We’ve put together a glossary with the most common industry terms (including acronyms) that should help you get on your way to understanding the terms associated with online business.
Business to Business (B2B)
Business to business, also called B to B or B2B, is a form of transaction between businesses, such as one involving a manufacturer and wholesaler, or a wholesaler and a retailer.
Business to business refers to business that is conducted between companies, rather than between a company and individual consumers. Business to business stands in contrast to business to consumer (B2C) transactions (more on those below).
Business to Consumer (B2C)
Business to consumer (B2C) refers to the transactions conducted directly between a company and consumers – who are the end-users of its products or services.
The business to consumer as a business model differs significantly from the business-to-business model, which refers to commerce between two or more businesses.
While most companies that sell directly to consumers can be referred to as B2C companies, the term became immensely popular during the dotcom boom of the late 1990s, when it was used mainly to refer to online retailers, as well as other companies that sold products and services to consumers through the internet.
Limited Liability Company (LLC)
Business owners looking for the liability protection that a corporation can provide, without the double taxation, should consider forming a limited liability company (LLC).
An LLC is a business entity with all the protection of a corporation, plus the ability to pass through any business profits and losses to your personal income tax return.
An LLC is a hybrid type of business structure where the owners of the LLC are called “members”, and all enjoy the advantages that an LLC has to offer.
LLC members can be an individual business owner, several partners, or other businesses.
Logistics is used more broadly to refer to the process of coordinating and moving resources – people, materials, inventory, and equipment – from one location to storage at the desired destination.
The term logistics originated in the military, referring to the movement of equipment and supplies to troops in the field.
Manufacturing is the making of goods by hand or by machine that upon completion the business sells to a customer.
Items used in manufacture may be raw materials or component parts of a larger product.
The manufacturing usually happens on a large-scale production line of machinery and skilled labor.
Marginal cost refers to the increase or decrease in the cost of producing one more unit or serving one more customer. It is also known as incremental cost.
Marginal costs are based on production expenses that are variable or direct – labor, materials, and equipment, for example – and not fixed costs the company will have, whether it increases production or not.
Fixed costs might include administrative overhead and marketing efforts – expenses that are the same no matter how many pieces are produced.
It is often calculated when enough items have been produced to cover the fixed costs and production is at a break-even point, where the only expenses going forward are variable or direct costs.
When average costs are constant, as opposed to situations where material costs fluctuate because of scarcity issues, marginal cost is usually the same as average cost.
Market research consists of systematically gathering data about people or companies – a market – and then analyzing it to better understand what that group of people needs.
The results of market research, which are usually summarized in a report, are then used to help business owners make more informed decisions about the company’s strategies, operations, and potential customer base.
Understanding industry shifts, changing consumer needs and preferences, and legislative trends, among other things, can shape where a business chooses to focus its efforts and resources. That’s the value of market research.
Meaning, if your research told you that scientists had recently created a new kind of fabric that helped the wearer lose weight just by putting it on, for example, your retail clothing store might want to adjust its buying plan to test designs using this new fabric. Or if you uncovered that shoppers in your area rely heavily on coupons in making a purchase decision, you might decide to test sending your mailing list a promotional coupon.
Market research can help businesses run more efficiently and market more effectively.
Market segmentation is the dividing of a firm’s target market into groups and subgroups.
By segmenting the market, the firm may then tailor sales campaigns and marketing strategy so as to be specifically aimed at the identified groupings.
Merchandising is everything you do to promote and sell your products once the potential customer is in your store.
When we talk about merchandise, we are talking about products available for sale, typically in a retail setting.
Since the sales process often starts with the eyes, merchandising typically involves presenting products in a visually favorable light and arrangement, to try and encourage purchases.
A niche market is a subset of a larger market with its own particular needs or preferences, which may be different from the larger market.
For example, within the market for men’s shirt are many different niches, or segments. Shirts for skinny men would be a niche market, as would shirts for plus-sized men, shirts for sportsmen, or even shirts for transvestites. These would all be niche markets within the larger men’s shirt market.
Odd-even pricing is a pricing strategy involving the last digit of a product or service price.
Prices ending in an odd number, such as $1.99 or $78.25, use an odd pricing strategy, whereas prices ending in an even number, such as $200.00 or 18.50, use an even strategy.
Operating expenses are the costs to a firm of activities not connected directly with the primary activity of the business.
They are the expense of carrying on the day-to-day activities that do not involve production or sales.
Opportunity cost is an economics term that refers to the value of what you have to give up in order to choose something else. In a nutshell, it’s a value of the road not taken.
Outdoor advertising, also known as out-of-home advertising, is advertising that reaches consumers when they are outside their homes. The Outdoor Advertising Association of America says that’s where consumers spend 70 percent of their time.
Overhead costs, often referred to as overhead or operating expenses, refer to those expenses associated with running a business that can’t be linked to creating or producing a product or service.
They are the expenses the business incurs to stay in business, regardless of its success level.
Overhead costs are all of the costs on the company’s income statement, except for those that are directly related to manufacturing or selling a product, or providing a service.
A sewing machine and leather are not overhead costs because they are directly related to the products made. The rent for the facility where the shoemaker operates is an overhead cost because the shoemaker pays rent whether he’s creating products or not.
A private label product is manufactured by a contract or third-party manufacturer and sold under a retailer’s brand name.
As the retailer, you specify everything about the product – what goes in it, how it’s packaged, what the label looks like – and pay to have it produced and delivered to your store. This is in contrast to buying products from other companies with their brand names on them.
- Target sells a variety of branded snacks from companies like General Mills and Frito-Lay, but it also sell its own chips and crackers under the Archer Farms brand – Target’s private label brand.
- Hair salons often create their own branded line of shampoos, conditioners, and styling products for their customers to buy and take home.
- Restaurants often decide to private label condiments or mixes that have become popular with customers.
- Maid services could private label a line of household cleaners
- Pet stores could private label a line of pet foods and grooming tools.
Product Life Cycle
Product life cycle is the progression of an item through the four stages of its time on the market.
The four life cycle stages are: Introduction, Growth, Maturity and Decline.
Every product has a life cycle and time spent at each stage differs from product to product.
Product positioning is a form of marketing that presents the benefits of your product to a particular target audience.
Through market research and focus groups, marketers can determine which audience to target based on favorable responses to the product. Research can also determine which product benefits are the most appealing to them.
Knowing this information helps streamline marketing efforts and create effective marketing messages that drive more leads and sales. It also helps differentiate the product or service from the competition in the marketplace.
Product positioning is an important component of any marketing plan, but it doesn’t have to be limited to one audience.
For example, a product may have a main target audience and also a secondary audience that is also interested in the product, but perhaps in a different way. Each audience will find the product appealing for different reasons, which is why it’s important to tailor marketing messages to focus on the benefits each audience values most.
Profit margin indicates the profitability of a product, service, or business.
It’s expressed as a percentage; the higher the number, the more profitable the business.
Prospecting is the first step in the sales process, which consists of identifying potential customers, aka prospects.
The goal of prospecting is to develop a database of likely customers and then systematically communicate with them in the hopes of converting them from potential customer to current customer.
A purchase order, or PO, is an official document issued by a buyer committing to pay the seller for the sale of specific products or services to be delivered in the future.
The advantage to the buyer is the ability to place an order without immediate payment. From the seller’s perspective, a PO is a way to offer buyers credit without risk, since the buyer is obligated to pay once the products or services have been delivered.
Each PO has a unique number associated with it that helps both buyer and seller track delivery and payment. A blanket PO is a commitment to buy products or services on an ongoing basis, until a certain maximum is reached.
A retail sale occurs when a business sells a product or service to an individual consumer for his or her own use.
The transaction itself can occur through a number of different sales channels, such as online, in a brick-and-mortar storefront, through direct sales, or direct mail.
The aspect of the sale that qualifies it as a retail transaction is that the end user is the buyer.
Small businesses make up 99.7% of all companies in the U.S., according to the U.S. Census Bureau.
That means that of the 5.73 million businesses currently operating within the economy giant that is the U.S., as of 2012, 5.71 million were considered small. Companies with fewer than 20 employees comprised 89.6% of all business enterprises. And on top of those companies, as of 2013, there were 23 million businesses with no employees at all, meaning the only worker is the owner.
However, there is disagreement about what, exactly, a small business is. The Small Business Administration (SBA) generally considers a company with fewer than 500 employees to be a small business. Yet to solo practitioners, 500 employees seems huge.
And different industries have different size standards that the SBA uses to qualify or disqualify a business as “small”, so a company could have as many as 1,500 employees and could still be labeled small.
A sole proprietorship is a business owned and run by an individual. It is not a legal entity but a description of a type of business, so there are no formal papers to file to create one. With a sole proprietorship, the individual and business are one and the same.
Many entrepreneurs run new businesses as sole proprietorships because they are established automatically when an individual decides to begin selling goods or services.
Independent graphic designers, snow plowing services, or personal chefs all run sole proprietorships if they are the owners.
Although you don’t have to submit official paperwork to establish a sole proprietorship, depending on your state, county, or city, you may have to get a business license or permit.
Whether you are required to obtain a license or permit will depend on the type of business you run.
Stock Keeping Unit (SKU)
SKU (pronounced “skew”), short for stock keeping unit, is used by retailers to identify and track its inventory, or stock.
A SKU is a unique code consisting of letters and numbers that identify characteristics about each product, such as manufacturer, brand, style, color, and size.
Companies issue their own unique SKU codes specific to the good and services it sells. Two companies selling the same item, such as yoga pants, would likely issue two different internal SKUS.
The purpose of SKUs is to help companies more accurately and quickly account for every piece of their inventory. They are different from model numbers, but model numbers can be incorporated into a SKU if a company chooses to do so.
Subchapter S Corporation (S Corp)
A Subchapter S Corporation, also known as an S corp, is a specific type of corporation; the other type is a Subchapter C corporation.
In a nutshell, an S corp provides all the advantages of a corporate business structure, while allowing the profits and losses to pass through to the shareholder(s), just as in an LLC or partnership.
A corporation is a form of business that is owned by its shareholder(s) and which assumes liability for the actions and finances of the business – the shareholders cannot be held responsible. Being able to shift liability away from the owner and onto the business itself is a major advantage.
A tariff is a tax imposed by a government on goods and services imported from other countries that serves to increase the price and make imports less desirable, or at least less competitive, versus domestic goods and services.
Tariffs are generally introduced as a means of restricting trade from particular countries or reducing the importation of specific types of goods and services.
For example, to discourage the purchase of Italian leather handbags, the U.S. government could introduce a tariff of 50% that drives the purchase price of those bags so high that domestic alternatives are much more affordable. The government’s hope is that the added cost will make imported goods much less desirable in the eye of consumers’.
Tax Identification Number (TIN)
A tax or taxpayer identification number, also known as a TIN for short, is a number issued to individuals and organizations to track tax obligations and payments they make to the Internal Revenue Service (IRS).
Issued by the federal government, a TIN can be assigned by the Social Security Administration for individuals, or by the IRS for businesses and other organizations.
A trade show is an event held to bring together members of a particular industry to display, demonstrate, and discuss their latest products and services.
Major trade shows usually take place in convention centers in larger cities and last several days.
Local trade shows may be held at a local arena or hotel and allow businesses in the area to connect with prospects.
Since the purpose is to bring together members of the trade – or industry – most trade shows, which may also be referred to as trade fairs or expositions, only permit industry members to attend.
Book Expo America, held annually, is one show that only allows publishing industry pros in, while the Consume Electronics Show, another major event, tries to limit attendees to professionals in the electronics and technology fields.
Conversely, SXSW (South by Southwest), held in Austin, Texas, each year welcomes the public, as does America’s Largest RV Show, which restricts attendance to industry members for the first couple of days and then opens to the public for several more.
Unique Selling Proposition (USP)
A unique selling proposition, more commonly referred to as a USP, is the one thing that makes your business better than the competition. It’s a specific benefit that makes your business preferable to the other businesses in your market.
Walmart’s USP is consistent rock bottom prices. Volvo’s USP is safety. LL Bean’s USP is its money-back customer satisfaction guarantee.
While most businesses have more than one factor that make it different from similar companies, the USP is that one benefit that really sets it apart. It’s what the business is known for.
Universal Product Code (UPC)
A UPC, short for universal product code, is a type of code printed on retail product packaging to aid in identifying a particular item.
It consists of two parts – the machine-readable barcode, which is a series of unique black bars, and the unique 12-digit number beneath it.
The purpose of UPCs is to make it easy to identify product features, such as the brand name, item, size, and color, when an item is scanned at checkout.
In fact, that’s why they were created in the first place – to speed up the checkout process at grocery stores.
UPCs are also helpful in tracking inventory within a store or warehouse.
To obtain a UPC for use on a product, a company has to first apply to become part of the system.
Capital is another word for money and working capital is the money available to fund a company’s day-to-day operations – essentially, what you have to work with.
In financial speak, working capital is the difference between current assets and current liabilities.
- Current assets is the money you have in the bank as well as any assets you can quickly convert to cash if you needed it.
- Current liabilities are debts that you will repay within the year.
So, working capital is what’s left over when you subtract your current liabilities from what you have in the bank.
In broader terms, working capital is also a gauge of a company’s financial health. The larger the difference between what you own and what you owe short-term, the healthier the business.
Unless, of course, what you owe far exceeds what you own. Then you have negative working capital and are close to being out of business.