A-Z Ecommerce Glossary of Terms, Metrics, and KPIs

The Reorder Point (ROP) is a critical inventory level which, when reached, triggers a new order to replenish stock. The formula is expressed as:

Reorder Point (ROP)= (Average Daily Usage × Lead Time) + Safety Stock

This formula ensures that new stock arrives just as the old stock is about to run out, maintaining a seamless flow of inventory and preventing stockouts.

Demand forecasting in the context of e-commerce refers to the process of predicting and estimating future customer demand for products or services that an online retailer offers. It involves using historical sales data, market trends, and various analytical techniques to make informed projections about how much of each product or service will be needed over a specific period, such as days, weeks, or months. The primary goal of demand forecasting in e-commerce is to optimize inventory management, ensure product availability, and enhance overall operational efficiency.

In the context of supply chain and e-commerce, "fill rate" refers to a metric that measures the percentage of customer demand or orders that a company successfully fulfills from its available inventory within a specified time frame. It is a key performance indicator (KPI) that helps businesses assess their ability to meet customer demand and deliver products on time. Fill rate is often used to evaluate the efficiency and effectiveness of inventory management and order fulfillment processes.

Fill Rate (%) = (Fulfilled Orders / Customer Demand) * 100%

A Product Information Management (PIM) system is a software solution that is primarily used in the context of e-commerce and inventory management to centralize, manage, and distribute product information efficiently. It is designed to handle large volumes of product data, ensuring consistency and accuracy in product listings across various sales channels.

Days Sales of Inventory (DSI), also known as Days Inventory Outstanding (DIO) or Inventory Days, is a key financial and inventory management metric used to evaluate how efficiently a company manages its inventory. DSI measures the average number of days it takes for a company to sell its entire inventory stock. It provides insights into how quickly inventory is turning over and helps assess the effectiveness of inventory management practices.

Here's the formula for calculating DSI:

DSI = (Average Inventory / Cost of Goods Sold) * Number of Days in the Period

In the world of ecommerce and inventory management, a stockout occurs when a business runs out of a product or item it's supposed to have available for sale. Imagine you're managing an online store that sells smartphones. When customers visit your website and they see a message like, "Currently out of stock," it means that you've depleted your inventory of a particular smartphone model, and you can't fulfill any more orders for it at the moment.

Stockouts can be problematic for several reasons:

1. Lost Sales: When a product is out of stock, it means you can't sell it to potential customers who are ready to buy. This translates to lost sales and revenue.
2. Customer Frustration: Customers who come to your store and can't find the product they want might become frustrated. This frustration can lead to a negative impression of your business and, in some cases, drive them to shop with your competitors.
3. Reputation Damage: Consistent stockouts can harm your business's reputation. People might start to see your store as unreliable or unprepared, which can have long-term consequences.
4. Costs: Managing stockouts can also be expensive. Rushing to restock items, expedited shipping, or offering discounts to make up for the inconvenience can all eat into your profits.

Safety stock, also known as buffer stock or safety inventory, is an additional quantity of inventory that a business holds in its stockpile beyond the expected demand or average usage. The primary purpose of safety stock is to act as a cushion or buffer against uncertainties in demand and supply chain fluctuations. It serves as a safety net to ensure that a business can meet unexpected surges in customer orders or accommodate delays in the supply chain without running out of stock.

Inventory shrinkage refers to the discrepancy or loss of inventory between the expected quantity of items in stock, as recorded in a company's records, and the actual physical count of items in the inventory. This shrinkage can occur due to various reasons, and it is a significant concern for businesses, as it can result in financial losses and operational inefficiencies.

Shopping Cart Abandonment Rate (SCAR) is a vital metric in the world of e-commerce, especially for those who are new to this exciting digital realm. SCAR refers to the percentage of online shoppers who add products to their virtual shopping carts but then leave the website without completing the purchase.

To calculate the Shopping Cart Abandonment Rate, you can use the following formula:

SCAR (%) = (Number of Carts Abandoned / Number of Carts Created) x 100

NC-ROAS typically stands for "New Customer Return on Ad Spend" in the context of e-commerce marketing. It specifically focuses on measuring the effectiveness of advertising campaigns in acquiring new customers and generating revenue from them.

The formula for calculating New Customer ROAS is as follows:

NC-ROAS = Revenue from New Customers / Ad Spend

The Inventory to Sales Ratio shows how fast items are sold from stock. It tells the amount of money put into things not yet sold. The ratio is a tool for checking the health of stock and cash flow.

A low ratio is often good because it means things sell quickly, freeing up money. But a very low ratio can lead to empty shelves and lost sales! So, businesses use this number over time to find patterns and set their own best ratio.

This helps them stay strong in a market that moves fast and changes often.

Stock to sales ratio = Average stock value / Net sales value

Forward stock cover in an ecommerce setting refers to a metric or calculation used by businesses to assess how long their current inventory levels will last in relation to expected future sales or demand. It helps ecommerce companies ensure they have enough products in stock to meet customer demand without overstocking, which can tie up capital and warehouse space.

The formula for calculating forward stock cover is:

Forward Stock Cover = Current Stock Level / Average Sales per Period

Open-to-Buy (OTB) Planning is a dynamic retail management strategy that involves forecasting sales, optimizing inventory levels, allocating budgets, and continuously monitoring and adjusting these factors to ensure efficient and profitable operations in the e-commerce business. It's a data-driven approach that empowers businesses to make informed decisions and adapt to changing market conditions.

A Universal Product Code (UPC) is a special barcode used on products to make them easy to identify and sell in stores. It's like a unique ID for each item you see in a shop. When you go to buy something at the store, the cashier scans the UPC barcode to quickly find the item's information, like its price, in their computer. This helps the store keep track of what they sell and makes the checkout process faster. UPCs are essential for both retailers and shoppers because they ensure that products are correctly priced and help with inventory management.

A Stock Keeping Unit (SKU) is a unique alphanumeric code or identifier assigned to a specific product or item in a company's inventory or stock. SKUs are used for inventory management and tracking purposes, allowing businesses to efficiently monitor and organize their products. Each SKU is typically unique to a particular product, and it can include information such as:

1. Product attributes: SKUs may incorporate details like size, color, style, or other product-specific characteristics to distinguish similar items.
2. Manufacturer or vendor information: Sometimes, SKUs include codes or numbers that identify the manufacturer or supplier of the product.
3. Location information: In some cases, SKUs may include codes related to the physical location of the product within a warehouse or store.
4. Price information: SKUs may also incorporate pricing details, but this is less common as prices can change frequently, and it's typically better to keep pricing information separate.

SKUs are essential for efficient inventory management, as they help prevent errors in tracking and restocking products. They are especially valuable in retail, e-commerce, and warehousing industries, where a large variety of products need to be managed and tracked accurately. SKUs make it easier to quickly locate and identify products, update inventory levels, and fulfill customer orders.

Fulfillment by Amazon (FBA) is a service offered by Amazon that simplifies the selling process for e-commerce beginners. With FBA, sellers send their products to Amazon's fulfillment centers, and Amazon takes care of the storage, packaging, shipping, and customer service for those products.

Here's how FBA works for beginners:

1. Product Storage: Sellers send their inventory to Amazon's warehouses. Amazon stores the products until they are sold.
2. Order Processing: When a customer places an order for a seller's product, Amazon picks, packs, and ships the item on behalf of the seller.
3. Shipping and Delivery: Amazon uses its extensive logistics network to deliver the product to the customer's doorstep, often with fast shipping options like Prime.
4. Customer Service: Amazon handles customer inquiries, returns, and refunds, relieving sellers of these responsibilities.
5. Prime Benefits: Products fulfilled by Amazon are eligible for Prime benefits, such as free two-day shipping, making them more attractive to customers.
6. Storage Fees: Sellers pay storage fees to Amazon based on the amount of space their products occupy in Amazon's warehouses. These fees can vary depending on the time of the year and the product's size.

Dropshipping is a retail fulfillment method where a store doesn't keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party (usually a wholesaler or manufacturer) and has it shipped directly to the customer. As a result, the merchant never sees or handles the product.

Here's a simplified breakdown of how dropshipping works:

1. A store owner (the dropshipper) selects products to sell in their online store.
2. The dropshipper lists these products on their website or online marketplace (e.g., Shopify, Amazon, eBay) at a markup from the wholesale price.
3. When a customer places an order and makes a purchase, the dropshipper forwards the order and customer details to the supplier.
4. The supplier (wholesaler or manufacturer) then ships the product directly to the customer on behalf of the dropshipper.
5. The dropshipper makes a profit from the difference between the retail price they charged the customer and the wholesale price they paid to the supplier.

Excess inventory, from an ecommerce perspective, refers to inventory that exceeds the immediate or anticipated demand of the business. It represents products or goods that have been purchased or produced but have not been sold within a reasonable timeframe. This can be due to many things like bad weather, slow shipping times, issues with the company that made them, poor advertising or because a trend has ended.

Inventory Turnover Rate sometimes referred to as Inventory Turnover Ratio, in an ecommerce setting is a financial metric that measures how efficiently a company manages its inventory. It quantifies the number of times inventory is sold and replaced over a specific period, typically a year. This metric is essential for ecommerce businesses because it helps them assess their inventory management practices and overall operational efficiency.

Customer cohort analysis for ecommerce is a data analysis technique that involves grouping customers into segments or cohorts based on shared characteristics or behaviors, typically related to their interactions with an online store. These shared characteristics could include factors like the timing of their first purchase, geographic location, age, purchase frequency, or product preferences.

The primary purpose of customer cohort analysis in ecommerce is to gain deeper insights into customer behavior patterns and trends over time. By organizing customers into cohorts, businesses can track and compare the performance and behavior of different customer groups.

In the context of e-commerce, the conversion rate refers to the percentage of website visitors who take a desired action, typically making a purchase, completing a transaction, or achieving a predefined goal. It is a crucial metric that measures the effectiveness of a website or online store in turning visitors into customers or achieving specific objectives.

A higher conversion rate indicates that a larger proportion of website visitors are successfully engaging with your content and taking the intended actions, leading to more sales and achieving your business objectives. Improving the conversion rate involves optimizing various elements of your website, such as design, user experience, product descriptions, pricing, and checkout process, to create a seamless and compelling customer journey that encourages conversions.

Customer retention rate refers to the percentage of customers who continue to make repeat purchases from a business over a specific period of time.

Customer retention rate shows how well a company keeps its customers over time. Companies use this number to see if they are doing a good job. If the rate is high, it means many customers are happy and stay with the company.

To find the rate, you divide the number of customers at the end by the number at the start. Keeping old customers can be better than finding new ones because it can cost less money.

In the context of e-commerce, CAC stands for Customer Acquisition Cost. It is a metric that quantifies the amount of money a business spends on average to acquire a new customer. Calculating CAC is important for e-commerce businesses because it helps them evaluate the effectiveness and efficiency of their marketing and sales efforts.

The formula to calculate CAC is:

CAC = Total Marketing and Sales Costs / Number of New Customers Acquired

Revenue Per Visitor (RPV) in the context of e-commerce, including on platforms like Shopify, is a metric that measures the average amount of revenue generated for each visitor to your online store. RPV provides valuable insights into how effectively your website and marketing efforts are converting visitors into paying customers.

The formula to calculate RPV is:

RPV = Total Revenue / Total Number of Visitors

ROAS, which stands for Return on Ad Spend, is a key performance indicator (KPI) used in digital advertising and e-commerce to measure the effectiveness and profitability of advertising campaigns. ROAS quantifies the revenue generated for every dollar spent on advertising. It helps advertisers assess the efficiency of their advertising investments and make data-driven decisions about their advertising strategies.

The formula to calculate ROAS is:

ROAS = (Revenue from Advertising Campaign) / (Cost of Advertising Campaign)

Inventory aging refers to the process of categorizing and tracking inventory items based on their age or the length of time they have been held in stock. This practice is essential for managing and optimizing inventory levels, as it helps e-commerce businesses identify and address potential issues related to obsolete or slow-moving inventory.

Customer Lifetime Value (CLTV or LTV) is a crucial metric that represents the total revenue a business can reasonably expect to earn from a single customer over the entire duration of their relationship with the company. CLTV is a forward-looking metric that takes into account not only a customer's initial purchase but also their ongoing purchases and potential referrals. It provides insights into the long-term value of a customer to the business.

The formula to calculate Customer Lifetime Value can be somewhat complex but generally includes the following components:

CLTV = (Average Purchase Value) x (Average Purchase Frequency) x (Average Customer Lifespan)

The Marketing Efficiency Ratio, often referred to as the Marketing Efficiency Index or MER, is a metric used in e-commerce to assess the effectiveness and efficiency of marketing campaigns and activities. It helps businesses evaluate how well their marketing efforts are performing in terms of generating revenue compared to the costs incurred.

The Marketing Efficiency Ratio can be calculated using the following formula:

MER = (Total Revenue Generated by Marketing) / (Total Marketing Costs)

Optimal Order Quantity, also referred to as Economic Order Quantity (EOQ) is a formula used in inventory management to determine the optimal order quantity that minimizes the total costs associated with ordering and holding inventory. EOQ aims to find the balance between the costs of carrying inventory (holding costs) and the costs of placing orders (ordering costs).

AOV stands for Average Order Value. It is a term used in e-commerce. AOV tells us the average amount of money spent on each order by any given customer. We can work out the AOV with a simple formula.

We just divide total sales by the number of sales made. So, if an online store sells 100 items which cost $5000 in total, we divide $5000 by 100 to get an AOV of $50. This means that shoppers spend about $50 on each visit to this store.

Weeks of Supply (WoS) is a metric that measures how long your current inventory levels are expected to last based on your historical or projected sales rate. It helps e-commerce businesses assess their inventory turnover and make informed decisions about restocking, purchasing, and managing stock levels.

The formula to calculate Weeks of Supply is:

WoS = (Total Inventory Quantity) / (Average Weekly Sales)

At its core, backordering is the process of accepting orders for products that are temporarily out of stock and fulfilling them as soon as the products become available again. It's a proactive approach to inventory management that allows you to capture sales and maintain customer satisfaction even in the face of stockouts.

Contribution margin is a vital financial metric that holds great significance in the world of eCommerce. It measures the profitability of individual products or services by revealing the amount of revenue available to cover a company's fixed costs and generate a profit. By understanding and optimizing contribution margin, businesses can make informed pricing decisions and maximize their profitability.

Net profit, also known as the bottom line, is the amount of money a business retains after deducting all its expenses from its total revenue. It reflects the true financial health of a company by considering not just top-line revenue, but also the costs associated with running the business.

Net profit offers valuable insights into the efficiency and profitability of a business. It provides a clear picture of how well the company is managing its expenses and generating income. By understanding and optimizing net profit, businesses can make informed decisions, improve performance, and drive sustainable growth.

In the realm of ecommerce analytics, net profit is a key metric that measures the profitability of online stores. It allows business owners to gauge the success of their ecommerce ventures and optimize their operations to maximize profitability.

In inventory management and Ecommerce, "lead time" refers to the amount of time it takes for a product to be ordered, processed, and delivered to a customer or to replenish stock levels after an order is placed with a supplier. Lead time is a critical factor in inventory management because it helps businesses plan and manage their inventory levels, meet customer demand, and ensure timely order fulfillment.

In the simplest terms, MOQ, the Minimum Order Quantity, is the smallest amount of a specific product or material a supplier is willing to sell in a single transaction. It’s a fence set by manufacturers and suppliers to ensure that their operational costs are covered and profitability is achieved.