📖 How to Use This Glossary

Terms are organized alphabetically. Each entry includes: definition, context (when/why you'd use it), and real examples. Terms marked with 🔧 are specific to TikTok Shop; others are general e-commerce concepts.

A

AOV (Average Order Value)

Definition: The average dollar amount customers spend per order.

Formula: Total Revenue ÷ Number of Orders

Example: $15,000 revenue ÷ 500 orders = $30 AOV

Why it matters: Higher AOV improves profitability because platform fees (referral, fulfillment) don't scale linearly with order value. A $50 order with $3.58 FBT costs 7.2% in fulfillment; a $100 order costs only 3.6%.

B

Break-Even Price

Definition: The minimum selling price needed to cover all costs (COGS, fees, fulfillment, commission) with zero profit.

Formula: (COGS + Fulfillment + Other Costs) ÷ (1 − Referral Fee % − Creator Commission %)

Example: COGS = $10, FBT = $3.58, referral = 6%, commission = 15%
Break-even = ($10 + $3.58) ÷ (1 − 0.06 − 0.15) = $13.58 ÷ 0.79 = $17.19

Why it matters: Any price below break-even means you lose money on every sale. Always calculate this before launching a product.

C

COGS (Cost of Goods Sold)

Definition: The direct cost to produce or acquire one unit of product, including materials, labor, and inbound shipping.

Includes:

Unit cost from supplier/manufacturer
Inbound shipping (from supplier to your warehouse/FBT)
Import duties and tariffs (if international sourcing)
Product packaging (boxes, inserts, labels)

Does NOT include: Outbound shipping (that's fulfillment cost), ads, or platform fees.

Example: You buy 1,000 units from China at $8 each. Shipping to US costs $500. COGS = $8 + ($500 ÷ 1,000) = $8.50 per unit.

Creator Commission 🔧

Definition: The percentage of the selling price you pay to TikTok creators (influencers) who promote your product in their videos.

Typical rates: 10-20% depending on category and product price

Example: A creator posts a video featuring your $30 skincare product. If your commission is 15%, the creator earns $4.50 per sale generated from their video.

Why it matters: This is one of your largest variable costs on TikTok Shop. Set it too low, and creators won't promote you. Set it too high, and you erode margin.

CTR (Click-Through Rate)

Definition: The percentage of people who click on your product link after seeing it.

Formula: (Clicks ÷ Impressions) × 100

Example: 1,000 people see your product in a creator's video, 50 click → CTR = 5%

Why it matters: Low CTR means your product isn't compelling or the creator's audience isn't a good fit. Benchmark: 3-5% is typical for TikTok Shop.

D

Dimensional Weight

Definition: A pricing method used by carriers that calculates shipping cost based on package size (volume) rather than actual weight.

Formula: (Length × Width × Height) ÷ 139 (for inches) or ÷ 5000 (for cm)

Example: Package is 12" × 10" × 8", weighs 2 lbs
Dimensional weight = (12 × 10 × 8) ÷ 139 = 6.9 lbs
Carrier charges based on 6.9 lbs, not 2 lbs.

Why it matters: Bulky, lightweight products (pillows, stuffed toys) can have much higher shipping costs than you'd expect from actual weight.

F

FBT (Fulfilled by TikTok) 🔧

Definition: TikTok Shop's managed fulfillment service (US only as of May 2026). You ship inventory to TikTok's warehouse, and they handle storage, picking, packing, and shipping to customers.

Rates (2025-2026):

Standard, single-unit: $3.58
Multi-unit: $2.86 per unit
Oversize: $5.75 per unit

Storage fees: Free first 60 days, then $0.015-$0.12 per day per cu. ft. depending on how long it sits.

Why it matters: FBT is often cheaper than 3PL for standard-size products and eliminates the logistical burden of self-shipping.

FBM (Fulfilled by Merchant)

Definition: You (the seller) handle all fulfillment: packaging, shipping labels, carrier dropoff, and delivery tracking. Opposite of FBT.

Also called: Self-ship

Cost: Variable. Depends on your carrier rates, packaging materials, and labor.

Why it matters: Gives you full control but requires more time and infrastructure. Best for low-volume sellers or products that don't fit FBT eligibility.

G

GMV (Gross Merchandise Value) 🔧

Definition: The total dollar value of all products sold through TikTok Shop before any fees or returns are deducted.

Formula: Sum of all order values (including tax and shipping charged to customers)

Example: You sell 100 units at $30 each → GMV = $3,000

Why it matters: TikTok Shop often reports GMV in seller dashboards, but your net revenue (what you actually keep) is much lower after fees, commissions, and returns.

I

Inventory Turnover

Definition: How many times you sell and replace your inventory in a given period (usually monthly or annually).

Formula: COGS ÷ Average Inventory Value

Example: You have $5,000 in inventory, sell $15,000 worth of product per month → Turnover = $15,000 ÷ $5,000 = 3× per month

Why it matters: Higher turnover means less capital tied up in inventory and lower FBT storage fees. If your turnover is slow (inventory sits >90 days), storage fees can eat 5-10% of your margin.

L

LTV (Lifetime Value)

Definition: The total profit a customer generates over their entire relationship with your brand, not just their first purchase.

Formula: Average Order Value × Purchase Frequency × Customer Lifespan

Example: A customer buys once per quarter ($40 average) for 2 years → LTV = $40 × 4 quarters × 2 years = $320

Why it matters: If your LTV is high, you can afford to spend more on creator commissions or ads to acquire that customer, even if the first sale is break-even.

M

Multi-Unit Package 🔧

Definition: An FBT order containing 2+ units of the same SKU shipped together in one box.

Benefit: 24% discount on FBT fees ($2.86 per unit vs $3.58 for single-unit)

Example: Customer orders 3 bottles of your supplement → TikTok ships all 3 in one box, charges $2.86 × 3 = $8.58 instead of $10.74

Why it matters: Bundling products or encouraging customers to "buy 2, get 10% off" can significantly reduce your per-unit fulfillment cost.

N

Net Margin (Net Profit Margin)

Definition: Your profit as a percentage of the selling price, after all costs (COGS, fees, fulfillment, commissions).

Formula: (Net Profit ÷ Selling Price) × 100

Example: You sell a product for $30 and keep $9 after all costs → Net Margin = ($9 ÷ $30) × 100 = 30%

Why it matters: This is the most important metric for profitability. Aim for 20-30% minimum. Below 10% is risky.

O

Oversize Package 🔧

Definition: An FBT-fulfilled product that exceeds standard size limits, triggering a 61% fee premium.

Criteria: Weight > 20 lbs OR any dimension > 18" × 14" × 8"

Fee: $5.75 per unit (vs $3.58 standard)

Example: A yoga mat rolled to 24" long qualifies as oversize, even though it weighs only 3 lbs.

Why it matters: Oversize fees can destroy your margin. If possible, redesign packaging to fit under the 18"×14"×8" limit.

P

Payment Processing Fee

Definition: The fee charged to process credit card or digital wallet payments.

US: Included in the 6% unified referral fee
UK/EU: Separate charge, estimated at ~2.9% + £0.30 or €0.30 per transaction

Example (UK): £30 sale → Payment processing = (£30 × 0.029) + £0.30 = £1.17

Why it matters: UK/EU sellers must add this as a separate line item in margin calculations. US sellers don't.

Pre-Owned Category 🔧

Definition: A TikTok Shop product category for used, refurbished, or vintage items (US only).

Fee structure: Tiered referral fee

First $10,000 of monthly sales: 5%
Above $10,000: 3%

Example: You sell $15,000 in used watches this month → ($10,000 × 5%) + ($5,000 × 3%) = $650 in fees (vs $900 at standard 6% rate)

Why it matters: Pre-owned items get a discount on referral fees, making resale and refurbished products more viable.

R

Referral Fee 🔧

Definition: The percentage of each sale that TikTok Shop charges as a platform fee.

Rates by region:

US: 6% (includes payment processing)
UK: 9% (payment processing separate)
EU: 9% (payment processing separate)

Example (US): $50 sale → Referral fee = $50 × 0.06 = $3.00

Why it matters: This is a non-negotiable cost on every sale. Factor it into your pricing from day one.

Refund Admin Fee 🔧

Definition: A fee TikTok Shop charges when you issue a refund.

Rate: 20% of the original referral fee, capped at $5

Example: $50 sale → Referral fee was $3.00 → Refund admin fee = $3.00 × 0.20 = $0.60

Why it matters: Returns aren't free. Even if the customer pays return shipping, you still lose the refund admin fee plus restocking costs.

Return Rate

Definition: The percentage of orders that are returned by customers.

Formula: (Number of Returns ÷ Total Orders) × 100

Benchmarks by category:

Beauty: 5-10%
Fashion: 20-30%
Electronics: 8-12%
Home goods: 5-8%

Why it matters: High return rates erode profit. Each return costs $5-10 in fees and logistics. Always budget for category-typical return rates.

S

Self-Ship Service Fee 🔧

Definition: A per-order fee charged by TikTok Shop UK for sellers who self-fulfill (don't use FBT).

Rate: £0.50 per order (introduced July 2025)

Applies to: UK only (as of May 2026)

Example: You self-ship 100 orders → Service fee = 100 × £0.50 = £50

Why it matters: UK sellers must add this to their per-order costs. On a £20 item, £0.50 is 2.5% of revenue.

SKU (Stock Keeping Unit)

Definition: A unique identifier for a specific product variant (e.g., "Red T-Shirt, Size M" is one SKU; "Red T-Shirt, Size L" is a different SKU).

Example: You sell a supplement in 3 flavors (Chocolate, Vanilla, Strawberry) → 3 SKUs

Why it matters: Each SKU must be tracked separately for inventory, sales velocity, and profitability. A product with 10 variants = 10 SKUs to manage.

Storage Fee 🔧

Definition: A fee TikTok Shop charges for inventory stored in FBT warehouses beyond the free period.

Tiers:

Days 1-60: Free
Days 61-90: $0.015/day/cu. ft.
Days 91-180: $0.048/day/cu. ft.
Days 181+: $0.12/day/cu. ft.

Example: 100 units at 0.5 cu. ft. each sit for 120 days → 50 cu. ft. × [(30 days × $0.015) + (30 days × $0.048)] = $94.50 total

Why it matters: Slow-moving inventory can cost 5-10% of your margin in storage fees. Always forecast sales velocity before sending stock to FBT.

T

3PL (Third-Party Logistics)

Definition: An external warehouse and fulfillment company that stores your inventory and ships orders on your behalf (not TikTok, not you).

Common 3PLs: ShipBob, Flexport, ShipMonk

Typical costs:

Receiving: $0.50 per unit
Storage: $5-15 per pallet/month
Pick & pack: $2-3 per order
Shipping: $4-8 per order

Why it matters: 3PLs offer flexibility (you can use them for multiple sales channels) but are typically 20-30% more expensive than FBT for single-channel TikTok Shop sellers.

U

Unified Fee 🔧

Definition: TikTok Shop's US referral fee structure, where the 6% rate includes both platform commission and payment processing (no separate charges).

Contrast: UK/EU use separate referral (9%) and payment processing (~3%) fees.

Why it matters: Simplifies margin calculations for US sellers. One percentage to track, not two.

V

VAT (Value-Added Tax)

Definition: A consumption tax charged on goods sold in the UK and EU.

Rates: 20% (UK), 19-27% (EU, varies by country)

Who collects it: TikTok Shop automatically collects and remits VAT on your behalf (UK/EU).

Why it matters: VAT is added on top of your selling price, so a £30 product costs the customer £36 (£30 + £6 VAT). You receive £30; TikTok sends £6 to the tax authority.

W

Waterfall Chart

Definition: A visual breakdown showing how your selling price is reduced step-by-step by fees, costs, and commissions until you reach net profit.

Example:

Start: $30 (selling price)
− $1.80 (referral fee)
− $3.58 (FBT)
− $4.50 (creator commission)
− $10 (COGS)
= $10.12 (net profit)

Why it matters: Waterfall charts (like those in the TK Profit Calc) make it easy to see which costs are eating your margin.

Quick Reference Table

Term	What It Affects	Typical Range
COGS	Direct product cost	$5-$50 per unit
Referral Fee	Platform commission	6% (US), 9% (UK/EU)
FBT Fulfillment	Shipping cost	$2.86-$5.75 per unit
Creator Commission	Influencer payout	10-20% of sale price
Storage Fee	FBT holding cost	$0-$0.12/day/cu. ft.
Return Rate	Lost sales	5-30% by category

How to Use This Glossary

For New Sellers

Start with these core terms:

COGS — Your product cost
Referral Fee — Platform commission
FBT — TikTok's fulfillment service
Creator Commission — Influencer payout
Net Margin — Your actual profit percentage

For Existing Sellers

Use this glossary to:

Clarify unfamiliar terms in TikTok Shop Seller Center
Explain concepts to team members or suppliers
Reference definitions when calculating margins or negotiating costs

Still Have Questions?

If a term isn't covered here or you need clarification, reach out:

Contact us via our form
Email: tikprofitcalc@gmail.com

We update this glossary quarterly as TikTok Shop introduces new features and terminology. Last updated: May 31, 2026.