D2C Ecommerce

D2C & Shopify Glossary

by Colleen Keilers | January 4, 2021

Take a peek at some key terms (the currency of digital marketing!) related to direct-to-consumer (D2C) online marketing and Shopify.

Direct-to-Consumer (D2C)

  • Attribution window. A marketing term for assigning credit by channel for contributing to an order. It’s a defined period of time in which an advertiser/brand claims a click or impression led to a purchase. For D2C subscription businesses, this window tends to be 30 days to capture the longer cycle from the first click to the final purchase of the subscription. For retailers, the attribution window is typically much shorter—anywhere from 1 to 7 days, depending on the marketing channel.
  • AOV (average order value). Tracks the average dollar amount spent each time a customer places an order. AOV = Total revenue/number of orders. Focusing attention on increasing AOV can directly impact margins. Tip: One quick hack to improve your AOV: Adding a free shipping threshold that’s slightly above the AOV.  
  • Churn rate. The number of customers who leave a product over a certain period of time. Churn rate is extremely important to understand for companies that follow a subscription model, as it reveals the health and momentum of their subscription plan. 
  • Contribution margin. The “net profit” left over after all variable costs associated with selling a product or service are deducted from the revenue generated. This includes discounts and refunds. The calculation of contribution margin is typically the average order value/total cost, including discounts.
  • CAC (cost per acquired customer). How much it costs to acquire a new customer. CAC is not just an important metric for the growth team—it encompasses the efforts of many teams like marketing, creative, growth, customer experience, and engineering all working together. CAC is important to look at relative to customer LTV (lifetime value).  A good LTV:CAC ratio is about 3:1, meaning customers spend more than it costs to acquire them. 
  • Customer lifetime value (LTV). The total dollar amount a business is likely to receive from an individual customer over the life of their account with your product. LTV determines how long a customer will stay with your company and how much revenue may be generated during that time.  
  • Customer persona. A brand’s primary target consumer—the most important, most lucrative person for all marketing efforts. There may be more than one customer persona for a brand, and there can be different personas for different channels. Many D2C brands write a story to describe the demographic, geographic, and familial attributes of their customer, and assign likes, dislikes, media usage, and pain points to identify what will trigger an emotional connection and thus a need for their brand.
  • CRM (customer relationship management) database. A database of all customers that can be easily manipulated and segmented to efficiently market products and services. CRMs can either be proprietary or managed via software tools. Popular D2C CRM tools range from HubSpot to Salesforce to free tools like Zoho.
  • Digitally native. The fact that a brand launched online first through its own dedicated ecommerce site and owns its entire production and sales process. Many brands that start online have since opened their own brick-and-mortar stores and added on more traditional channels like wholesale distribution to increase reach. Popular DNVB (digitally native vertical brand) examples include Glossier, Bonobos, and Allbirds.
  • D2C (direct-to-consumer). The selling of products to customers, bypassing any third-party retailers, wholesalers, or any other middlemen. In today’s era, this mainly refers to businesses that get sales via an online store without relying on traditional stores. They maintain end-to-end control over developing, marketing, and distributing products, allowing them to sell their products at lower costs than traditional retailers. 
  • Ecommerce platform. A software application that allows online businesses to manage their website, marketing, sales, and operations. It combines three different systems: 1) A web server for a unique domain that can manage an online storefront and process transactions (making appropriate links to bank computers to check out people’s credit card details); 2) A database that keeps a running inventory (constantly updating as people place orders and ideally, making new orders with suppliers when stocks run low); 3) A dispatch system linked to a warehouse where the goods can be instantly located and sent to the buyer as quickly as possible.
  • Funnel optimization. The process of improving the rate of action for potential and current brand consumers at each stage of the online purchase funnel. A typical funnel is as follows: Website visit, product view, adding products to cart, starting checkout, and purchase. Improving each stage of the funnel can have cascading improvements later down the line. 
  • Cost of sales (COS). The direct costs attributable to the production of goods or supply of services.
  • Gross margin. The cost of sales (COS) divided by the gross sale price. The main items included in gross margin are cost of labor and materials, shipping, packaging, and fulfillment costs.
  • Merchant fees. Fees paid to process credit card transactions via an online store.
  • MRR (monthly recurring revenue). Measures the total amount of predictable revenue coming in on a monthly basis. Tip: If you’re offering a D2C subscription and not calculating MRR, then chances are you’re miscalculating growth.
  • NPS (net promoter score). A metric used to measure and index customer loyalty. Calculating customers’ net promoter scores is a good way to quantify their strength as brand promoters. 
  • Net revenue retention. A measure for the continued use of a product or service. It’s measured in months and defined by monthly “cohorts” or groups of customers who became customers in a particular month or time period.
  • Online store. An ecommerce website for businesses to sell products, services or subscriptions online, directly to consumers.
  • Payback period. The amount of time it takes to recover the cost of an investment. Simply put, the length of time an investment reaches a break-even point. A shorter payback period can make companies a more attractive investment. The payback period is calculated by dividing the amount of the investment by the annual cash flow. D2C company payback periods typically range from 6 to 18 months.
  • POE (point of everything). As brands become more omnichannel, unifying their ecommerce and point of sale (POS) data becomes more important than ever. Some companies have started to rely on or build solutions that have the ability to manage both sales channels (online and offline) and refer to these solutions as POE. A good example of a POE brand is Warby Parker.
  • Product margin. The cost of goods sold (COGS) divided by the gross sale price. Product margin doesn’t take into account things like shipping, handling, and discounts. It’s strictly how much you can make relative to what you spent on the product and the volume of purchased products..
  • ROAS (Return On Ad Spend). A measure of how much revenue is generated for every dollar of ad spend per channel. This is especially important for retailers. It is often the most important metric to understand where to allocate more ad dollars to get the biggest return. Break-even ROAS often more than $1.0 when you consider the cost of ad dollars and goods sold. This will differ for each brand and marketing channel.
  • SKU (stock keeping unit). A unique numerical identifying number that refers to a specific stock item in a retailer’s inventory or product catalog. While products may have the same name, no two items have the same SKU, which may take into consideration details like color and size.

Shopify

  • Buy Button. The Shopify Buy Button lets merchants generate an embeddable product card and checkout that can be placed on any type of website.
  • Custom domain. A fully branded URL that replaces the default URL created based on the store name chosen during Shopify set-up (e.g., you could buy mystore.com to replace mystore.myshopify.com as the public URL).
  • POS (point of sale). Unifies both the online and in-store checkout process for businesses. The online check-out is via a website. The in-store checkout process is via mobile phones or tablets.
  • Product catalog. A group of products curated to target a specific audience, age group, or sale items.
  • Sales channels. Promote and sell via multiple sales channels all from within Shopify. This includes marketing channels such Facebook, Amazon, Google, TikTok, and Amazon, as well as Shopify-specific channels like BuyButton and Point of Sale (online and in-store Shopify checkouts).
  • SSL certificate. Shopify provides SSL certificates to your store after your custom domain has been properly added. To improve security, SSL certificates encrypt your store’s content and publishes it securely using HTTPS instead of HTTP.
  • ShopifyPlus. Enterprise-grade solutions for high-volume merchants and large businesses.
  • Store themes. A template installed in Shopify that businesses can use as a starting point to design a website. The Shopify Theme Store offers both free and paid themes, each with their own set of styles and features. Themes can be customized for colors and fonts, but certain features such as number of products and whether a search bar exists at the top cannot be customized after a theme/template is selected.