Written by Hector Garcia
@hex.garEstimated reading time: 12 min read
The Ecommerce Glossary: 21 terms that decide if your store makes money
Ad Creative Systems for DTC
GuidesReading time: 12 min read
Most store owners nod along when someone says AOV or contribution margin, then quietly google it later. This glossary fixes that. Every term from the reel is here in plain words, with how to calculate it, where to find it in Shopify, and why it matters when you're paying for ads. Read the money terms first, then use the worked example to find your own numbers this week.
How to use this glossary
The 21 terms are grouped the way money actually moves through a store: traffic and sales first, then the store page, then the offer, then profit and operations. Each group builds on the one before it.
Don't try to memorize all of it. Find your own number for each money term instead. A term you've calculated for your own store sticks forever, a term you've only read about is gone by tomorrow.
Note: when a term has a formula, it's written out in words so you can plug in your numbers directly.
Traffic and sales terms
| Term | What it means | How to calculate | Where to find it in Shopify | Why it matters for ads |
|---|---|---|---|---|
| AOV (average order value) | How much a customer spends per order, on average | Total revenue divided by number of orders | Analytics dashboard, Average order value | A higher AOV means you can afford to pay more per customer and still profit |
| LTV (lifetime value) | Total money a customer spends with you over time | AOV times how many times they buy | Customer reports, plus Returning customer rate on the dashboard | Tells you how much you can spend to get a customer if they come back again |
| CAC (customer acquisition cost) | What you pay in ads to get one new customer | Ad spend divided by new customers | Not in Shopify alone. Ads Manager spend divided by Shopify first time customers | If CAC is higher than what a customer is worth, every sale loses money |
| Conversion rate | The share of visitors who buy | Orders divided by sessions, times 100 | Analytics dashboard, Online store conversion rate | Doubling conversion rate halves what each sale costs you in ads |
| Add to cart rate | The share of visitors who add something to cart | Sessions with an add to cart divided by total sessions | Conversion rate breakdown, Added to cart | Low add to cart usually means the product page, price or offer isn't convincing |
| Cart abandonment | People who add to cart but never finish buying | 1 minus (orders divided by carts created) | Conversion breakdown, plus Abandoned checkouts under Orders | You already paid for these visitors. Recovery emails bring some back for free |
Store page terms
| Term | What it means | Where you see it | Why it matters for ads |
|---|---|---|---|
| PDP (product detail page) | The page for a single product with photos, price and the buy button | Every product page on your store | Most ads should send people here, not to your homepage |
| Hero section | The first thing a visitor sees at the top of a page, before scrolling | Top banner of your homepage or product page | If it doesn't match the ad they just clicked, people leave in seconds |
| Social proof | Signs that other people bought and liked it: reviews, star ratings, customer counts | Review widgets, star ratings, testimonials | It answers "can I trust this store?" before the visitor asks |
| UGC (user generated content) | Photos and videos made by real customers, or creators who look like customers | Review photos, customer videos, creator ads | UGC style ads often feel more trustworthy than polished studio ads |
Offer terms
| Term | What it means | Example | Why it matters for ads |
|---|---|---|---|
| Upsell | Offering a bigger or better version of what they're buying | Upgrade from the 1 month supply to the 3 month supply | Raises AOV, so each ad dollar brings back more |
| Cross sell | Offering a related product that goes with it | Socks with sneakers, a case with a phone | Raises AOV without discounting the main product |
| Bundle | Several products sold together, usually at a small discount | Starter kit with 3 products | One of the easiest ways to raise AOV right on the product page |
| Post purchase offer | A one click offer shown right after checkout | "Add a second one for 20 percent off" on the thank you page | The card is already out, so take rates are high and no extra ad spend is needed |
| Subscribe and save | A discount for buying on a repeating schedule | 10 percent off every month, cancel anytime | Turns one ad paid sale into many sales, which raises LTV |
| Repeat purchase rate | The share of customers who buy more than once | Returning customer rate on the Shopify dashboard | High repeat rates let you break even on the first order and profit later |
Profit and operations terms
| Term | What it means | How to calculate or find it | Why it matters for ads |
|---|---|---|---|
| COGS (cost of goods sold) | What it costs you to make or buy the product | Add it in each product's Cost per item field so Shopify reports can use it | You can't know your real profit per sale without it |
| Gross margin | The share of the price left after product cost | (Price minus COGS) divided by price | Sets the ceiling on what you can spend to win a sale |
| Contribution margin | What's left from an order after product cost, shipping, fees and ad spend | Revenue minus COGS, shipping, payment fees and ad spend | The truest number for whether your ads are actually making money |
| 3PL (third party logistics) | A company that stores, packs and ships your orders for you | Their fees show up as a cost per order | Frees your time, but their fees come out of contribution margin |
| Return rate | The share of orders that come back | Returned orders divided by total orders | High returns quietly erase the profit your ads seemed to make |
Worked example: how the numbers connect
A made up store, simple math. Swap in your own numbers as you read.
- AOV is $60. Customers spend $60 per order on average.
- COGS is $24, so gross margin is 60 percent: ($60 minus $24) divided by $60.
- Subtract shipping ($6) and payment fees (about $2). That leaves $28 per order before ads.
- That $28 is your break even CAC on the first order. Pay more than $28 in ads per new customer and the first sale loses money.
- If customers buy 2 times on average, the second order has no ad cost, so that customer brings in about $56 before ads over their lifetime. Now paying $35 to get them still works.
- Add a bundle that lifts AOV to $75 and the math moves again: more room to spend on ads, and more ads you can afford to test.
Rules of thumb to start from
| Number | Common starting point | Note |
|---|---|---|
| Conversion rate | Roughly 1 to 3 percent for many online stores | Varies a lot by price and traffic source |
| Cart abandonment | Around 70 percent | Per Baymard Institute research, so recovery emails matter |
| LTV to CAC | About 3 to 1 is a common healthy target | Lower means growth is expensive, higher can mean you're underspending |
| Gross margin | Higher is better for ads | Low margin products leave very little room to pay for customers |
Find your numbers this week
Twenty minutes in Shopify and Ads Manager. Write each number down.
Prompts to put the glossary to work
Copy a prompt, replace the brackets, paste into ChatGPT or Claude.
Calculate my store's key numbers
You are an ecommerce analyst helping a Shopify store owner. My numbers from last month: - Revenue: [amount] - Orders: [number] - Sessions: [number] - New customers: [number] - Ad spend: [amount] - Average product cost (COGS): [amount] - Average shipping cost per order: [amount] Task: 1. Calculate AOV, conversion rate, CAC, gross margin and contribution margin per order. 2. Tell me my break even CAC. 3. Point out the one number that's hurting profit the most and why. Output format: A short table of the numbers, then 3 bullet points of advice.
Raise my AOV
You are a Shopify offer strategist. My store sells: [products] Best seller: [product and price] Current AOV: [amount] Task: Give me 3 bundle ideas, 3 cross sell pairings and 2 post purchase offers that could raise my AOV without big discounts. For each, explain why a customer would say yes.
Audit my product page (PDP)
You are a conversion expert reviewing a Shopify product page. Here's what my page shows, top to bottom: [describe the hero section, photos, price, reviews, shipping info, buy button, anything below] Task: List the 5 biggest reasons a visitor from an ad might not add to cart, ranked by impact, with one specific fix each. Mention social proof and the hero section if they're weak.
Explain a term with my own data
Explain [term, for example contribution margin] to me like I'm a busy store owner, in 3 short sentences. Then calculate it for my store using these numbers: [paste the numbers you have] Finish with one action I can take this week to improve it.
Quick links
- Shopify reports: Shopify Help Center, analytics and reports
- Cart abandonment research: Baymard Institute
- See what competitors run: Meta Ad Library
Want someone to run the numbers with you?
Knowing the terms is step one. Using them to decide which ads to run, what to test and how much you can spend to win a customer is where stores actually grow. That's what I build for Shopify brands.
If you want me to look at your store's numbers with you, book a free call here.