Ecommerce Operations Glossary for Small Stores

The words below turn up in carrier invoices, processor statements and supplier quotes. Definitions are general; carriers, processors and platforms each apply their own terms, so read the one that bills you. For worked uses of these terms, see the order margin calculator and shipping options compared.

Abandoned cart

A cart a shopper filled but left without paying. Recovery emails are common, but marketing rules and consent requirements apply to them.

Address verification

A check that compares the billing address entered at checkout with the card issuer’s records. The result is one fraud signal and not proof either way.

Authorization hold

A temporary hold on the customer’s card for the order amount. Money moves only when the charge is captured, and an unused hold is released.

Average order value

Revenue divided by the number of orders over the same period. Abbreviated AOV.

Backorder

An order accepted for an item that is out of stock, to be shipped when stock arrives. Tell the customer the expected date at the time of purchase.

Chargeback

A forced reversal of a card payment after the customer disputes it with the card issuer. The processor takes the money back and usually charges a dispute fee while you submit evidence.

Contribution margin

What is left of an order’s revenue after the costs that vary with it: product, shipping, packaging and payment fees. Rent, software and salaries come later.

Conversion rate

The share of store visits that end in an order.

Cost of goods sold

What it cost you to buy or make the products you sold. What counts, such as inbound freight, is an accounting choice, so ask your accountant how to treat it.

Dimensional weight

A billing weight based on package size instead of scale weight. It is length times width times height divided by a divisor the carrier sets, and the carrier bills the greater of the two weights.

Dropshipping

A model in which the supplier ships orders straight to your customer and you never hold stock. Margins are thinner and you rely on the supplier for speed and quality.

Fuel surcharge

A percentage a carrier adds to shipping charges and adjusts on a published schedule.

Fulfillment

Everything between a paid order and a delivered parcel: picking, packing, labeling and handing the parcel to a carrier.

Gross margin

Revenue minus cost of goods sold, divided by revenue. It differs from contribution margin because shipping and fees often sit outside cost of goods sold.

Interchange fee

The part of a card fee paid to the bank that issued the customer’s card, set by the card networks. The rest of what a processor charges is network assessments and its own markup.

Landed cost

The full cost of getting a product to your door: purchase price plus freight, duties, taxes, insurance and inbound handling.

Lead time

The days between placing a supplier order and having the stock ready to sell.

Merchant of record

The business treated as the seller in a card transaction, responsible for taxes, refunds and disputes. Some payment services and marketplaces act as merchant of record for you, and most standard processors do not.

Packing slip

A document in the box that lists its contents. Unlike an invoice, it usually leaves out prices.

Payment gateway

The software that passes card details securely from your checkout to the payment processor.

Payment processor

The company that moves money between the customer’s bank and yours.

Payout

The deposit from your processor to your bank, equal to sales minus refunds, fees and any held amounts.

Pick and pack

Finding items in storage and boxing them with packing material for shipment.

Reorder point

The stock level at which you place a new supplier order. A common estimate is daily sales times lead time, plus safety stock.

Residential surcharge

An extra per-parcel charge some carriers apply to deliveries at home addresses.

Restocking fee

An amount deducted from a refund for a returned item to cover handling. State it in your policy before purchase, since rules and marketplace terms may limit it.

Return merchandise authorization

A number or form that approves a return and ties the parcel to its order. Abbreviated RMA.

Reverse logistics

The work of getting a product back: authorization, return shipping, inspection, restocking, refund and, if needed, disposal.

Rolling reserve

A percentage of your sales that a processor holds for a set period to cover refunds and chargebacks.

Safety stock

Extra inventory held to absorb surprises in demand or in supplier lead time.

Sales tax nexus

A connection with a state that obliges a seller to register and collect sales tax. It can come from physical presence or from sales above levels the state sets, and the rules vary.

SKU

Stock keeping unit. Your internal code for each distinct sellable variation, such as one size in one color.

Third-party logistics

A company that stores, packs and ships orders for you. Abbreviated 3PL.

Tracking number

The identifier a carrier assigns to a parcel so that its progress can be followed.

Zone

A distance band between a parcel’s origin and its destination that carriers use to price shipping. A higher zone generally costs more.