Glossary
The ecommerce profit glossary
Every number that decides whether your Shopify store is growing or burning: ROAS, MER, POAS, break-even ROAS, COGS, contribution margin, LTV, cash flow and more. Defined in plain English, each with the formula. No jargon, no fluff.
Profit & margin
The numbers that decide whether a sale actually makes money.
COGSCost of goods sold
COGS (cost of goods sold) is what you pay your supplier for the products you actually sold in a period: unit cost plus inbound shipping and duties. It excludes ad spend, salaries and overhead. COGS is the biggest input to true profit, and the one number Shopify doesn't track for you.
Ecom Forward derives COGS per product (with volume tiers and per-variant costs) so true profit is automatic once you enter your costs.
Related: Gross margin, Contribution margin
Gross margin
Gross margin is the percentage of revenue left after COGS. A 70% gross margin means 70 cents of every revenue dollar survives product cost. It's the most over-quoted number in ecommerce because it ignores ad spend, transaction fees and shipping entirely, so it flatters profitability.
gross margin % = (revenue − COGS) ÷ revenue
Related: COGS, Contribution margin, Net profit & net margin
Contribution margin
Contribution margin is what's left from a sale after all VARIABLE costs: COGS, transaction fees, shipping and ad spend. It's the money that 'contributes' to covering fixed costs and profit, and the truest per-order profitability signal because nothing variable is hidden.
contribution margin = revenue − COGS − fees − shipping − ad spend
Related: Gross margin, Net profit & net margin, Break-even ROAS, POAS
Net profit & net margin
Net profit is what remains after EVERY cost: COGS, fees, shipping, ad spend, apps, salaries and overhead. Net margin is net profit divided by revenue. It's the true bottom line: a store can show great gross margin and still post a negative net margin once overhead is counted.
net margin % = net profit ÷ revenue
Related: Gross margin, Contribution margin, Net revenue
Net revenue
Net revenue is gross sales minus discounts, returns and refunds, the revenue you actually keep. Shopify's headline 'total sales' is closer to gross. Confusing the two overstates your top line and inflates every margin you calculate from it.
net revenue = gross sales − discounts − returns − refunds
Related: Net profit & net margin, Refund rate
Marketing efficiency
How hard every ad dollar is working, and when it stops.
ROASReturn on ad spend
ROAS (return on ad spend) is the revenue an ad campaign generates for every dollar spent. A 3× ROAS means $3 of revenue back for every $1 of ad spend. It measures advertising efficiency on revenue alone. It ignores product cost, fees and shipping, so a high ROAS can still lose money.
ROAS = attributed revenue ÷ ad spend
Ecom Forward shows blended and per-channel ROAS live from your reconciled Shopify and ad-platform data.
Related: MER, POAS, Break-even ROAS, CPA
MERMarketing efficiency ratio
MER (marketing efficiency ratio), also called blended ROAS, is your total store revenue divided by total ad spend across every channel. Because it uses real total revenue, it can't be inflated by overlapping platform attribution, which is why founders trust MER over individual platform ROAS as the true read on marketing.
MER = total revenue ÷ total ad spend (all channels)
POASProfit on ad spend
POAS (profit on ad spend) is the profit an ad generates per dollar spent, not just revenue. A POAS below 1× means you're acquiring customers at a loss even if ROAS looks healthy. It's the metric ROAS should have been. It accounts for margin after product cost, fees and shipping.
POAS = contribution profit ÷ ad spend
Related: ROAS, Contribution margin, Break-even ROAS
Break-even ROAS
Break-even ROAS is the minimum ROAS your ads must hit to cover variable costs. Below it, every sale loses money. Knowing your exact break-even ROAS turns the vague question 'is 2× good?' into a precise yes-or-no answer for your specific margins.
break-even ROAS = gross revenue ÷ (revenue − COGS − transaction fees)
Ecom Forward calculates your exact break-even ROAS per store and per product, and a free Break-even ROAS Calculator lives at /tools/break-even-roas-calculator.
Related: ROAS, POAS, Contribution margin
CACCustomer acquisition cost
CAC (customer acquisition cost) is the average cost to acquire one NEW customer. The health check is the LTV:CAC ratio. A sustainable store generally wants lifetime value at least 3× CAC. CAC differs from CPA, which counts every purchase rather than just first-time buyers.
CAC = acquisition spend ÷ new customers acquired
CPACost per acquisition
CPA (cost per acquisition, or cost per purchase) is ad spend divided by the number of orders it generated. It matches the 'cost per purchase' shown in Meta and Google Ads. Unlike CAC, CPA counts every order including repeat buyers, so it reads lower than true new-customer cost.
CPA = ad spend ÷ orders
CPMCost per mille
CPM (cost per mille) is the cost to show your ad one thousand times. It measures how expensive it is to reach an audience. A rising CPM with flat sales is an early sign of audience fatigue or rising competition for the same impressions.
CPM = (ad spend ÷ impressions) × 1,000
CPCCost per click
CPC (cost per click) is what you pay on average for each click on an ad. Combined with conversion rate and average order value, CPC determines your CPA, so a rising CPC squeezes profitability unless conversion rate or order value rises to match it.
CPC = ad spend ÷ clicks
Related: CPM, CTR, CPA, Conversion rate
CTRClick-through rate
CTR (click-through rate) is the percentage of people who click your ad after seeing it. A higher CTR usually lowers your CPC and signals the creative is resonating; a falling CTR is often the first symptom of creative fatigue, before ROAS drops.
CTR = (clicks ÷ impressions) × 100
Customers & conversion
What a customer is worth and how often your store turns visits into orders.
AOVAverage order value
AOV (average order value) is the average amount a customer spends per order. Raising AOV through bundles, upsells or free-shipping thresholds lifts profit without any new ad spend, which is why it's one of the most direct levers on your break-even ROAS.
AOV = total revenue ÷ number of orders
Related: LTV, Break-even ROAS, Conversion rate
LTVCustomer lifetime value
LTV (customer lifetime value, also CLV) is the total profit a customer generates across their entire relationship with your store. A high LTV lets you spend more to acquire a customer than a single order's profit would allow, which is how brands out-bid competitors on ads.
LTV ≈ AOV × orders per customer × gross margin
Related: CAC, AOV, Retention rate, Cohort analysis
Cohort analysis
Cohort analysis groups customers by the month they first bought, then tracks how much each group spends in the following months. It reveals retention and lifetime value far better than a blended average, showing whether newer cohorts are worth more or less than older ones.
Related: LTV, Retention rate, Churn rate
Retention rate
Retention rate (or repeat purchase rate) is the percentage of customers who buy again within a given window. Because acquiring a customer costs far more than keeping one, retention is the cheapest growth lever most stores under-use. Small gains compound into large LTV increases.
repeat rate = repeat customers ÷ total customers × 100
Related: Churn rate, LTV, Cohort analysis
Churn rate
Churn rate is the percentage of customers or subscribers who stop buying in a period. High churn forces you to keep buying new customers just to stay flat, so lowering churn compounds faster than raising acquisition. For subscriptions it's measured against active subscribers at the period's start.
churn = cancellations ÷ subscribers at start of period
Related: Retention rate, MRR, LTV
Conversion rateCVR
Conversion rate is the percentage of store sessions that end in a completed purchase. Most Shopify stores convert between 1% and 3%. Measuring converted sessions (not orders ÷ sessions) matches Shopify's storefront funnel and avoids overstating the rate.
CVR = converted sessions ÷ total sessions × 100
MRRMonthly recurring revenue
MRR (monthly recurring revenue) is the predictable subscription revenue your store earns each month, with every subscription normalised to a monthly amount. A £40 every-two-months subscription is £20 of MRR. It's the core health metric for any subscription or replenishment brand.
MRR = Σ each active subscription's monthly-normalised price
Related: Churn rate, LTV
Cash & finance
Why a profitable store can still run out of money.
Cash flow
Cash flow is the actual movement of money in and out of your business over time, not profit. A store can be profitable on paper yet run out of cash if it pays suppliers before customer payouts land. Cash flow is what decides whether you can make payroll and reorder stock.
Ecom Forward ships a 13-week cash-flow forecast and a runway widget, surfaces most profit dashboards skip entirely.
Related: Runway, Working capital, Balance sheet
Runway
Runway is how many months your business can operate before it runs out of cash at the current burn rate. A profitable, cash-positive store has effectively unlimited runway; a fast-growing one reinvesting heavily can have short runway despite strong sales.
runway = current cash ÷ monthly net burn
Related: Cash flow, Working capital
Balance sheet
A balance sheet is a snapshot of what your business owns (assets: cash, inventory, pending payouts), what it owes (liabilities), and the owner's equity, at a point in time. For ecommerce, inventory value and pending Shopify payouts are usually the largest assets.
assets = liabilities + equity
Related: Cash flow, Working capital
Working capital
Working capital is the short-term money available to run day-to-day operations, mostly cash plus inventory minus what you owe suppliers. Negative or thin working capital is why fast-growing stores stall: growth eats cash before the profit from it arrives.
working capital = current assets − current liabilities
Related: Cash flow, Runway, Balance sheet
Refunds & risk
The reversals and disputes that quietly erode profit.
Refund rate
Refund (or return) rate is the share of revenue or orders returned to customers. Healthy ecommerce sits around 2–5%; above 8% signals product, sizing or expectation problems. Refunds are a triple loss, the sale reverses, the product cost is often gone, and the ad spend that won the order is wasted.
refund rate = refunds ÷ gross revenue
Related: Net revenue, Chargeback rate
Chargeback rate
A chargeback is a forced reversal when a customer disputes a charge with their bank, costing you the sale plus a fee. Card networks can suspend your ability to process payments above roughly 1%, so chargeback rate is a metric to watch closely, and it's separate from ordinary refunds.
chargeback rate = chargebacks ÷ orders
Related: Refund rate
Stop calculating these by hand
Ecom Forward computes every metric on this page, live.
Connect Shopify and your ad platforms, and Ford works out your real ROAS, MER, break-even ROAS, contribution margin, cash runway and more from your reconciled numbers. It tells you what to do about them. Ask it anything, in plain English.