E-Commerce Glossary: Key Terms Every Seller Should Know

True profit is the actual money you keep after every single cost is deducted from your revenue — including COGS, shipping, platform fees, payment processing fees, ad spend, and returns. Unlike gross profit, which only subtracts COGS, true profit accounts for the full cost stack of running an e-commerce business. Most sellers overestimate their profitability by 20–40% because they calculate gross profit instead of true profit.

COGS represents the direct cost of producing or purchasing the products you sell. This includes raw materials, manufacturing costs, import duties, and inbound shipping to your warehouse. COGS does not include marketing, platform fees, or outbound shipping — those are operating expenses. Accurately tracking COGS is the foundation of profitability analysis.

Gross margin is the percentage of revenue remaining after subtracting COGS. Calculated as: (Revenue − COGS) ÷ Revenue × 100. A gross margin of 60% means you keep PKR 60 from every PKR 100 in sales, before operating expenses. E-commerce businesses typically need 50%+ gross margins to remain profitable after all other costs are factored in.

Net margin is the percentage of revenue that remains as profit after all expenses — COGS, shipping, platform fees, ad spend, payment processing, returns, and overheads. Calculated as: Net Profit ÷ Revenue × 100. Healthy e-commerce net margins typically range from 10–20%. If your net margin is below 5%, your business is at risk from any cost increase or revenue fluctuation.

ROAS measures how much revenue you generate for every dollar (or rupee) spent on advertising. Calculated as: Revenue from Ads ÷ Ad Spend. A ROAS of 4.0 means you earn PKR 4 for every PKR 1 spent. ROAS is essential for evaluating ad campaign performance across Meta Ads, Google Ads, and TikTok Ads — but it should always be evaluated alongside your margins, not in isolation.

AOV is the average amount a customer spends per order. Calculated as: Total Revenue ÷ Number of Orders. A higher AOV means more revenue per transaction, which improves the efficiency of fixed per-order costs like shipping and packaging. Strategies to increase AOV include bundling, upselling, free shipping thresholds, and volume discounts.

COD is a payment method where the customer pays in cash when the product is delivered. In Pakistan, over 70% of e-commerce transactions use COD. While COD reduces customer purchase friction, it creates significant challenges for sellers: delayed revenue (cash flows through courier companies), higher return rates (customers can refuse delivery without penalty), and reconciliation complexity.

COD reconciliation is the process of matching courier remittance payments against your actual order records to verify that every COD collection has been accurately settled. This involves cross-referencing order values, courier fees, delivery statuses, and bank deposits. Pakistani sellers using Leopards, TCS, M&P, and Trax lose an estimated 3–8% of revenue to unreconciled COD discrepancies. See our complete guide on COD reconciliation. Read more →

RTO occurs when a shipped order is returned to the seller because the customer refused delivery, was unavailable, or provided an incorrect address. Each RTO generates costs for both forward and reverse shipping, packaging materials, and labor — typically PKR 350–750 per return in Pakistan. High RTO rates (25–35% in Pakistani fashion e-commerce) can devastate profitability. Learn more about RTO costs. Read more →

Short-settlement occurs when a courier remits less than the collected COD amount minus legitimate fees. This can result from data entry errors, fee misapplication, partial collections, or systematic rounding. Short-settlements are the #1 source of COD revenue leakage for Pakistani sellers, accounting for approximately 45% of all courier discrepancies.

Platform fees are commissions and charges levied by e-commerce marketplaces on each sale. Daraz charges 5–15% commission depending on product category, plus additional fees for voucher subsidies and campaign participation. Shopify charges subscription fees plus payment processing. These fees directly reduce your net margin and must be tracked per-order for accurate profitability analysis.

Payment processing fees are charges from payment gateways for handling transactions. For card payments, these typically range from 2–3.5% per transaction. For COD, the courier charges a handling fee (usually 1–2% of the collected amount). For platforms like Shopify with integrated payments, the fee is bundled into the platform's transaction charge. These fees are often overlooked in profit calculations.

Ad spend attribution is the process of connecting advertising costs to the specific orders they generated. This allows you to calculate the true cost-per-order from Meta Ads, Google Ads, or TikTok Ads. Without proper attribution, you cannot calculate true profit per order — because the ad cost that generated that sale is invisible. ProfitIQ automates attribution by integrating with your ad platforms.

Unit economics is the analysis of revenue and costs on a per-unit (per-order or per-product) basis. Instead of looking at aggregate monthly numbers, unit economics breaks down every order into its component costs: COGS, shipping, platform fees, ad spend, and payment processing. If your unit economics are negative (each order loses money), scaling your business only accelerates losses.

LTV is the total revenue a customer generates over their entire relationship with your business. Calculated as: Average Order Value × Purchase Frequency × Average Customer Lifespan. LTV is critical for determining how much you can afford to spend acquiring a customer (CAC). A healthy business has an LTV:CAC ratio of at least 3:1.

CAC is the total cost of acquiring a new customer, including ad spend, discounts, free shipping offers, and any other incentives. Calculated as: Total Marketing Spend ÷ Number of New Customers Acquired. If your CAC exceeds the profit from a customer's first order, you're relying on repeat purchases to become profitable — which requires strong retention and high LTV.

Landed cost is the total cost of a product once it reaches your warehouse — including the purchase price, import duties, customs fees, freight charges, insurance, and handling. For Pakistani sellers importing from China or other countries, the landed cost can be 30–60% higher than the supplier's quoted price. Accurate landed cost calculation is essential for setting profitable selling prices.

SKU profitability is the profit analysis of each individual product (Stock Keeping Unit) in your catalog. Not all products are equally profitable — some SKUs may have high revenue but negative margins after all costs. SKU-level profitability analysis identifies your winners (high-margin, high-volume) and your losers (high-revenue but low or negative margin) so you can optimize your catalog.