The business glossary
The language of business, without the unnecessary complexity.
These introductory definitions help you follow a story and ask better questions. Company-specific metrics can use different definitions; check the original source before comparing them.
Business model
How a company creates value for customers, delivers it, and earns money from it. The product is one part of the model; pricing, distribution, costs, and customer relationships matter too.
Revenue
The income a company records from its business activities before subtracting expenses. Revenue growth tells you about the scale of sales, but does not by itself establish profitability.
Profit
What remains after the relevant expenses are deducted from revenue. Gross profit, operating profit, and net profit subtract different categories of costs, so the label matters.
Gross margin
Gross profit divided by revenue, usually shown as a percentage. It describes the share of revenue left after the direct costs included in cost of goods sold; it does not include every expense of running the business.
Cash flow
Cash moving into and out of a business over a period. Accounting profit and available cash can differ because the timing of payments, investment, and accounting recognition can differ.
Unit economics
The revenue and costs associated with a defined unit, such as an order, customer, or location. Always ask which unit is being measured and which costs are included.
Customer acquisition cost
The cost of gaining a new customer under a specified calculation. A narrow advertising-only measure is different from one that also includes sales staff and other acquisition spending.
Customer lifetime value
An estimate of the value a customer relationship may generate over time. The calculation depends on assumptions about retention, spending, margins, and the time period.
Retention
How well a business keeps customers, users, or revenue over time. Customer retention and revenue retention measure different things; a company can lose customers while increasing revenue from those who remain.
Churn
The loss of customers, subscriptions, or revenue during a defined period. A churn percentage is only meaningful when you know what was lost and which starting population was used.
Recurring revenue
Revenue expected to repeat through ongoing customer relationships or contracts. It can provide visibility, but renewals and customer satisfaction still matter.
Pricing power
A company’s ability to sustain higher prices without losing so much demand that the increase becomes counterproductive. Differentiation, alternatives, and customer budgets influence it.
Distribution
The routes a business uses to reach customers, whether through stores, partners, marketplaces, direct sales, or digital channels. A strong product still needs a way to be discovered and purchased.
Competitive advantage
A reason a company can perform better than alternatives in a particular context. An advantage becomes more valuable when competitors find it difficult to copy or neutralize.
Switching costs
The money, time, effort, or disruption involved in moving from one product or provider to another. They may arise from training, integrations, habits, contracts, or data migration.
Network effects
When a product’s value to a user changes as participation in its network grows. Not every growing business has network effects, and a larger network can also introduce congestion or other costs.
Economies of scale
Cost advantages that can arise as production or activity grows, such as spreading some fixed costs across more units. Growth can also create complexity, so scale does not automatically improve every cost.
Market share
A company’s portion of a defined market, commonly measured by sales value or units sold. The chosen geography, product category, period, and measurement determine what the figure means.
Positioning
The place a brand aims to occupy in a customer’s mind relative to alternatives. It connects the intended audience, the benefit offered, and the reason to believe the promise.
Opportunity cost
The value of the next-best alternative given up when making a choice. Time, capital, and attention spent on one direction cannot be spent on every other direction at the same time.
A term should help explain a business, not replace an explanation. Put these ideas to work with our company analysis guide ↗