ads or if they will scale their business.

What is B2B and B2C?

Business to business (B2B) means a business will sell products or services exclusively to other businesses only. Business to customer (B2C) means the business sells products and services are sold to customers. Some businesses will offer both B2B and B2C.

What is CTR?

Click-through rate (CTR) is the percentage of people who click through to your website after seeing your ads. If 100 people see your ad and 5 clicks through to your website, your CTR would be 5%. The higher this number reaches the better.

What is a Sales Funnel?

A sales funnel is the steps a customer takes to make a purchase. These steps start with the customer being aware of the business and go through to make a purchase. TOF, MOF and BOF (Top, middle and bottom of funnel) refer to the different stages at which a customer enters the funnel.

What is AOV?

Average order value (AOV) refers to the amount of money a customer spends on your store when they make a purchase. This is used to decide how much should be spent on advertising, calculate profit margins and optimize offers, upsells and cross-sells.

What is CTA?

Call to action (CTA) are the prompts a retailer gives to a customer for which steps should be taken next. The last thing a retailer needs is for a customer to feel confused as to what to do next. These prompts can be as simple as read more, click here or buy now to simplify the purchase process.

What is CPM?

Cost per thousand impressions (CPM) is the amount it costs to show an ad to 1,000 people. The M in CPM stands for Mille which means thousands in Latin.

What are Cross-sells and Upsells?

Both upsells and cross-sells are both ways of maximizing the customer’s order value when making a purchase. Upselling is selling a superior more expensive version of the product whilst cross-selling is selling a product that is related to the product which gives the customer more of a reason to purchase it.

Most of the time these 2 terms are used interchangeably.

What is COGS?

The cost of goods sold (COGS) is the amount you spend on your inventory. This does not include indirect expenses such as shipping costs.

What is Gross Margin?

Gross margin is sometimes referred to as Gross profit margin. It’s measured by subtracting the cost of goods sold by the revenue and is given as a percentage. If you make a sale for $50 from a sale and the overall cost of goods came to $20 the difference is $30 which equates to a 60% gross margin.

What is 3PL?

Third-party logistics (3PL) also known as a fulfillment center, operate as a middleman between suppliers and customers who generally deal with eCommerce logistics. Online retailers use a 3PL to outsource warehousing, inventory management, order fulfillment and shipping.

Most dropshippers use a 3PL when ordering products in bulk from China. This way their 3PL can receive a bulk order and ship products individually to customers as sales are made. This takes a lot of the work out of dropshippers hands and enables them to focus on other aspects of their business.

Using a 3PL is one of the best ways of building a long-term eCommerce business as opposed to dropshipping from AliExpress.

What is PPC?

Pay per click (PPC) is how much an online retailer will pay for each time one of their ads is clicked on. This is most commonly used for Google advertising. The amount a retailer will pay per click varies as it works on an auction system. 

What is MAP?

Minimum advertised pricing (MAP) is the lowest agreed-upon price a retailer can advertise a product for. Suppliers use MAP to eliminate price wars between retailers which in turn reduces the value of their products. MAP is generally only enforced in the US and Canada.

What is Horizontal Scaling?

Horizontal scaling refers to expanding your business to new markets to increase your revenue. This may include advertising to different target audiences and different locations. There are more complications with this type of scaling compared to scaling vertically.

What is Vertically Scaling?

Vertically scaling usually refers to increasing the budget of your ads to reach more potential customers. This type of scaling is done when your ads have been optimized for profitability. 

What is Affiliate Marketing?

Affiliate marketing is a popular method of earning income online by promoting other products or services and earning a commission if the customer makes a purchase. The affiliate is given a unique link which they use to link the potential customer to the product or service to make a purchase.

What is Traffic?

Traffic or web traffic refers to the number of people who visit a website. Most websites track the amount of incoming and outgoing traffic so they can monitor and optimize their pages for optimal conversion rates.

As a beginner to any new online business, you can’t expect free traffic to your website. The most popular way for driving traffic to your store initially is through social media advertising. As a dropshipper this is usually Facebook ads, Google ads and Instagram influencers.

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