Jun 26, 2023
E-commerce / Split Testing Glossary
All the lingo you need to know in order to run a successful e-commerce business.
Looking to start or grow your online business but don't know where to start? The first thing to do is get up to speed on the lingo. We've compiled a list of terms that can help you become a quick expert on the world of e-commerce.
Let's start with the basics: What is A/B testing?
A/B testing (also known as split testing) is a straightforward technique that allows you to evaluate two variations of a webpage in order to identify the best strategy. By presenting Version A and Version B to separate groups of potential customers in real time, you can gather insights on which version yields a higher conversion rate.
Many e-commerce businesses opt for this mode of testing because it enables data-driven decision-making, allows for incremental improvements/tweaks to tests (unlike “before and after” tests), and provides speedier results that allow you to respond to market trends or competitors more quickly. On that note, let’s dive into the vocab.
Abandoned cart recovery
Abandoned cart recovery is a two-step process. First, e-commerce merchants identify which customers went all the way up to the checkout stage and never clicked the order button. Next, they send a follow-up email to try and incentivize customers to return to their cart and follow through on their orders. This is typically done via promo code or by offering discount links so buyers feel that their order is “worth it”.
AOV - Average order value
AOV is a commonly measured metric by all e-commerce businesses. It measures the average amount that a customer spends at checkout, and refers to the total revenue divided by the number of orders. Many marketing strategies focus on how to increase AOVs because it’s a super powerful lever to improve profitability - you’re paying a fixed amount to acquire a customer, so if they spend more that means more profit for the brand. While this is sometimes measured by total revenue (product revenue + shipping revenue), it is also sometimes measured by product revenue only. Tax revenue is usually excluded.
Whereas the top line refers to your total revenue, the bottom line refers to your net profit after deducting all other business expenses. While early on most e-commerce businesses are worried about their top line (as they are trying to quickly grow and become more efficient), well-established businesses typically care more about their bottom line as it indicates how profitable/ strong your business really is.
Bundling is a sales tactic that entails combining multiple products into a package offering to be sold at a discount price. This encourages customers to spend more, which improves AOV, and - as long as the discount is not too steep - improves profitability. It’s also a way to get more product into customers' hands, which can increase LTV if they like some products they wouldn’t have tried otherwise.
Buy more save more
The "buy-more-save-more" strategy in e-commerce refers to a pricing/promotional method where customers are offered different types of discounts or savings based on the quantity or value of their purchases. It basically encourages customers to spend more to receive a higher discount. Common strategies to implement this are quantity-based discounts, threshold-based savings, bundles, and rewards programs.
COGS - Cost of goods sold
COGS refers to the cost associated with making a product. It does not include additional costs a company may have, like distribution, marketing, or sales.
This term comes up over and over again in the world of e-commerce and refers to the process of converting a website visitor into a customer. Some businesses – like Intelligems – calculate this metric by the number of purchases divided by the number of site visitors. Others – like Shopify – find it by the number of orders divided by the number of sessions a visitor has. While it is true that there are many different types of conversion events (some as simple as filling out a form), the one that is most important in the world of e-commerce is when a customer places their order.
Conversion funnel & rate
The conversion funnel, a.k.a the sales funnel, refers to the multiple paths users can take before reaching the same endgame: conversion. Conversion rate is a metric that all successful e-commerce companies track. For DTC brands, this funnel typically includes site views, then when customers add an item to their cart, then when they begin checkout, and ultimately when they place an order. You will also hear people talk about CRO (conversion rate optimization), which essentially refers to different strategies employed by e-commerce merchants to make their conversion rates as high as possible.
Cookies allow website owners to track their viewers and obtain their browser preferences. In the world of e-commerce, they are used to enhance and personalize digital marketing. You’ve probably experienced this in your own life if you’ve ever clicked on an internet ad, and then continue to receive ads for similar products sold by that company.
CAC - Customer acquisition cost
In e-commerce, CAC measures the average amount it costs a business to acquire a new customer, and can be calculated by the costs of marketing and sales divided by the number of acquired customers. Luckily there are platforms that exist with features to help cut your CAC effectively. Intelligems' campaign feature does so by testing different promos and offers in order for you to minimize your expenses.
E-commerce merchants are always concerned with shaping the customer journey, as it refers to the steps taken by an individual from their initial interest in a product to their eventual purchase. E-commerce merchants employ a variety of techniques to shape this experience, such as using ads, checkout progress bars, abandoned cart-saving tools, and more.
Elasticity of demand
Elasticity can be found by dividing the % change in demand by the % change in price. This metric is essential to measure in order to optimize your revenue. If your product’s elasticity is less than 1, increasing your price would lead to more revenue, but if the elasticity is greater than one, decreasing your price would lead to more revenue. In order to find out what a product’s elasticity is, you have to test your prices.
Google ads/ AdWords/ shopping
Google includes a plethora of digital marketing tools to help boost conversions such as AdWords (which allows businesses to create budgets and advertise promotions), Google Analytics (which allows businesses to track website traffic and understand trends), and more. Some A/B testing platforms – like Intelligems – actually integrate with Google Analytics.
GWP - Gift with purchase
GWP is a promotional strategy used by many e-commerce companies which gives customers a “free gift” when they make a qualifying purchase. This strategy gives customers an incentive to spend a certain amount in order to meet the gift criteria. While it can be a powerful lever, e-commerce operators should keep in mind that GWPs have a cost, just like any other discount. This is why taking a data-driven approach when implementing them is essential.
Headless commerce is a form of e-commerce that separates the front-end presentation of your website from its back-end functionality. This allows e-commerce businesses to deliver user-friendly, personalized shopping experiences for customers across different devices. On the back end, website creators can use APIs to facilitate a smooth data exchange between the front and back ends. At Intelligems, we support testing on headless storefronts!
Website traffic refers to the amount of pages website visitors view and interact with. Successful e-commerce businesses track the trends of their traffic in order to tell what viewers are most interested in.
In the world of e-commerce, a lead refers to a potential customer who has expressed interest in a product or service offered by an online business. E-commerce sites then attempt to “capture” these leads by adding them to mailing lists with target marketing efforts to turn them into customers. Leads are a critical part of success in e-commerce, as they represent possible conversions and thus help a business grow.
An online marketplace is a digital platform where businesses are able to sell their products or services in one place. These marketplaces focus on a variety of different things, such as retail goods, services, crafts, etc. Online marketplaces handle payment processing, order fulfillment, customer support, and more. Some popular ones include Amazon, eBay, Airbnb, and Etsy.
In e-commerce, there is a lot of debate about the right margin to measure. Ultimately, it refers to some form of profit after taking out the costs of selling the good. There are different ways to measure this - including Gross Margin (typically [Net Revenue] - [Cost of Goods Sold] - [Shipping Costs]), or Contribution Margin, which attempts to account for all of the costs (including marketing spend) that went into selling that product. Successful businesses use various tactics to optimize their margins by making data-driven decisions regarding pricing and profitability.
Many e-commerce businesses invest in paid media to promote their products or services to a target audience. This can be done through a variety of platforms – like Google, Facebook, or Instagram ads – which then display different forms of advertising – like influencer marketing. This helps e-commerce businesses increase their brand visibility, which drives more website traffic and potential leads, and ultimately increases sales.
ROI - Return on investment
ROI is a metric that refers to the profitability of an investment made. In e-commerce, it is used to assess the profitability of a business or campaign. The simple equation is as follows: ROI = (Net profits/ investment costs) x 100.
SEO - Search engine optimization
SEO is a way for businesses to ensure that their product becomes visible through keywords on search engines (like Chrome or Safari). The goal of SEO is to drive organic (meaning non-paid) traffic to the website.
SKU - Stock keeping unit
In e-commerce, SKUs are assigned to individual products in an online shop’s inventory. They help businesses track and manage store inventory, and allow for a smooth order fulfillment and inventory management process. E-commerce merchants use SKUs to help improve their operations and gain insights into product performance data.
Statistical Significance - "stat sig"
When conducting an e-commerce price test, looking at statistical significance helps you measure your confidence in the results. Stat sig essentially indicates whether the observed differences in performance are statistically meaningful or if they may be the product of random chance. This metric is critical for businesses to determine if the differences in metrics (like conversion rate, AOV, revenue, etc) in an A/B test are likely to continue across time and larger populations.
Revenue per site visitor vs. Profit per site visitor
Revenue per site visitor refers to the average amount of revenue generated by each visitor and does not take into account the associated costs. Profit per site visitor measures the average profit generated from each visitor, which takes into account the associated costs. For this reason, most e-commerce businesses focus more on the latter metric because it allows them to better understand their business’s financial performance.
B2B - Business to business
A mode of selling where one business sells directly to another business. This type of transaction is completed between two companies (typically wholesalers or online retailers). In a B2B model of transaction, both organizations benefit in some way.
B2C - Business to consumer vs. DTC - Direct to consumer
B2C and DTC are two different ways in which businesses sell to consumers. In a B2C model, another business operates as an intermediary between the manufacturer/supplier of a product and its consumer. The DTC model is a subset of this model, as it cuts out the middleman. This means that DTC businesses bypass traditional intermediaries and go straight to the consumers.
HTML - HyperText markup language
HTML essentially refers to a website's code. It is the standard markup language used to create and structure website content. HTML is able to adjust structure, layout, and website format.
KPI - Key performance indicator
KPI refers to a measurable metric for e-commerce merchants to evaluate their business’s performance and success. KPIs allow e-commerce businesses to gain insights into a multitude of operations including sales, customer acquisition, conversion rates, AOVs, customer retention, and website traffic trends. E-commerce businesses often use these analytics to modify their strategies to improve their performance and reach their target goals.
Cloud-based e-commerce platforms
This kind of e-commerce platform runs on its own servers and is accessed through a web browser, which is appealing to users who don’t want to install additional software. These platforms usually offer a host of features and have all the necessary tools to create and update websites. One example of a cloud-based platform that functions as an online store-builder is Shopify.
Though you have likely heard of blogs in the past, they can be an incredibly important asset to e-commerce businesses. A well-written blog with frequently updated content lets specific websites rank higher in search engine results, leading to increased traffic to stores, and eventually to increased sales.