Ecommerce Terms You Need To Know Before You Start
Video transcript: CPC, fulfillment, retargeting. Huh? If you've started dipping your toes into the ecommerce world, you've definitely come across this lingo before. At first, it's confusing. You Google one term. Then another term. And, one tab turns into 100. And before you know it, you've controlled-quit everything, and you're back on YouTube, watching your favorite drama channels.
I don't feel like people watch drama channels, just me. And you're back on YouTube, watching funny Phil videos. Hopefully people still watch funny Phil videos. I do. We've all been there before.
But, you're in luck. Instead of putting you through that initiation process, we've compiled a list of some of the most common and popular ecommerce terms you need to know, to get started.
Today, you're gonna be learning about two types of terms. First, it's going to be general ecommerce terms that you need to know to navigate online courses, tutorials, and your favorite dropshipping YouTube videos.
You'll also learn online marketing terms that are crucial, if you want to know the best ways to get your products in front of your customers online. Ready to learn what they didn't teach you in English class? Let's get started.
Before I jump into the terms, I need to make an important note.
Obviously, I will not be able to cover every single term that you need to know out there.
But, I will explain the most popular ones. And the ones that you need to be able to navigate YouTube tutorials, courses without having to worry about opening up 100 new tabs.
My name is Magda and I've worked at Oberlo for a few years now. I've helped hundreds of merchants and that means I've also explained what hundreds of different ecommerce terms mean. Maybe thousands, honestly.
So, I've compiled a list of ecommerce terms that I found beginners were the most confused about. These basics will help you navigate your online store and the online world to make sure that you succeed.
General Ecommerce Terms
First, we're gonna start with some terms that you would see in your admin. Your Shopify admin is your back office. It's where you run your business from.
Once you get your business off the ground, you are going to need to fulfill some orders.
Now, what does fulfillment actually mean?
Well, it depends what type of business you're running. If you're running a dropshipping business, then fulfillment means going to your dropshipping app, such as Oberlo, for example, and placing the order with the supplier, so they package and ship the product to your customer.
But if you package and sell your own products, then fulfillment may mean, you yourself actually accepting the order online, packaging the products, and shipping it out to your customers.
This next ecommerce term is really important to know. It is margin, or your profit margin. Your profit margin is a measure of the difference between what a customer pays for the product and how much that product itself costs.
Now, if you're dropshipping, for example, then the cost of the product is what you pay the supplier. For example, a dog leash might cost $5 from the supplier. But when you list it on your website to sell, and sell it for $20, then that $15 difference is your profit margin. This one is super important to know.
Average Order Value (AOV)
The next term is AOV or Average Order Value. This is the typical amount that a customer spends when they're visiting your store. The calculation is really simple.
It's the total amount of sales revenue, divided by the total number of orders.
Now, if you're just getting started, you might not necessarily see the benefit of an average order value. But more experienced ecommerce owners know that, once a customer is actually at your site, they have a much higher chance of purchasing an additional product and increasing that average order value.
It is much more expensive to get a new customer to the door, than to add on to a previous customer's order. If you can push for a larger average order value, you will definitely make more profit in the long run.
The next general ecommerce term that's important to know is landing page. A landing page is where you send a customer. Now, if you're a beginner, you might be thinking, "Well, wouldn't I just send the customer to my home page?" No.
Normally, you wanna send your customer to a specific product page.
However, there are a lot of different ecommerce strategies out there. You might send them to a page with a collection of products or a specific promotion. But the landing page is very intentional, and is not actually usually the home page.
Moving away from the landing page, we come to the term bounce rates. The bounce rate is the percentage of people that leave your store after viewing a single page.
The average bounce rate across all of ecommerce is around 41 percent to 55 percent.
That's a lot of people. So, don't be discouraged if you see a number within that range. A great bounce rate to strive after for your business is between 25 percent and 40 percent of people.
And, if you're wondering why people bounce off a page, think about your own experiences with ecommerce. Has there been a time where you jumped on to a store, you saw a pop-up for an email, then a pop-up for a Facebook messenger chat, and then you saw other pop-ups with timers and you were like, "Woah, woah, woah. I need to leave"? Yup, it’s happened to you.
So make sure when you have your ecommerce store that you go through it yourself, as a customer would. If there is anything that's too flashy or taking their attention away, they will leave.
The next ecommerce term, you're hopefully gonna be hearing all the time, and that is conversion. A conversion is the process of transforming a user into a customer.
Now, it's important to note that this doesn't always necessarily mean a financial transaction.
In the space of ecommerce, of course, you would think that someone who turns into a customer purchases a product and ideally that is the case. But, a conversion can be someone signing up for your email newsletter. Or, if someone signs up for your ebook or your course, they would also be considered a conversion.
Now, you might be wondering, what's the point of that? I run an online store, I want sales. Well, of course you do. Who doesn't? But, if you've already converted someone in one aspect of your business, it will be a lot easier for you to continue to convert them until it turns into a sale. So don't overlook this.
The next term on the list is conversion funnel. Now, funnels are extremely important for you to understand.
A funnel, in general, is a path that a customer will take until they get to an endpoint.
It's called a funnel because at the top there is a much larger surface area where there are numerous streams of customers that can enter. As the funnel gets smaller, you will lose some of those customers, but the other ones you'll continue to take step by step until you get to the conversion at the very bottom.
If you're a customer, you may not realize how you've been trapped in this funnel before. But as a business owner, you can start to see the step-by-step path that you take customers down until you get to that sale.
This can start by luring them in at the top of the funnel with an email promotion or maybe a catchy video ad on Facebook, but somehow you take them through the entire path until you lead them right to the purchase button.
The next term you need to know is the conversion rate. Conversion rate is a simple percentage that you can look at to see how many people actually turned into customers versus the ones that just visited your store.
So, all you need to do to find this is divide the number of customers divided by the number of visitors.
Before you freak out about your conversion rate, hold on. I just wanna let you know that the average ecommerce conversion rate is 2.8 percent. That's right, not 28 percent. That's 2.8 percent. That means for every 100 visitors, you should be shooting for two to three customers and if you got three customers from every 100 visitors, your conversion rate would be amazing. At three percent only.
Customer Lifetime Value (CLV)
The next term is Customer Lifetime Value or CLV. This is the predicted revenue that a customer can generate over all the interactions they've had with your online store. Let me break that down a little bit with an example.
A lot of dropshippers and other ecommerce store owners run a one-product store. That means that they only focus on advertising and selling one product. So, unless a customer is buying multiples, there is a very low customer lifetime value.
However, if you run a niche store, so a store that's focused on only one type of product or category such as baby clothes, for example, you have a much better opportunity at creating a very high customer lifetime value. For example, if you buy baby clothes, you'll most likely need additional baby clothes in the future. So the customer lifetime value greatly increases.
Cart Abandonment Rate
The next term that is really important for you to know is cart abandonment rate. What is cart abandonment? Well I'm sure you've gotten a cart abandoned email in the past for something that you left at check-out.
Cart abandonment is the percentage of traffic that added something to their cart, went to the checkout, and then didn't complete their purchase.
Just to give you a benchmark to follow, the average shopping cart abandonment rate in ecommerce is 67 percent. I'm sure we've all done this a lot before. If you shop online a lot, like me, you probably have hundreds of abandoned carts all over the internet.
As a business owner, this can be extremely helpful for you to know because you can focus on sending cart abandonment emails to try and get those customers back, or you can also work to optimize the check-out process of your business to make sure that it's smooth and an easy process for your customers.
Ecommerce Marketing Terms
Those were the general ecommerce terms that I would suggest you need to know if you wanna dive into the ecommerce world. Now I wanna touch base on a few different online marketing terms that are extremely helpful when you're navigating the ecommerce landscape. To start, there are a few different very popular marketing methods that I'll quickly touch base on.
One of the most popular is Facebook advertising. This is where you use Facebook Business Manager to run ads on Facebook and Instagram and try to convert customers.
The second is influencers. Now, this used to be restricted mostly to Instagram, but has completely opened up to the YouTube space and especially new social media platforms like Twitch and TikTok.
Influencers are people who have a social media presence and following.
And you can work with them, whether it be through money, sending them products, or even striking up an affiliate deal to promote your business.
The third is Google AdWords. Now, this isn't as popular as the other two, but still extremely effective. With Google Adwords, you can run ads right underneath Google search results. So as soon as someone looks something up, they'll see your store and your product right underneath it.
Search Engine Optimization
The last important term to know for types of marketing methods is SEO. Now, this is definitely a slow rule marketing method, but should be used by all ecommerce stores.
SEO stands for Search Engine Optimization.
Pretty much, SEO means making sure that when someone Googles something, your store and your products are showing up higher up on the list. SEO works by optimizing your store's online content so that Google search engines can actually index the information and make it a lot easier for it to turn up higher in search results. If you wanna dive deeper into each of those, make sure to just look them up.
Facebook Advertising Terms
Now, each of those deserves its own course, video, and multiple ebooks to fully learn and master, but at least you have a general idea of what they are. Let's jump back to Facebook advertising because that's one of the most popular advertising methods for ecommerce store owners.
The first term you need to know is the Facebook pixel. The Facebook pixel is a very, very small piece of code that you install in your Shopify store, it's super easy.
And what it does is it tracks all your traffic and sees what they're clicking on and their activity.
That way you could optimize your store and make sure that you're actually getting the most sales possible.
Impressions vs Reach
The next two terms used to confuse me endlessly. But hopefully, I'll be able to help you understand them super clearly and help you remember them.
The first is impressions and the second is reach. Reach refers to how many times your ad was viewed at least once. On the other hand, impressions is the number of times that your ad was viewed.
That means that if I viewed an ad five or six times, myself personally, it would still count as one impression.
But when it comes to reach, it depends how many actual unique eyes were on that ad itself.
You can use whatever visual you need to remember that. For me, I like to imagine reach as throwing your ad out into the universe and seeing how many eyes even saw it at least once. How many eyes did it reach overall even for that first point of contact?
Cost per Thousand Impressions (CPM)
The next important term to know is CPM. You'll see this anywhere you watch any type of Facebook tutorials or Facebook ad courses. CPM stands for cost per thousand.
This is the average it costs you to put your ad in front of 1,000 people.
In short, CPM stands for cost per thousand impressions. Remember, impression refers to one person seeing your ad and that can be seeing your ad multiple times. So if someone saw your ad for a dog LED collar five times, they still count as one impression out of that thousand. Hopefully, that's clear.
Click-Through Rates (CTR)
The next term is another acronym. I'm so sorry. But this one is also really important. If you want a bit of a cheat sheet, we will definitely paste all the terms in the description box below.
The next term on our list is CTR, which stands for click-through rates. And that's exactly what it means. To calculate CTR, you need to see how many people actually view your advertisement and then divide it by how many people click the link.
Cost Per Click (CPC)
One last acronym for you today, and that is CPC, cost per click. CPC simply means the average it costs you to get someone to click on your link.
So to keep it simple, CTR is click-through rate, so how many people actually did click it whereas CPC is how much did it actually cost for someone to click that link.
Now, I've been saying links but that is not the proper ecommerce lingo to use. Instead of links, I should have been saying CTAs, which means Call-To-Actions. I'm so sorry, it turns out, yes, there was one more C acronym for you to learn.
But CTA is super important to know as well because you'll see it everywhere. Simply put, CTA is how you try to persuade someone to complete a transaction, whether that be giving up their email or actually making a purchase on your online store.
So for example, some of the most popular CTAs include “purchase now.” But they could also be “learn more,” “pick a color,” “visit now,” or even “subscribe.”
That's right, call to action, CTAs are not actually just limited to ecommerce. On YouTube, when the button says "subscribe," that is a call to action in and of itself. And a reminder to subscribe to our awesome YouTube channel.
There are two last terms that I'm gonna cover. And you may see these sporadically but they're important to know. The first is retargeting.
Retargeting refers to targeting a group of customers that you already have in the past.
If you're new to ecommerce, you might be wondering, well I've already targeted them once and it didn't work, so why would I target them again.
Well, data has shown us that customers are much more likely to purchase a product if they've seen it multiple times. So one of the biggest strategies in online marketing is making sure that the same customer sees your ad multiple times. And it's usually cheaper to convert customers once you re-target them.
So this is a really important strategy to understand in the beginning.
And the last term that I'm gonna throw into the list of ecommerce terms is one of my personal favorites and that's because it used to confuse me so much and it seems so fancy, but it's really simple. And that is AB testing. Don't overthink it. It's as simple as that.
AB testing just refers to testing A versus B.
Now, you can do this with your Facebook ads, you can do this with your Shopify product page, you can also do this with different CTAs and calls to action. The important thing to know is that when it comes to AB testing, you wanna keep all the factors the same except one.
So, for example, if you wanted to AB test two different types of Facebook ads, you would need to make sure that they were exactly the same except for one small change. That way you know for sure that the results were because of that change.
And that's it, those are all the ecommerce terms I have for you. Did I miss any really important ones? I feel like I probably did because there are so many to know.
But if there is something that you think other dropshippers and online ecommerce owners must know, let us know down in the comments. And that's it. Thanks and until next time, happy dropshipping.