9 terms every e-commerce business needs to know to maximize sales and profits
online store and retail

9 terms every e-commerce business needs to know to maximize sales and profits

No matter what you sell in your online store, including the right product information improves your customers’ shopping experience and provides the crucial details they need to make an informed purchasing decision. 

On your end, understanding product information like cost and reorder points helps you manage your inventory and maximize your profit margins. Let’s take a look at the most essential pieces of product information you should know when launching a new product or adding a new product to your online store. 

Product name

The right product name is catchy and memorable — it catches your customers’ attention as they scroll through social media or through your shop, and it stays in their minds long after they’ve scrolled on. 

Think about your favorite products, what do their names have in common? In general, great product names are simple, meaningful, and descriptive. It should be unique, but also findable on search engines and understandable for people who might not be familiar with your brand. It's a tough tightrope to walk, but there are plenty of resources available online to help you nail down the perfect product name. 

Product description

Like a product name, a product description is essential for customers to make an informed purchasing decision. Think of it as a sales pitch: This is your chance to speak directly to your potential customers about the benefits of your product and why they should buy it right now

A great product description is unique, compelling, and informative. It connects with customers on a personal and emotional level and emphasizes how the product can solve their problems or bring additional value to their lives. 

A well thought out and engaging product description can be the difference between a purchase and a lost sale, so it’s definitely worth investing some time and effort in perfecting your product descriptions. 

Product cost

The product cost is pretty straightforward — this refers to the costs incurred to create a specific product. These costs include labor, materials, production, and overhead. Add together the total materials, labor, and manufacturing costs to find the product cost of an item. Knowing the product cost helps you calculate your cost of goods sold and determine the correct sales price for your products. 

Purchase Cost

Part of the product cost is the purchase cost — this is the price you pay your vendor for the product. The purchase cost usually includes taxes, shipping and handling fees, and any other costs associated with ordering from your vendor. It is essential to track purchase costs so you always know if you’re paying your vendor more or less than usual. While you’re at it, be sure to keep track of preferred vendors for each product. 

Sales price

Sales prices are typically based on market conditions, production costs, and even your consumers’ ability to pay. Price your products too high and you could alienate your target audience. Price your products too low and consumers might think your brand is “cheap.” 

Prices may fluctuate over time, but choosing the right pricing strategy upfront helps you set and update prices based on data rather than guesswork. The right sales price caters to your target audience while covering your product costs and leaving you with a good profit margin. 


You've heard this one before, but do you know what it means? A SKU or stock keeping unit is a numeric code used to search for and identify inventory items from lists, invoices, or order forms. It is typically an internal code used for inventory management. 

Accurate SKUs allow you to easily track variations of different products, organize products for counting, pinpoint shrinkage, track inventory levels, and identify revenue from product variants. Your customers generally won’t see (or care) about the product SKU, but associating a SKU with each product keeps you more organized on the back end. 

Product category

Use product categories to group your products and keep things organized — both on your site for your customers and on the backend for your inventory tracking purposes. 

For example, suppose you sell apparel and have an inventory of “classic sneakers.” You could assign certain products to this category to allow you to find them quickly and easily when invoicing or filtering for detailed reporting. Plus, customers who are interested in sneakers at your store can quickly see all you have to offer. 

Reporting by category can help you determine which categories perform better than others. You’ll know to double down on inventory and promote high performing categories. When tax time rolls around, accurate product categories can also help with accurate tax classification.

Product variations

Most products aren’t one size fits all — no matter what you sell, it likely comes in a variety of sizes, shapes, or colors (which can add some extra chaos to your inventory tracking). Building an accurate product structure helps you keep those variations of products together. Customers can see the different variations of each product before purchasing, and you’ll have an easier time reporting on and ordering inventory. 

Reorder point

A product’s reorder point is the point in time at which it’s ideal to reorder stock of that product. Knowing the reorder point for each of your products helps you order the right amount of inventory at the right time, so you never run low or overorder. 

To calculate a product’s reorder point:

  1. Determine how long it takes for your vendor to fulfill your order (this is your “lead time in days”). 
  2. Calculate the number of sales made in an average day of that particular product (this is your “average daily usage”).
  3. Determine the amount of extra stock that you keep in your inventory (this is your safety stock).
  4. Multiply your lead time in days by your average daily usage. 
  5. Add the result to your safety stock to determine your reorder point.

The equation looks like this:

(Lead time in days x Average daily usage) + Safety stock

Keep track of each product’s reorder point so you always have the right amount of inventory on hand. 

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