By Financial planning & analysis (FP&A) for consumer brands combines accounting, forecasting, and unit economics into one language. This glossary defines the 60+ terms you'll encounter in budgets, forecasts, board decks, and lender conversations.
Terms marked with a link point to full-length guides. Start here for quick definitions; dive deep into any term for worked examples and context. FP&A for consumer brands requires tying these terms into one monthly close: unit economics by channel, profitability by SKU, cash flow forecasts, and scenarios for every business decision.
A
Accrual Accounting
Revenue recognition when earned (regardless of cash payment); expenses when incurred (regardless of cash outflow). Standard for GAAP financial statements and the right basis for FP&A. See cash vs accrual accounting for full guide.
Adjusted EBITDA
EBITDA adjusted for items a buyer or lender would not expect to recur, such as one-time legal costs, owner compensation above market rate, or stock-based compensation. Used in valuation to show "true" operating earnings. See adjusted EBITDA guide.
Average Order Value (AOV)
Total revenue divided by number of orders in a period. AOV = Revenue / Orders. Rising AOV helps only if contribution per order rises with it.
Accounts Payable (AP)
Money your brand owes to suppliers for goods/services received but not yet paid. Payment terms vary by supplier. Part of working capital.
Accounts Receivable (AR)
Money customers owe you for goods/services delivered but not yet paid. Common in wholesale/B2B. Ties up working capital.
B
Break-Even Analysis
The revenue or unit volume at which total profit equals zero (total revenue = total costs). See break-even guide for calculation and application.
Budget
Approved plan for revenue, costs, and cash for a fiscal year. Bottom-up (department budgets) or top-down (revenue target waterfall). Monthly P&Ls compared to budget for variance analysis.
Burn Rate
Net cash consumed per month (cash out minus cash in). Runway = cash balance ÷ monthly net burn. A cash-flow-positive month has no burn. See cash runway guide.
Business Partnering
Finance acting as strategic partner to business leaders: forecasting, pricing decisions, scenario modeling. Not just reporting.
C
CAC (Customer Acquisition Cost)
Total marketing spend divided by new customers acquired. CAC = Marketing Spend / New Customers. See CAC/LTV guide. Rising CAC signals market saturation or need for channel shift.
Cash Accounting
Revenue/expenses recognized only when cash moves. Simpler than accrual. Small business taxpayers that meet the IRS gross receipts test can generally use it for tax, even with inventory; most growing brands still keep accrual books. See cash vs accrual guide.
Cash Conversion Cycle (CCC)
Days from cash outlay (pay suppliers) to cash recovery (customer pays). CCC = Days Inventory Outstanding + Days Sales Outstanding − Days Payable Outstanding. See CCC guide.
Cash Flow
Actual money in/out of the business. Different from accrual profit (e.g., a wholesale sale shipped in November on net 60 terms doesn't hit cash until January). See 13-week cash forecast guide.
Channel
Sales distribution method: DTC (direct-to-consumer / Shopify), Amazon, Wholesale (retailers/distributors), Quick Commerce. Each channel has different unit economics and profitability.
CM1, CM2, CM3 (Contribution Margin Tiers)
Progressive layers of profitability by channel. CM1 (after COGS), CM2 (after fulfillment, payment and channel fees, and returns), CM3 (after marketing). See CM guide for full breakdown.
COGS (Cost of Goods Sold)
Direct product costs: manufacturing, inbound freight, duties, packaging. Does NOT include fulfillment, ads, or overhead. See COGS guide.
Cohort Analysis
Grouping customers by sign-up/purchase date and tracking their behavior over time (repeat rate, LTV, churn). See cohort guide.
Contribution Margin
Revenue minus variable costs. Shows how much each sale contributes to fixed costs and profit. See full guide.
Cost of Capital
The return investors require. Weighted average of cost of equity and cost of debt. See WACC guide.
D
Days Inventory Outstanding (DIO)
Average days inventory sits before sale. DIO = (Average Inventory / COGS) × Days. High DIO = cash tied up; low DIO = efficient. See working capital guide.
Days Payable Outstanding (DPO)
Average days before paying suppliers. DPO = (Average AP / COGS) × Days. Longer DPO keeps cash in the business longer, within the terms you agreed.
Days Sales Outstanding (DSO)
Average days to collect payment after sale. DSO = (Average AR / Revenue) × Days. Low DSO (DTC cash-on-hand) better than high DSO (wholesale net 60).
DCF (Discounted Cash Flow)
Valuation method: project cash flows and discount back to present value. Used in NPV analysis and brand valuation.
Dead Stock
Inventory that won't sell at full price; requires markdown or write-down. See inventory write-down guide.
Depreciation
Non-cash expense spreading asset cost over useful life (e.g., $50K warehouse over 10 years = $5K/year). Reduces taxable income without using cash.
Direct Response (DR) Marketing
Marketing spend tied to immediate, measurable action: ads, email, influencer. Trackable CAC. Opposite of brand-building (hard to measure).
Driver-Based Forecast
Revenue forecast built from unit drivers (units sold, ASP, channel mix), not pure trend-line. More flexible when business changes. See driver-based forecast guide.
E
EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization)
Earnings before interest, taxes, depreciation and amortization. EBITDA = Net Income + Interest + Taxes + D&A. A proxy for operating earnings, but not cash flow: it ignores working capital and capex.
Economic Profit
Profit after covering cost of capital: Economic Profit = NOPAT − (Invested Capital × WACC). Differentiates accounting vs. economic profit.
Equity
Owner's stake in the business (assets − liabilities). Built from capital invested by owners plus retained earnings.
Exchange Rate
Rate at which one currency converts to another. Critical for global brands or suppliers in different countries. Fluctuations affect COGS and pricing.
F
FBA (Fulfillment by Amazon)
Amazon stores, picks, packs and ships your product. You pay FBA fulfillment fees (by size and weight) and storage fees on top of Amazon's category-based referral fees.
Fixed Costs
Costs that don't change with sales volume: rent, salaries, software subscriptions. Must be covered by contribution margin.
Forecast
Projection of future financial performance (revenue, expenses, cash) based on drivers and assumptions. Updated monthly or quarterly. See forecast vs budget guide.
Free Cash Flow (FCF)
Operating cash flow minus capex. FCF = Operating Cash − Capital Expenditures. What's left for debt/equity investors. See FCF guide.
FP&A (Financial Planning & Analysis)
Function of providing financial guidance to business: budgeting, forecasting, variance analysis, scenario modeling, capital allocation. Strategic finance.
G
GAAP (Generally Accepted Accounting Principles)
Standard accounting rules (US). Accrual-based rules for financial statements, required for audited statements and expected by most lenders and investors. Tax accounting rules are separate.
GMROI (Gross Margin Return on Investment)
GMROI = Gross Margin $ / Inventory Investment. Measures efficiency of inventory: how much gross profit per dollar of inventory. See GMROI guide.
Gross Profit / Gross Margin
Revenue − COGS = Gross Profit. Gross Margin % = Gross Profit / Revenue. First profitability layer; it varies widely by category and channel.
Gross Receipts
Total revenue before any deductions. The IRS gross receipts test (an inflation-indexed threshold) uses it to decide who counts as a small business taxpayer for accounting-method rules. See cash vs accrual guide.
H
Hurdle Rate
Minimum required return for capital investment. Often set at or above your WACC. Projects must exceed it to be approved.
Headcount Planning
Forecast of team size and payroll by department. Key operating expense driver. See headcount-planning guide for scaling models.
I
Income Statement (P&L)
Revenue − Expenses = Profit. Shows profitability over a period (monthly/yearly). Core financial statement.
Inventory Turnover
COGS / Average Inventory. How many times inventory sells over a period. Higher = more efficient.
IRR (Internal Rate of Return)
Annualized return on an investment. IRR = discount rate where NPV = 0. See NPV/IRR guide.
Inventory Write-Down
Expense recorded when inventory loses value (obsolescence, damage, markdown). See inventory write-down guide.
J-M
KPI (Key Performance Indicator)
Metric that tracks business health: revenue, contribution margin, CAC, LTV, cash balance. Monitored monthly in board decks and forecasts.
Landed Cost
Total cost of goods delivered to your warehouse: product + inbound freight + duties + tariffs + insurance. See landed cost guide.
LTV (Lifetime Value)
Total contribution a customer generates over the relationship. LTV = contribution margin per order × expected orders per customer. See LTV guide.
Markup vs Margin
Markup = (Price − Cost) / Cost × 100. Margin = (Price − Cost) / Price × 100. Related but different. See markup vs margin guide.
MER (Marketing Efficiency Ratio)
Total revenue ÷ total marketing spend, across all channels. MER 3.0x means each $1 of marketing is matched by $3 of revenue. Compare it with your breakeven MER (1 ÷ contribution margin %). See MER vs ROAS guide.
Month-End Close
Process of finalizing monthly financials: reconciliations, accruals, P&L, balance sheet. See month-end close guide.
Multi-Channel Attribution
Assigning credit for a sale to the channel/touchpoint that drove it. Important for marketing ROI: what % of revenue is truly from Amazon vs DTC?
N-R
Net Profit / Net Income
Revenue − All Expenses (COGS, Operating, Interest, Taxes, Depreciation). Bottom-line profit.
NPV (Net Present Value)
Present value of all future cash flows minus upfront investment. If NPV > 0, project creates value. See NPV guide.
Omnichannel
Operating across multiple sales channels simultaneously: DTC, Amazon, Wholesale, Quick Commerce. Requires unified profitability view.
Operating Expenses (OpEx)
Costs to run the business: salaries, marketing, rent, software, fulfillment.
Payback Period
Time to recover initial capital investment. Payback = Initial Investment / Annual Cash Flow. Shorter is better; it ignores the time value of money, so pair it with NPV.
Payment Processor Reserve
Cash held back by payment processor (Stripe, Square, etc.) as insurance against chargebacks. Terms vary by processor and account. Ties up working capital. See payment reserve guide.
Platform ROAS
Revenue a platform attributes to its ads ÷ spend on that platform (Amazon Ads, Meta Ads, Google Ads). Useful for optimizing inside a channel, not for judging profitability. See MER vs ROAS guide.
Price-Volume-Mix Analysis
Breaks down variance in revenue into three drivers: price change, volume change, product mix shift. See PVM guide.
Profitability Index
PV of future cash flows / Initial Investment. >1.0 = project creates value. Used to rank multiple projects.
Repeat Rate / Repeat Customer %
Percentage of customers who buy more than once in a period. Higher repeat means more predictable revenue. See cohort analysis guide.
Reorder Point
Inventory level at which to reorder to avoid stockout. Reorder Point = (Lead Time × Demand) + Safety Stock. See reorder guide.
Revenue Recognition
When revenue is recorded under accrual accounting (ASC 606). For product sales, revenue is recognized when control passes to the customer, often at shipment or delivery, regardless of payment timing.
Rolling Forecast
Forecast that always extends X months into the future (e.g., always 12 months ahead). Updated monthly. See rolling forecast guide.
S
Safety Stock
Extra inventory held to buffer against demand swings or supply delays. A common formula is z × standard deviation of daily demand × √(lead time in days). See safety stock guide.
Scenario Analysis
Modeling "what if" outcomes: what if revenue is 20% lower? What if costs rise 15%? See scenario guide.
SDE (Seller Discretionary Earnings)
Net profit + owner salary + non-recurring expenses + D&A. Used to value owner-dependent businesses. See valuation guide.
Sell-Through Rate
Units sold / Units shipped to retailer. Compare it with prior seasons and similar SKUs. See sell-through guide.
Sensitivity Analysis
Testing how outputs change with input changes. E.g., NPV table showing NPV at different growth rates or discount rates. See sensitivity guide.
SKU (Stock Keeping Unit)
Individual product variant: size, color, flavor. More SKUs add operational complexity and inventory risk.
SKU Rationalization
Pruning low-margin or slow-moving SKUs. Increases profitability by removing complexity. See SKU rationalization guide.
Spend Analysis
Detailed breakdown of operating expenses by category: salaries, rent, software, fulfillment, etc. Variance analysis common: actual vs budget.
Supply Chain
End-to-end flow from supplier to customer: procurement → manufacturing → inbound logistics → warehousing → fulfillment → delivery.
T-W
Tariff / Duty
Tax imposed on imported goods. Increases landed cost. See tariff scenario guide.
Throughput
Volume of product processed (units sold, fulfilled, produced) over a period. Throughput improvement = efficiency gain.
Trade Spend / Trade Promotion
Discounts, rebates, co-op advertising offered to retailers/distributors to gain shelf space. Reduces net revenue. See trade spend guide.
Three-Statement Model
Integrated P&L, Balance Sheet, and Cash Flow Statement. Changes in one cascade to others. Foundation of financial modeling. See three-statement guide.
Unit Economics
Revenue and profit per unit sold. Includes COGS, fulfillment, marketing. See unit economics guide.
Unit Sales
Quantity of products sold (not revenue). Important driver for forecasting and inventory planning.
Variance Analysis
Comparison of actual vs budgeted/forecast performance. Bridges: price variance, volume variance, mix variance. See variance guide.
WACC (Weighted Average Cost of Capital)
Blended cost of equity and debt. Discount rate used in NPV. WACC = (E/V × Cost of Equity) + (D/V × Cost of Debt × (1−Tax Rate)). See WACC guide.
Wholesale
Sales to retailers or distributors on payment terms. Usually lower margin per unit than DTC, with larger orders and deductions to manage.
Working Capital
Short-term assets and liabilities: inventory, AR, AP. Working Capital = Current Assets − Current Liabilities. See working capital guide.
Writedown
Expense that reduces asset value on the balance sheet (e.g., inventory obsolescence, bad debt). See inventory write-down guide.
Put these terms to work in one model.
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Key Takeaways
- Compare LTV (on a contribution basis) with CAC, and track CAC payback. Rising CAC can signal saturation or the need for a channel shift.
- Cash vs accrual: small business taxpayers under the inflation-indexed gross receipts threshold can generally use the cash method for tax, but accrual books give the true monthly profit picture.
- CM1/CM2/CM3 show profitability at each cost layer by channel. Same product can be profitable on DTC but unprofitable on Amazon.
- Brand valuations apply a multiple to SDE or EBITDA. Growth, margins, channel concentration and owned audience drive the multiple.
- NPV and IRR are capital budgeting tools. Accept projects with positive NPV (or IRR > WACC). Use NPV to rank competing projects.
- Working capital cycle (DIO + DSO − DPO) determines cash flow timing. High DIO or long DSO = cash tied up; optimize by negotiating better payment terms.
- Cohort analysis tracks customer behavior over time: retention, repeat rate, LTV. Cohorts acquired in different periods may have different LTV.
- Forecast accuracy matters for cash planning. Update monthly; use driver-based forecasts for flexibility when channel mix shifts.
Frequently Asked Questions
What is the difference between budget and forecast?
Budget is the approved annual plan (fixed). Forecast is updated predictions based on latest data (flexible). Budget is commitment; forecast is current view. Both should be compared to actual performance for variance analysis.
How is contribution margin different from gross margin?
Gross margin = (Revenue − COGS) / Revenue. Contribution margin = (Revenue − All Variable Costs) / Revenue. Contribution margin also deducts variable costs such as fulfillment, payment processing, returns and (at CM3) marketing. It's a more complete view of profitability by channel.
Why does cash flow differ from profit?
Profit (accrual) is when revenue is earned; cash is when money arrives. Wholesale orders shipped in November but paid in January show as November profit but January cash. Inventory, AR, and AP timing create the gap.
What is a healthy LTV:CAC ratio?
There is no universal target. Calculate LTV on contribution margin, not revenue, and set your target from your cash position and payback needs: a brand short on cash needs a faster CAC payback than one with funding. Track both the ratio and payback months.
How do I forecast revenue if my business is growing fast?
Use driver-based forecasting: project unit volume by channel, multiply by average selling price, account for mix shift. This is more flexible than trend-line extrapolation when the business is changing shape.