Ecommerce profitability glossary

The terms that decide whether a store makes money, defined without jargon.

Gross margin

Net revenue minus cost of goods sold, divided by net revenue. Tests your buying and selling price only — it ignores shipping, fees and returns.

Contribution margin

What remains after cost of goods and every variable cost of fulfilling the order: shipping, payment fees, packaging and the expected cost of returns. The number that says whether one more sale makes money.

Net margin

Contribution margin minus advertising and fixed overhead, as a percentage of revenue. What the business actually keeps.

COGS

Cost of goods sold: what you paid for the units you sold, including inbound freight and duties, excluding your own operating costs.

Net revenue

Gross sales minus refunds and discounts. Every margin calculation should start here, not at gross sales.

Profit leak

A recurring cost or lost revenue stream that no report puts next to the revenue it consumes — for example return handling, the shipping gap or discounts on thin-margin products.

Profit Leak Score

A 0–100 index of how much of your revenue is estimated to be at risk across pricing, product profitability, returns, customers, carts, shipping and conversion. Higher is tighter.

Shipping gap

The difference between what carriers invoice you and what customers paid for shipping, including fuel, remote-area and dimensional surcharges.

True cost per return

Outbound shipping plus return shipping, handling, repackaging and the value of units that cannot be resold as new, minus any restocking fee recovered.

Break-even uplift

The extra volume a discount needs to keep contribution flat: discount divided by (contribution margin minus discount).

AOV

Average order value. Useful for merchandising, misleading for profit: two identical AOVs can carry completely different contribution.

Customer profitability

Total contribution from a customer over the relationship, minus acquisition cost and their return cost.

Loss-making product

An item with negative contribution per unit once discounts, real shipping cost, fees and expected returns are allocated to it.

Free-shipping threshold

The basket value above which you absorb shipping. It is profitable only when contribution at that value exceeds the real parcel cost.

Abandoned checkout

A session that reached checkout without completing. Priced properly it is lost contribution on traffic you already paid to acquire.