Business Glossary

Money a business owes to its suppliers, vendors, or creditors for goods or services received but not yet paid for. It represents the credit extended to the company by its suppliers.

Money owed to a business by its customers for goods or services delivered but not yet paid for. It represents the credit a company extends to its customers.

The annualized value of recurring subscription revenue. Calculated by multiplying MRR by 12, ARR is the standard metric for measuring the scale of a subscription business.

The mean revenue generated per transaction or order. AOV is a key e-commerce metric that directly impacts revenue without requiring more traffic.

The mean revenue generated per active user or customer account over a specific period. It measures pricing efficiency and customer value.

The percentage of an employee's salary that the employer spends on benefits such as health insurance, retirement contributions, paid time off, and other non-wage compensation.

The hours spent working directly on client projects that can be charged to clients. Non-billable hours include admin, marketing, learning, and other overhead work.

The sales volume at which total revenue exactly equals total costs, resulting in zero profit and zero loss. Every unit sold beyond this point generates profit.

The rate at which a company spends its cash reserves, typically measured monthly. It is the most critical metric for startups and pre-profit companies tracking how long their funding will last.

The ratio comparing customer acquisition cost to customer lifetime value. It measures whether a business spends a sustainable amount to acquire customers relative to the value those customers generate.

The percentage of online shoppers who add items to their cart but leave without completing the purchase. The average rate across e-commerce is approximately 70%.

The net amount of cash moving into and out of a business over a specific period. Positive cash flow means more cash is coming in than going out; negative cash flow means the opposite.

The percentage of customers who cancel or stop using a product or service during a given time period. It is the inverse of retention rate.

The amount each unit sold contributes toward covering fixed costs and generating profit. Calculated as selling price minus variable costs per unit.

The percentage of visitors to a website or store who complete a desired action, most commonly making a purchase. It measures how effectively a business turns interest into revenue.

The direct costs attributable to producing or acquiring the goods sold by a company. COGS includes materials, direct labor, and manufacturing overhead, but excludes indirect costs like marketing and administration.

The total cost of filling a job vacancy, including advertising, recruiter fees, interview time, onboarding, and any signing bonuses or relocation expenses.

A pricing strategy where the selling price is determined by adding a fixed markup percentage to the total cost of producing a product or delivering a service.

The total cost of acquiring a new customer, including all sales and marketing expenses divided by the number of new customers gained in that period.

The total revenue a business can reasonably expect from a single customer account throughout the entire duration of their relationship.

A fixed fee charged for a full day of freelance or consulting work, typically based on 7-8 billable hours. Day rates simplify pricing and reduce micro-tracking of hours.

A financial leverage metric calculated by dividing total liabilities by total shareholders' equity. It shows how much of a company's funding comes from debt versus owner investment.

Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's operating performance that removes the effects of financing, accounting, and tax decisions.

The true total cost to a company of employing one person, including salary, payroll taxes, benefits, equipment, office space, and all overhead allocated per employee.

Additional revenue generated from existing customers through upsells, cross-sells, add-ons, or increased usage beyond their original purchase.

The total cost of receiving, processing, picking, packing, and shipping an order to the customer. It includes warehouse operations, packaging materials, and carrier fees.

The percentage of revenue remaining after subtracting the direct costs of producing goods or services (COGS). It measures production efficiency before operating expenses.

The total value of merchandise sold through a marketplace or e-commerce platform over a given period, before deducting fees, returns, or discounts.

The absolute dollar amount remaining after subtracting the cost of goods sold (COGS) from total revenue. It is the money available to cover operating expenses and generate net profit.

The total amount billed for goods or services before any deductions for returns, refunds, discounts, or allowances. Also called gross sales or top-line revenue.

The fee a freelancer or consultant charges per hour of work. Setting the right hourly rate requires accounting for non-billable time, expenses, taxes, and desired profit.

A product deliberately sold below cost to attract customers, with the expectation that they will purchase additional profitable items during the same visit or relationship.

The percentage of the selling price that represents profit. Unlike markup, margin is calculated as a percentage of revenue, not cost.

The percentage added to the cost of a product or service to determine its selling price. Markup is expressed as a percentage of cost, not of the final price.

The predictable, normalized monthly revenue generated from all active subscriptions. MRR is the fundamental metric for subscription-based businesses.

The percentage of revenue that remains as profit after all expenses, including operating costs, interest, taxes, and depreciation, have been deducted.

The total profit remaining after all expenses have been deducted from revenue, including COGS, operating expenses, interest, taxes, and any other costs. Also called the bottom line.

Total revenue after subtracting returns, refunds, discounts, and allowances. It represents the actual revenue a company retains from its sales activities.

The percentage of recurring revenue retained from existing customers over a period, including expansion revenue (upgrades, cross-sells) and subtracting contraction and churn.

The percentage of revenue remaining after deducting all operating expenses, but before interest and taxes. It measures the profitability of core business operations.

Taxes levied on employers and employees based on wages paid. In the US, this primarily includes Social Security (6.2%) and Medicare (1.45%) taxes, paid by both employer and employee.

A market entry strategy where a product is priced significantly below competitors to rapidly gain market share, with the intention of raising prices once a customer base is established.

A measure of how sensitive customer demand is to changes in price. Elastic demand means small price changes cause large shifts in quantity sold; inelastic demand means quantity barely changes.

A strategy of launching a product at a high price and gradually lowering it over time, capturing maximum revenue from each customer segment's willingness to pay.

Revenue that is predictable, stable, and expected to continue at regular intervals, typically from subscriptions, retainers, or long-term contracts.

A recurring monthly fee paid by a client to reserve ongoing access to a freelancer or agency's time and expertise. Retainers provide predictable revenue and prioritized service.

The percentage of customers who continue using a product or service over a given time period. It is the complement of churn rate.

A performance measure that evaluates the gain or loss generated by an investment relative to its cost. ROI is expressed as a percentage, making it easy to compare different investments.

The percentage of sold products that are returned by customers. High return rates erode margins, increase logistics costs, and can indicate product or marketing issues.

Total revenue divided by the number of full-time equivalent employees. It measures how efficiently a company generates revenue relative to its workforce size.

The number of months a company can continue operating at its current burn rate before exhausting cash reserves. Runway is the most critical survival metric for startups.

The gradual, uncontrolled expansion of a project's requirements beyond the original agreement, typically without corresponding increases in budget, timeline, or resources.

The complete value of everything an employee receives in exchange for their work, including base salary, bonuses, equity, benefits, retirement contributions, and any other perks.

The percentage of total available working hours that are spent on billable client work. It is the key efficiency metric for freelancers and professional services firms.

A pricing strategy that sets prices based on the perceived or measured value a product delivers to customers, rather than on the cost of production.

The average number of new users that each existing user generates through referrals or sharing. A viral coefficient above 1.0 means exponential organic growth.

The difference between a company's current assets (cash, receivables, inventory) and current liabilities (payables, short-term debt). It measures the ability to fund day-to-day operations.