Is your business B2B or DTC? What’s your USP?
Ready to start selling online? It’s not always easy to get going, even if you’re already running a brick-and-mortar business.
There’s a ton to learn, and one big stumbling block can be the enormous amount of specialized ecommerce vocabulary. Even common business terms can have slightly different meanings online. But don’t worry.
We’ve collected together a handy encyclopedia of ecommerce vocabulary so you can bring your business online with confidence.
Let’s start by talking about ecommerce—what it is and where it comes from—then move into the ecommerce vocabulary you need to succeed.
What is Ecommerce?
Put simply, ecommerce (or e-commerce) is a shorthand for electronic commerce and describes the sale of goods and services via the internet. The term covers a huge range of business processes, from payment processing to shipping and data management.
From individual storefronts to large marketplaces like Amazon and Etsy to subscription brands and online courses, ecommerce is a vast umbrella.
Products sold online can be both digital and physical, and services sold online also fall under the ecommerce umbrella.
A Quick History of Ecommerce
The roots of ecommerce go all the way back to the earliest days of digital information transfer in the 1960s. EDI, or Electronic Data Exchange, and ARPAnet, an early communications network for use in the event of a nuclear attack, laid the groundwork for the modern internet.
Early-adopter businesses used their connectivity to share invoices, order forms, and other information. During this period, internet usage was mostly limited to large businesses and research universities.
In 1979, British entrepreneur and inventor Michael Aldrich connected a telephone, a television, and a rudimentary computer for an early ecommerce system used mainly for transactions between businesses.
Starting in the ’80s, Compuserve became the main provider of email, chat rooms, and other internet connectivity. They launched their Electronic Mall in 1984. Though it was pretty groundbreaking on a technological level, it wasn’t hugely popular. Consumer internet was still clunky and awkward to use, and it took the invention of the first web browser, WorldWideWeb, in 1990 for day-to-day use of the internet to really take off.
The first products bought and sold on this new internet were a large pizza and (separately) a Sting CD. Amazon and eBay launched within a few years.
In the early 2000s, broadband internet changed the game with quicker connections and the ability to use a phone line and the internet simultaneously.
Since then, the massive popularity of smartphones and the rise of social media as a popular way to connect online have reshaped ecommerce and created a ton of exciting new opportunities.
Ecommerce or E-commerce: General Terms
First up, let’s look at a handful of general ecommerce vocabulary terms that relate to the whole range of business processes.
An ecommerce platform is the software that allows ecommerce to happen. Selz, for example, offers an online store builder, payment processing, back-end analytics, and a range of other tools for running a business online.
Basically, this is anything to do with getting a product to your customers. Packaging and shipping goods are the most common uses of the term.
Physical products are goods that need to be shipped to the customer or picked up in-store.
From eBooks to videos to downloadable music, digital products still require a form of fulfillment, but they exist entirely on the web.
Services in the digital world can work in a couple different ways. An accounting business offering online help, for example, is a service sold online that takes place online from beginning to end.
Alternately, many businesses use the internet to sell services that happen in-person. For example, the same accounting business could sell in-person consultations online.
You can read more about how to sell a service in this article.
Short for mobile commerce, this is the term for ecommerce that takes place on smartphones and tablets.
In ecommerce terms, a marketplace is a site that allows a range of merchants to list their products and/or services to connect them to customers. Etsy, Amazon, and eBay are some of the biggest players in this space.
Unique Selling Proposition (USP)
In a nutshell, a business’s unique selling proposition is what makes them different from the competition. It’s a distinguishing characteristic that often comes to the forefront in marketing.
A mission statement may seem initially similar to a USP, but it generally has more to do with the ideas and goals that drive a business.
Patagonia’s mission statement, for example, is this: “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”
Dropshipping is a form of ecommerce where the merchant (the dropshipper) lists and markets products from a larger manufacturer, but instead of holding onto merchandise, they simply pass the order details along to the supplier and the product is sent directly to the consumer.
Generally, as cost increases, demand for a product or service gets lower. Veblen goods are a subset of luxury goods that work in the opposite way.
If demand increases as the price goes up, then the product is a Veblen good.
Customer Acquisition Cost (CAC)
This metric measures the amount that it costs to convince a customer to purchase a good or service.
CAC is a common topic in terms of ad spend. For example, if a business spent $500 on Facebook ads in a given month and those ads led directly to 20 sales, then the CAC would be $25.
In marketing, a conversion rate is the percentage of people who take a specific desired action.
That action could be clicking on an advertisement, signing up for a mailing list, purchasing a product, or any of a range of actions.
For example, let’s say a business is trying to get customers to sign up for a free course. They create a landing page and it gets 100 hits and 5 signups in the first week. The conversion rate here is 5%.
For most businesses, the most important conversion rate is purchases and that’s the most common usage of the term.
Average Order Value (AOV)
How much does the average customer spend when they make a purchase? Average order value, also known as average cart value, is the answer to this question.
Online businesses are always trying to increase AOV, because it means that more products (or higher value products) are being bought at once, decreasing the cost of shipping.
Fixed costs are business expenses that don’t generally change over time. Rent and utilities at the office, for example, are fixed costs for many businesses.
Variable costs are the opposite of fixed costs. For example, a variable cost for a shipping company would be the cost of gas as it changes over time.
Ecommerce in Layman’s Terms: Common Abbreviations
There are a few different types of ecommerce depending on the specific seller and the customer. B2B, B2C, and DTC are the most common uses of the term, but it’s worth understanding the range of options out there and how they differ.
B2C ecommerce refers to the exchange of goods and services from a business to consumers who are the end-users of the product. A business that sells t-shirts, for example, is B2C if the shirts are being sold to consumers who plan to wear them or give them as gifts.
B2B ecommerce refers to the exchange of goods between different businesses. Coming back to the t-shirt example, B2B ecommerce could be the sale of shirts from a wholesaler to another business that plans to sell them at a markup.
Where B2B and B2C both involve businesses in the sales process, C2C is the exchange of goods directly between consumers. Craigslist is one of the biggest examples of C2C ecommerce out there.
In C2B ecommerce, a consumer sells goods or services to a business. Freelance sites like Upwork and Fiverr are built around C2B ecommerce.
DTC or D2C refers to any brand that sells its products to end-users online without the use of a middleman like a distributor or retailer. Brands like Casper, Warby Parker, and MeUndies are some of the most well-known players in the DTC market.
Repeat Ecommerce Business Terms
For most businesses, it costs about five times more to bring in a new customer than it does to keep an existing one. Holding onto your customers is vital, and there’s a whole world of ecommerce built around retention.
For subscription businesses, retention means keeping customers subscribed longer. For standard businesses, it’s about customers coming back to make more purchases.
Lifetime Value (LTV)
Lifetime value is the overall revenue that a customer brings in over the course of their entire relationship with a business.
For example, let’s say I start buying dish soap from an online business. I make three separate purchases of $10.99 before finding another brand that I prefer. My lifetime value to that business is $32.97.
Onboarding is another term that generally comes up in terms of recurring revenue businesses (i.e. subscription brands), but it’s not exclusive to these.
In a nutshell, onboarding is educating your customers to give them the best possible experience of your product. A good onboarding experience is important in showing customers the full value they can gain from a product and helping them to come back for more.
Ecommerce Profit Margins
A profit margin is the total amount of money a business makes selling a product after the associated costs to your business are accounted for. There are three main ways of measuring profit margins.
This is the simplest measure of profit margin. Basically, it compares the cost of the product to your business (i.e. materials and labor) and the actual sale price of the item.
To calculate the product margin on an item, you divide the cost of materials and labor by the sale price.
Gross margin takes the same factors as product margin and includes a couple more:
To calculate gross margin, add up the cost of materials, labor, shipping, and packaging and divide by the sale price.
Finally, contribution margin is similar to gross margin, but also includes any discounts customers receive at checkout.
So where do we go from here?
It doesn’t matter if you call it ecommerce or e-commerce, it’s a smart time to start selling online.
Start exploring potential product ideas and figuring out what could set your business apart online. Finding a niche is huge, so spend some time brainstorming about your ideal customer and the needs and pain points that your brand could address.
You’ll also need to get a sense of your USP, or unique selling point. What differentiates your brand within the market, and why should potential customers shop with you?
Start looking at ecommerce platforms and see what best fits your needs. From here, you can start building your site and building up hype for your release.
It won’t be easy, but it will be rewarding. Hang in there, and best of luck as you get going!