Financial & E-Commerce Glossary
Plain-English definitions of financial, tax, mortgage, and e-commerce terms used across our calculators. Click any calculator link to explore the concept interactively.
A
Amortisation
The process of gradually paying off a debt through regular, scheduled payments over a fixed period. Early payments consist mostly of interest; later payments pay down more principal. For example, a 30-year mortgage is fully amortised when the final payment is made.
Annual Percentage Rate (APR)
The true yearly cost of a loan, expressed as a percentage. Unlike the nominal interest rate, APR includes fees such as origination fees and closing costs spread over the loan's life. Use APR — not just the interest rate — when comparing loan offers.
B
Break-Even ROAS
The Return on Ad Spend required for your advertising campaigns to neither profit nor lose money. Break-even ROAS = Revenue ÷ Ad Spend = 1 ÷ Net Profit Margin. If your margin is 30%, your break-even ROAS is 1 ÷ 0.30 = 3.33×.
C
Cost of Goods Sold (COGS)
The direct costs of producing the goods sold by a business. For e-commerce, COGS typically includes product cost, packaging, and inbound shipping to a fulfilment centre. COGS does not include indirect costs like advertising or platform subscription fees.
Cost Per Acquisition (CPA)
The total advertising spend divided by the number of conversions (sales or leads). If you spend $500 on ads and generate 20 sales, your CPA is $25. Maximum Allowable CPA = Product Price × Net Margin.
Closing Costs
Fees paid at the completion of a real estate or mortgage transaction. Typically 2–5% of the purchase price. Includes lender fees, title insurance, appraisal, escrow, and attorney fees. These are separate from your down payment.
D
Down Payment
The upfront cash amount paid when purchasing a home, reducing the mortgage loan amount. A 20% down payment avoids Private Mortgage Insurance (PMI). The minimum down payment varies by loan type (FHA: 3.5%, conventional: 3–20%).
E
Effective Tax Rate
The average percentage of your income paid in taxes, calculated as total tax owed divided by total taxable income. This differs from your marginal tax rate (the rate applied to your last dollar of income). Effective rates are always lower than marginal rates in progressive tax systems.
Etsy Offsite Ads Fee
A fee Etsy charges when you make a sale through one of their off-platform advertising placements (Google, Facebook, Instagram, Bing). The rate is 15% for shops with less than $10,000 in annual sales and 12% for shops with over $10,000. Shops with under $10k/year can opt out.
Etsy Transaction Fee
A 6.5% fee Etsy charges on the total order amount (item price + shipping + gift wrapping). As of 2024, this is one of the largest costs for Etsy sellers. It applies to all completed orders, regardless of payment method.
F
FBA Fulfilment Fee
The fee Amazon charges for picking, packing, and shipping your product when using Fulfilment by Amazon (FBA). Calculated based on the product's size tier and weight. Ranges from approximately $3.22 for small standard items to $150+ for oversized products.
FICA Tax
Federal Insurance Contributions Act — the US payroll tax that funds Social Security and Medicare. Employees pay 6.2% for Social Security (up to the wage base, $168,600 in 2024) and 1.45% for Medicare. Self-employed individuals pay both the employee and employer portions (15.3% total).
G
Gross Profit Margin
The percentage of revenue remaining after subtracting the cost of goods sold (COGS), but before operating expenses. Formula: (Revenue − COGS) ÷ Revenue × 100. A healthy e-commerce gross margin is typically 40–60%.
I
Interest Rate
The annualised cost of borrowing money, expressed as a percentage of the principal. The interest rate determines how much interest accrues on your loan balance. It differs from APR in that it does not include fees. For mortgages, the note rate is the interest rate.
L
Loan-to-Value Ratio (LTV)
The ratio of your mortgage loan amount to the appraised value of the property. LTV = Loan Amount ÷ Property Value × 100. Lenders use LTV to assess risk. An LTV above 80% typically requires PMI. A lower LTV usually results in better interest rates.
M
Marginal Tax Rate
The rate of tax applied to your last dollar of income — the highest tax bracket you fall into. In progressive tax systems (US, UK, Canada, Australia), income is taxed at increasing rates as it rises through brackets. Your marginal rate is always higher than your effective rate.
Monthly Payment (P&I)
The combined principal and interest portion of a monthly loan payment. Formula: PMT = P × [r(1+r)^n] ÷ [(1+r)^n − 1], where P is the loan principal, r is the monthly interest rate (annual rate ÷ 12), and n is the number of monthly payments.
N
Net Profit Margin
The percentage of revenue remaining after all costs — COGS, platform fees, shipping, advertising, and operating expenses — have been deducted. Formula: Net Profit ÷ Revenue × 100. A healthy net margin for e-commerce is typically 10–20%.
O
Origination Fee
A fee charged by a lender for processing a new loan application. Typically expressed as a percentage of the loan amount (often 0.5–1%). Origination fees increase the effective cost of the loan and are included in the APR calculation.
P
PITI
Principal, Interest, Taxes, and Insurance — the four components of a total monthly mortgage payment. Principal and interest go toward repaying the loan; property taxes and homeowners insurance are typically held in escrow by the lender and paid on your behalf.
PMI (Private Mortgage Insurance)
Insurance required by lenders when the down payment is less than 20% of the home's value. PMI protects the lender (not the borrower) in case of default. Typically costs 0.5–1.5% of the original loan amount per year. Can be removed once LTV drops to 80%.
Principal
The original amount of money borrowed in a loan, before interest is applied. As you make loan payments, the principal balance is gradually reduced. The portion of each payment applied to principal increases over time as the interest portion decreases.
R
Referral Fee (Amazon)
The percentage of each sale's revenue that Amazon collects for providing access to its marketplace. Rates vary by product category, ranging from 6% (personal computers) to 45% (Amazon Device accessories). Most categories are 8–15%. Referral fees are charged on the total sale price including shipping.
Return on Ad Spend (ROAS)
A marketing metric measuring the revenue generated for every pound or dollar spent on advertising. ROAS = Revenue from Ads ÷ Ad Spend. A ROAS of 4× means you earned $4 for every $1 spent. A higher ROAS is better, but break-even ROAS depends on your profit margin.
T
Tax Bracket
A range of income taxed at a specific rate in a progressive tax system. Only income within each bracket is taxed at that bracket's rate — not all your income. For example, in a system with a 20% bracket for $30,000–$50,000, only income within that range is taxed at 20%.