Glossary
Accounts Payable
Money owed to suppliers for materials or services purchased on credit.
Example: Outstanding invoices from your fabric supplier
Accounts Receivable
Money owed to you by customers for products sold on credit.
Example: Wholesale orders with payment terms of Net 30
Acquisition Cost
Total cost to acquire a new customer, including marketing and sales expenses.
Example: Spent $500 on ads to gain 50 customers = $10 acquisition cost
Average Order Value (AOV)
The average amount customers spend per order.
Example: Monthly revenue $5,000 ÷ 100 orders = $50 AOV
B2B (Business to Business)
Selling products to other businesses rather than individual consumers.
Example: Selling handmade soaps to boutique stores or spas
B2C (Business to Consumer)
Selling products directly to individual consumers.
Example: Selling jewelry directly to customers on Etsy
Batch Production
Making multiple units of the same product at once to increase efficiency.
Example: Making 50 candles at once rather than one at a time
Bill of Materials (BOM)
A detailed list of all raw materials, components, and quantities needed to create a finished product.
Example: For a handmade candle: 8oz soy wax, 1 wick, 0.5oz fragrance oil, 1 label
Bounce Rate
Percentage of website visitors who leave after viewing only one page.
Example: High bounce rate may indicate poor product presentation
Brand Identity
Visual and messaging elements that distinguish your business from competitors.
Example: Your logo, color scheme, packaging style, and brand voice
Break-even Point
The sales volume where total revenue equals total costs (no profit or loss).
Example: If fixed costs are $1000 and profit per item is $10, break-even is 100 items
Burn Rate
How quickly a business spends money, typically measured monthly.
Example: Monthly expenses of $2,000 with $10,000 in savings = 5-month runway
Cart Abandonment Rate
Percentage of customers who add items to their cart but don't complete the purchase.
Example: 100 carts created, 25 purchases = 75% abandonment rate
Cash Flow
The movement of money in and out of your business over a specific period.
Example: Positive cash flow means more money coming in than going out
Chargeback
When a customer disputes a charge and their bank reverses the payment.
Example: Customer claims they didn't receive their order and files a chargeback
Click-Through Rate (CTR)
Percentage of people who click on a link after seeing it.
Example: Ad shown 1000 times, clicked 50 times = 5% CTR
Commission
Fee charged by platforms or sales channels, usually a percentage of sales.
Example: Etsy charges 6.5% transaction fee on each sale
Contribution Margin
Revenue minus variable costs, showing how much each sale contributes to fixed costs.
Example: Price $50 - variable costs $20 = $30 contribution margin
Conversion Rate
Percentage of visitors who make a purchase on your online store.
Example: 1000 visitors, 25 purchases = 2.5% conversion rate
Cost of Goods Sold (COGS)
The direct costs of producing your products, including materials and direct labor.
Example: If materials cost $10 and you spend 2 hours at $25/hour, COGS = $60
Cost Per Acquisition (CPA)
Total marketing spend divided by number of customers acquired.
Example: Spent $200 on ads, gained 20 customers = $10 CPA
Cross-selling
Offering complementary products to existing customers.
Example: Selling matching earrings when a customer buys a necklace
Customer Lifetime Value (CLV)
Total revenue expected from a customer over their entire relationship with your business.
Example: Customer buys $100 worth of products annually for 3 years = $300 CLV
Customer Retention Rate
Percentage of customers who make repeat purchases over a given period.
Example: Of 100 customers, 30 bought again within a year = 30% retention
Days Sales Outstanding (DSO)
Average number of days it takes to collect payment after a sale.
Example: Wholesale customers typically pay within 30 days
Direct-to-Consumer (DTC)
Selling products directly to customers without intermediaries.
Example: Selling through your own website instead of through retailers
Dropshipping
A fulfillment method where you sell products without keeping inventory.
Example: Selling craft supplies that are shipped directly from suppliers
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization - a measure of profitability.
Example: Shows operating performance without financing and accounting decisions
E-commerce
Buying and selling products online through digital platforms.
Example: Selling handmade items on Etsy, Shopify, or Amazon
Fixed Costs
Business expenses that remain constant regardless of production volume.
Example: Studio rent, insurance, and equipment payments
Freight on Board (FOB)
Shipping terms that determine when ownership and liability transfer.
Example: FOB Origin means buyer pays shipping and owns goods once shipped
Fulfillment
The process of receiving, processing, and delivering customer orders.
Example: Pick, pack, and ship orders from your studio or warehouse
Gross Margin
Gross profit as a percentage of revenue. Shows how efficiently you produce.
Example: Gross profit $60 ÷ Revenue $100 = 60% gross margin
Gross Profit
Revenue minus Cost of Goods Sold. The profit before overhead expenses.
Example: Selling price $100 - COGS $40 = $60 gross profit
Handmade Claim
Legal designation that products are made by hand, subject to platform guidelines.
Example: Etsy requires items to be designed and crafted by the seller
Impression
Each time your product or ad is displayed to a potential customer.
Example: Your listing appeared in search results 1,000 times
Inventory Management
System for tracking raw materials, work-in-progress, and finished goods.
Example: Monitoring stock levels to prevent stockouts or overstock
Inventory Turnover
How many times you sell through your inventory in a period.
Example: Sold $12,000 with average inventory $3,000 = 4x turnover
Just-In-Time (JIT)
Inventory strategy where materials arrive exactly when needed for production.
Example: Ordering fabric only when you have confirmed orders
Key Performance Indicator (KPI)
Measurable values that indicate how effectively you're achieving business objectives.
Example: Monthly revenue, conversion rate, customer acquisition cost
Keystone Pricing
A pricing strategy where you double your cost to set the retail price.
Example: Item costs $25 to make, retail price set at $50
Lead Time
Time between ordering materials and receiving them, or time to complete an order.
Example: Clay supplier has 2-week lead time; custom pottery takes 3 weeks
Lifetime Value (LTV)
Total revenue expected from a customer over their relationship with your business.
Example: Customer averages $200 per year for 5 years = $1,000 LTV
Listing Optimization
Improving product descriptions, photos, and keywords to increase visibility and sales.
Example: Using relevant keywords in Etsy titles and tags
Make-to-Order
Production strategy where items are created only after receiving customer orders.
Example: Custom jewelry made only when customers place orders
Make-to-Stock
Production strategy where items are made in advance and held in inventory.
Example: Pre-made candles ready for immediate shipping
Margin of Safety
The difference between actual sales and break-even sales.
Example: Breaking even at 100 units but selling 150 gives 50-unit safety margin
Market Penetration
The percentage of potential customers who have purchased your products.
Example: In a market of 10,000 potential customers, serving 500 = 5% penetration
Markup
Amount added to COGS to determine selling price, usually expressed as percentage.
Example: COGS $20 + 150% markup = $50 selling price
Minimum Order Quantity (MOQ)
The smallest quantity a supplier will sell or you require for wholesale orders.
Example: Supplier requires 100-yard minimum for custom fabric orders
Net Profit
Total revenue minus all expenses (COGS, overhead, taxes).
Example: Revenue $10,000 - COGS $4,000 - Overhead $3,000 = $3,000 net profit
Net Profit Margin
Net profit as a percentage of total revenue.
Example: Net profit $3,000 ÷ Revenue $10,000 = 30% net margin
Operating Expenses
Ongoing costs of running your business, excluding COGS.
Example: Marketing, packaging, shipping, office supplies
Overhead Costs
Indirect business expenses not directly tied to production.
Example: Studio rent, electricity, equipment depreciation, insurance
Payment Gateway
Service that processes credit card payments for online transactions.
Example: PayPal, Stripe, or Square handling your online payments
Price Elasticity
How sensitive customer demand is to price changes.
Example: Luxury items often have lower elasticity than basic necessities
Product Mix
The variety of different products or services offered by your business.
Example: Jewelry maker offering rings, necklaces, earrings, and bracelets
Profit Margin
The percentage of revenue that becomes profit after all expenses.
Example: Revenue $1,000 - Expenses $700 = $300 profit = 30% margin
Purchase Order (PO)
A formal document sent to suppliers detailing what you want to buy.
Example: PO for 500 yards of cotton fabric at $5 per yard
Quality Control (QC)
Process of ensuring products meet established quality standards.
Example: Inspecting each piece before packaging to ensure no defects
Return on Investment (ROI)
Measure of profitability calculated as (Gain - Cost) / Cost × 100.
Example: Invested $1,000 in equipment, earned extra $1,500 = 50% ROI
Revenue
Total income generated from sales before deducting any expenses.
Example: Sold 100 items at $50 each = $5,000 revenue
Safety Stock
Extra inventory kept on hand to prevent stockouts.
Example: Keeping 20% extra beads in case of unexpected large orders
Sales Channel
The method or platform used to sell products to customers.
Example: Etsy, craft fairs, wholesale to stores, your own website
Seasonal Demand
Fluctuations in product demand based on seasons or holidays.
Example: Christmas ornaments sell more in December, beach jewelry in summer
Search Engine Optimization (SEO)
Techniques to improve visibility in search engine results.
Example: Using relevant keywords in product titles and descriptions
Sell-Through Rate
Percentage of inventory sold within a specific time period.
Example: Started with 100 items, sold 75 = 75% sell-through rate
Shipping Zone
Geographic areas with different shipping rates and delivery times.
Example: Zone 1: Local, Zone 2: National, Zone 3: International
SKU (Stock Keeping Unit)
A unique identifier for each distinct product or variant you sell.
Example: CANDLE-VANILLA-8OZ for an 8oz vanilla candle
Stockout
When you run out of inventory for a particular product.
Example: Popular earring design sold out, causing lost sales
Supply Chain
Network of suppliers, manufacturers, and distributors involved in creating products.
Example: From raw material suppliers to your customers
Target Market
Specific group of customers most likely to buy your products.
Example: Women aged 25-45 interested in sustainable, handmade jewelry
Unit Cost
Total cost to produce one unit of product.
Example: Materials $10 + labor $15 + overhead $5 = $30 unit cost
Up-selling
Encouraging customers to buy higher-priced or premium versions.
Example: Offering sterling silver instead of silver-plated jewelry
Value Proposition
The unique value your product provides that competitors don't.
Example: Only artist using locally-sourced, organic materials
Variable Costs
Expenses that change proportionally with production volume.
Example: Raw materials, packaging, and shipping costs
Vendor
Supplier who provides materials or services to your business.
Example: Your fabric supplier, bead supplier, or packaging company
Wholesale
Selling products in bulk to retailers at discounted prices.
Example: Selling to boutiques at 50% off retail price
Work-in-Progress (WIP)
Partially completed products that have consumed materials and labor.
Example: Pottery pieces that are shaped but not yet fired
Working Capital
Current assets minus current liabilities, indicating short-term financial health.
Example: Cash + inventory - accounts payable
Yield
The amount of finished product obtained from raw materials.
Example: 1 yard of fabric yields 4 small pouches with 10% waste