E-commerce is a world of its own, with a unique language that can seem baffling. To help you make sense of it all, we've compiled a comprehensive glossary of key fast-growth e-commerce terms for 2023. In this edition of The Journal, we're sharing a selection of these terms to help you master the e-commerce vocab. Immerse yourself to discover straightforward explanations of common fast-growth e-commerce terms.
Comparable company analysis (Comps)
Comparable company analysis, commonly referred to as 'comps', is a valuation method that compares a company's financial metrics, such as revenue, profit, and multiples, to those of similar companies in the market. It helps determine a company's relative value and assess its competitiveness within the industry.
Contribution margin (CM)
CM1, CM2, and CM3 are contribution margin levels used to assess the profitability of a product or service. CM1 represents the gross profit after deducting the variable costs directly associated with production, while CM2 incorporates additional variable costs, such as shipping, transaction fees, and and CM3 incorporates customer acquisition costs.
A data room is a secure virtual space used to store and share confidential documents during due diligence processes, such as mergers and acquisitions or fundraising. It allows authorised parties to access and review sensitive information in a controlled and protected environment.
Geo-targeting in e-commerce refers to the practice of delivering different content or adverts to consumers based on their geographic locations. This can be as broad as a country or as specific as a postcode.
Goods in transit (GIT)
Goods in transit (GIT) refers to inventory or goods that are being transported from one location to another. They're typically in transit between suppliers, warehouses, distribution centres, or retail stores, and are considered part of the company's assets until they reach their final destination.
Inventory management system (IMS)
An inventory management system (IMS) is software or a system used to track and manage inventory levels, orders, and stock movements. It enables businesses to optimise inventory control, streamline procurement, monitor stock levels, and improve overall supply chain efficiency.
A returns provision is an accounting practice used by e-commerce businesses to enhance profitability estimation by accounting for the likelihood of product returns within a given period. It involves allocating a specific amount or creating a liability on the balance sheet to accommodate the estimated value of potential product returns. By implementing a returns provision, businesses ensure accurate reflection of profits, account for potential liabilities, and enable transparent financial reporting.
Unit economics refers to the financial analysis of the revenue and costs associated with a single unit of a product or service. It involves understanding the profitability and viability of each unit sold, taking into account factors such as production costs, pricing, customer acquisition costs, and customer lifetime value. Analysing unit economics helps businesses evaluate the financial sustainability and scalability of their operations at a granular level.