If you’re new to selling online, you may have noticed that the world of e-commerce is chock full of acronyms.
It can be overwhelming to try and figure out what you’re supposed to know when you’re just getting started, and your research has probably bombarded you with plenty of new, important terms.
In this post, we hope to clarify some of the most-used e-commerce acronyms and decrease your overwhelm as a new seller.
SKU
The term SKU (pronounced “skew”) stands for stock keeping unit. It may look familiar if you’ve ever examined the barcode area of a product you bought from a small business.
Businesses use SKUs to keep track of individual units in their inventory, and they are only used internally. SKUs are different from UPCs (the numbers below a barcode) in that SKUs are created by each individual business, while UPCs are created by the manufacturer and are the same across all sellers.
Since SKUs are created by the seller, you can customize your system to track what’s important to you. A SKU may be a combination of numbers and letters that easily identify an item’s manufacturer, color, size, style, and more.
When forming an inventory spreadsheet, you’ll want to include your SKU alongside any identifying information for that product. This way you can easily track your inventory numbers and make easy reordering decisions based on specific characteristics of the product.
COGS
While we’ve covered this topic more in depth in a previous blog post, here’s a brief rundown of what you should know.
COGS stands for Cost of Goods Sold. These are costs directly associated with your sales. In e-commerce, this includes things like:
- Wholesale pricing from your manufacturer
- Freight costs from acquiring your product
- Tariffs and duties
- Any costs you take on by manufacturing your own product
- Warehouse storage costs
As an e-commerce seller, COGS are an important metric to understand in terms of lowering the cost of doing business. You can think of COGS as overhead costs that are directly related to obtaining your product, but it is important to note that COGS does not include indirect costs such as office space rental or office supplies.
One important function of COGS is to give you a clearer picture of your gross profit. By subtracting your monthly COGS from your total sales, you get a gross profit that correctly excludes any expenses associated with obtaining your product.
FBA Fees
FBA stands for Fulfilled by Amazon. Not every e-commerce seller will deal with FBA costs, but for the ones that do (Amazon sellers), it’s an incredibly important expense to understand.
FBA fees cover the cost of using Amazon’s warehouses to stock and ship your product. Many sellers use this to bypass the cost of paying for their own warehouse and warehouse staff. While there this decision does ease a logistics burden, sellers should be aware that, according to Seller Accountant’s 2019 aggregate seller study, FBA fees can make up almost 20% of your total COGS.
Tyler explains more about Amazon seller fees in this video.
Final Thoughts
The e-commerce vocabulary may seem daunting at first, but understanding these terms is a stepping stone towards building a successful and profitable business.
If you’re interested in learning more about how Seller Accountant can help you increase your profitability, contact us here.