12 Industry Terms All Entrepreneurs Need To Know

Learn the Lingo

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Hey, it's Ezra, the Founder of ViableView.

This short article is intended to teach some of the most essential industry terms all entrepreneurs should know.

Having not attended college or any formal business courses, I had to learn everything through experience. This journey has provided me with a unique perspective on what truly matters in the business world.

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These are just some base terms I feel are the most critical to understand.

Also mind you - some of these are slightly tailored to ViableView’s use case, but all are fundamentally applicable to all verticals and business use-cases.

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Alright, let’s get rocking in bite sized junks.

First Two:

1. Average Order Value (AOV): Average amount of money each customer spends per transaction. Calculated by (Average price of your products * How many products a customer has in their transaction)
2. Average Life Time Value (LTV): An estimate of the total revenue a business can expect from a single customer throughout their relationship with the company. Calculated by (AOV * The average number of times a customer has a transaction)

In the simplest terms, they represent how much each customer gives you each time they shop (AOV) and how much they are going to give you in total over their lifetime (LTV).

Three, Four, and Five:

3. Net Profit: The remaining income from sales after deducting all operational, production, and acquisition costs. Calculated by (Total Revenue - Total Cost)
4. Net Profit Margin (PM%): A percentage indicating how much of the total revenue is actual profit. Calculated by (Net Profit / Total Revenue) × 100
5. Total Cost Margin (CM%): The percentage of total revenue consumed by the combined costs of producing and selling products or services. Calculated by (Total Cost / Total Revenue) × 100

These may seem super simple, but having a strong understanding of them is essential. The Net Profit Margin (PM%) metric is key to being able to gauge profitability without needing actual profit and revenue numbers for context. The Total Cost Margin (CM%) is helpful for producing projections to evaluate estimated future profits.

Six and Seven:

6. Cost Per Acquisition (CPA): The average cost incurred to acquire a customer. Calculated by (Total marketing and advertising cost / The number of new customers gained.)
7. Profit Per Order (PPO): The average profit earned from each sales transaction. Calculated by (AOV * PM%)

Your CPA mainly measures how well your marketing is doing. The better your marketing is, the lower your CPA will be, making your PPO higher. If everything could be this simple.

Eight and Nine:

8. Conversion Rate: The percentage of visitors to a website or platform who complete a desired action, such as making a purchase.
9. CPC (Cost Per Click): The amount paid for each click on an advertisement.

Now I will use several of these terms together in an example so you can see how they work. To do that, I am going to spin a hypothetical situation.

I am going to spend $100 on marketing.

My CPC (Cost Per Click) was $1 so that means I got 100 clicks ($1 CPC / $100 = 100 clicks)

My Conversion Rate was 5% so that means I got 5 orders (100 clicks * 5% = 5 orders)

My AOV (Average Order Value) was $200 so my total revenue was $1,000 ($200 AOV * 5 orders = $1K)

My PM% (Net Profit Margin) was 50% so my PPO (Profit Per Order) was $100 ($200 AOV * 50% PM% = $100)

Ten, Eleven, and Twelve:

Now that we have those essentials covered, we are going to go over the last three.

Our approach to these is a bit different than the traditional. Our definitions are slightly adjusted to accommodate broad market examination and opportunity identification. These definitions best reflect the numbers you will see in ViableView for these terms.

10. Total Addressable Market (TAM): Also known as Total Market Size, it is the total revenue for an industry, category, segment, niche/opportunity, or product.
11. Serviceable Available Market (SAM): A portion of the Total Addressable Market (TAM) that is potentially available for capture. This is based on supply and demand, the ability of new seller penetration, among several other unique factors.
12. Serviceable Obtainable Market (SOM): A portion of SAM that you can capture realistically, considering your experience level and budget - what we call your market aggression.

Bonus Terms:
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Niche definition:It is a group of products that are all similar to each other and would normally be purchased by the same specific type of buyers.

Opportunity Definition:When used within ViableView, an opportunity is just a word for a profitable Niche/Group of products that are all similar to each other.