No matter which environment you find yourself in, there’s always vocabulary and acronyms that are tossed around casually that everyone knows the meaning of.
But if you’re new to a term, you can’t understand it and your life gets a bit harder. We put together a collection of definitions of the most common business acronyms and vocabulary that everyone should know.
- APR: Annual Percentage Rate
- Balance Sheet
- BEP: Break-Even Point
- CMS: Content Management System
- CPL: Cost Per Lead
- CRM: Customer Relationship Management
- CRO: Conversion Rate Optimization
- DUNS Number
- DBA: Doing Business As
- EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization
- EIN: Employer Identification Number
- KPI: Key Performance Indicator
- NDA: Non-Disclosure Agreement
- Opportunity Cost
- LLC: Limited Liability Company
- Profit Margin
- Pro Forma
- P&L: Profit and Loss Statement
- ROA: Return on Assets
- ROI: Return on Investment
- RFP: Request For Proposal
- SMM: Social Media Marketing
- SBA: Small Business Administration
- SEO: Search Engine Optimization
- SWOT Analysis
- TQM: Total Quality Management
- UX: User Experience
- Go Forth and Prosper
APR: Annual Percentage Rate
The annual percentage rate (APR) is a percent of an investment or loan that is earned or charged per year. It can be calculated by dividing the annual cost (earnings or interest) over the total amount of the investment or loan. APR is used to easily compare loans from different lenders together to determine the best deal. Here’s a useful APR calculator.
A balance sheet is a quick summary of a business’ financial status. It is broadly broken up into assets, liability, and equity. Within each section is a more detailed breakdown, and often contains data for the current and previous year, side-by-side. For example, assets may be divided into:
- Accounts receivable
- Prepaid payments
BEP: Break-Even Point
The break-even point (BEP) is used in business to signify the point where total costand total revenue are the same. Typically, a business will become profitable after the BEP if significant upfront investments were required. The BEP is usually determine using a break-even analysis chart that shows where profit intersects with costs. Here’s a simple calculator you can use.
CMS: Content Management System
A content management system (CMS) is a website management software application that lets you create pages and posts without much technical knowledge. The most popular example of a CMS is WordPress. All of WordPress’ code is written in the programming language PHP, but you don’t need to know any to create and build a simple content website. Other popular CMSs include Joomla, Drupal, Ghost, and Shopify. Here’s a detailed guide to choosing a CMS.
CPL: Cost Per Lead
Cost per lead (CPL) is the amount it costs for a business to capture a qualified lead. At a high level, comparing the CPL with the value of a lead lets you quickly determine if a marketing channel is profitable or not. The term CPL is typically used for online advertising, and is calculated for each marketing channel a business uses individually, and overall. Learn more about CPL and see examples here.
CRM: Customer Relationship Management
Customer relationship management (CRM) describes the way a business organizes their information about a customer, and how they plan to engage them in the future. It’s purpose is to make sure that a business is always building the strongest relationships with its customers as possible. Usually, CRM refers to online CRM software like SalesForce and Infusionsoft, where a business can store contact information, schedule, and sales status. Here’s a list of the best CRM software.
CRO: Conversion Rate Optimization
Conversion rate optimization (CRO) is the process used to improve conversion rates, mainly for online businesses. The core concept is to use split testing to test multiple versions of an email or web page against each other and see which one results in the most conversions (which may be email addresses, purchases, or other goals). CRO is mainly used for email marketing, landing pages, and in sales funnels.
The DUNS number is a nine-digit number used around the world in order to identify companies, in countries including the United States, Australia, and those in the European Union. A business’ DUNS number is tied to them for most financial transactions. When looking to get a loan, the DUNS number will be used to look at the financial health of your business. You can get a DUNS number for free online.
DBA: Doing Business As
Doing business as (DBA) lets a business operate under a different name, usually to improve ease of marketing or to increase privacy. This fictitious name becomes the “operating” name of the business, but the “legal” name stays the same as when it was registered. This name does not have to be unique, there are often multiple businesses with the same DBA in a single state. Any type of business can use a DBA, even sole proprietors.
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a key metric used to help evaluate the earning potential of companies. It’s the amount a business profits without factors that are hard to accurately predict (depreciation and amortization, taxes), and the cost of debt. EBITDA is not intended to be used in official accounting practices, but instead to provide a quick comparison between the profitability of multiple companies.
EIN: Employer Identification Number
All businesses in the United States that employ workers must have an employer identification number (EIN), sometimes called a Federal Employer Identification Number (FEIN). An EIN is a unique nine-digit number that is used by the Internal Revenue Service (IRS) to ensure that businesses are paying the correct taxes for employees. A business can apply for one online through the IRS website, and you can look up a forgotten EIN on old tax statements or bank documents.
KPI: Key Performance Indicator
A key performance indicator (KPI) refers to any metric that a business uses to measure how well they are performing. A good KPI has a high correlation to success. They are used for all aspects of a business, from customer service to marketing. Common KPIs include:
- Net promoter score (NPS)
- Conversion rate
- Cost per lead (CPL)
- Customer lifetime value
- Customer support tickets.
NDA: Non-Disclosure Agreement
A non-disclosure agreement (NDA) is a contract between 2 or more parties that states that they will not share confidential information with any third parties. Not all types of NDAs are enforceable, it varies by location. Some NDAs that you’ve likely experienced are attorney-client privilege and doctor-patient confidentiality. For example, a doctor is not allowed to reveal a patient’s personal information to anyone under normal circumstances.
The opportunity cost is the cost of selecting one investment opportunity over another. For example, imagine you have $10,000 that you wish to speculate with by investing in companies on the stock market. You decide your two best alternatives are to invest in a safe indexed mutual fund or to select individual stocks you pick yourself. You decide to pick your own stocks and after five years, you’ve made an average of 1% annual profit on your investments. However, the indexed mutual fund made an average of 6% annual profit. Your opportunity cost was 6% – 1% = 5%. Usually, the opportunity cost can only be estimated ahead of time.
LLC: Limited Liability Company
A limited liability company (LLC) is a type of business structure in the United States that shields owners from most liability, intentional or not. An LLC is not a corporation. However, LLCs have an incredibly flexible structure that lets a business structure their taxes like C or S corporations if they please, or like sole proprietorships or partnerships. Here’s a guide to different business structures.
Profit margin refers to the net profit margin that a company has, which is calculated by dividing its net income by its net revenue. Profit margin is represented as a percentage, so if a business has a net income of $1 million, and a revenue of $10 million, it has a profit margin of 10%. In simple terms, the profit margin tells you how many dollars the company profits for every dollar of revenue.
Pro Forma is Latin for “for the sake of form,” and is often used in business to denote that figures are calculated using current and projected values. For example, a pro forma financial statement may be prepared prior to a big transaction for a business, demonstrating the projected costs and benefits for the company. Many startups use pro forma financial statements to secure loans or lines of credits from banks.
P&L: Profit and Loss Statement
A profit and loss, or P&L, statement is a financial statement that sums up the major income and expenses of a company over a given period. In most cases, a P&L statement is the same thing as an “income statement.” The purpose of a P&L statement is to give investors and creditors a reasonably accurate picture of a company’s recent financial health.
ROA: Return on Assets
Return on assets (ROA) is a simple metric that is calculated by dividing the “net income” of a business by its “total assets”. It’s similar to return on investment, but instead measures how well a company is at producing a return based on their assets (instead of a specific investment). However, some assets may be an investment, so the ROA and ROI would be the exact same.
ROI: Return on Investment
Return on investment (ROI) is a simple metric that is calculated by dividing the profit from an investment (revenue minus cost) by the cost of the investment. For example, a ROI of 10% means that a company would profit $1 for every $10 invested. Calculating the ROI of several investment opportunities makes it easier to compare them and pick the best ones to pursue. Here’s a useful ROI calculator.
RFP: Request For Proposal
A company creates a request for proposal (RFP) when money is available for a project and they would like to invite other companies to bid on the work. The RFP contains details of the work to be done, as well as the bidding submission process, and contract terms. Once proposals are received, the company who originally created the RFP must evaluate the details of each bid and choose a winner. This is a detailed guide on how to write a RFP.
SMM: Social Media Marketing
Social media marketing (SMM) is a blanket term for any marketing done using social media. It is a subset of digital marketing, just like SEO. The main purpose of choosing to run a SMM campaign is to leverage one or a few social marketing sites to spread a message. Campaigns typically focus on top of the funnel activities like awareness and lead collection, rather than direct sales. There are many SMM tools to make this easier.
SBA: Small Business Administration
The Small Business Administration (SBA) is a U.S. federal agency dedicated to helping small businesses. They provide capital through loans and grants, as well as access to training. Many government contracts are awarded through the SBA specifically to small businesses to encourage small business growth. They have specific centers and resources for women and veterans.
SEO: Search Engine Optimization
Search engine optimization (SEO) is the process of improving the likelihood that a page of a given website will show up in the search results for desired terms. For example, a plumber in New York would use SEO to hopefully rank highly when someone searched “plumber New York.” SEO mainly focuses on ranking well in Google, but Bing and other smaller search engines still follow under the SEO umbrella. Here’s an introduction to SEO.
A strengths, weaknesses, opportunities, and threats (SWOT) analysis is based on a SWOT matrix. It’s a visual way to assess a business opportunity and identify where a competitive advantage may lie. The grid is divided into 4 areas:
- Strengths (internal) — What makes your company best for this opportunity?
- Weaknesses (internal) — Which things can competitors do better than yours?
- Opportunities (external) — Which environmental factors could give you opportunities to succeed?
- Threats (external) — Which external things (emerging competitors, changing attitudes) could threaten your success?
TQM: Total Quality Management
Total quality management (TQM) is a continuous management process that was widely employed in the late 20th century to produce consistent, high-quality products and services. It was widely adopted after Japanese companies found success in Western countries with high quality products. It focuses on improving performance at every step in a business, and including all levels of employees in the process. It’s largely been phased out in favor of lean manufacturing and six sigma.
UX: User Experience
User experience (UX) is a term used to describe the overall experience of a visitor or customer, typically on a website. While each individual’s experience is subjective, good UX principles can be applied that most people will enjoy. A good UX leads to better conversion rates, retention rates, and impressions about a business. UX should constantly be re-examined and adapted to reflect changing user preferences and leverage new technology.
Go Forth and Prosper
Have we missed any acronyms or terms you run into? Let us know in the comments!
Over a century ago, George Bernard Shaw wrote, “All professions are conspiracies against the laity.” Part of that is seen as the way professional jargon keeps people out of a field because its hard to understand what’s being discussed.
Hopefully, this article has gone a long way toward helping you understand what businesspeople are talking about. Now you have no excuse for not starting that business you’ve been thinking about or expanding the business you already run.
Here are some articles that will help you on your way: