Commerce glossary

50 terms across agentic commerce, subscription retention, payments and fulfilment. Each one is defined in a single sentence, then explained — including what it is commonly confused with.

For the longer version — benchmarks, trade-offs and sources — see Answers.

Agentic commerce

ACP (Agentic Commerce Protocol): ACP is a specification from OpenAI and Stripe defining how merchants expose product feeds and checkout sessions so an AI agent can complete a purchase.
AEO (Answer Engine Optimization): AEO is the practice of structuring content so that AI assistants quote it and cite the source, as distinct from optimising for a ranked list of blue links.
Agent gateway: An agent gateway is the control plane through which AI agents act on a live system, enforcing scopes, idempotency, audit logging and human approval on irreversible actions.
Agentic commerce: Agentic commerce is commerce where an AI agent, acting on a shopper's instructions, performs the discovery, comparison and purchase steps a person would otherwise do by hand.
AP2 (Agent Payments Protocol): AP2 is a payment-authorization protocol using verifiable credentials and cryptographic mandates to prove a human authorized a specific agent-initiated purchase.
GEO (Generative Engine Optimization): GEO is the practice of making a brand and its claims present, consistent and verifiable across the sources generative AI systems draw on, not just optimising one site.
Idempotency key: An idempotency key is a client-supplied identifier that lets a server recognise a retried request as the same logical operation, so submitting it twice takes effect once.
llms.txt: llms.txt is a convention placing a markdown file at a site's root that summarises what the site is and which URL answers which question, so assistants need not crawl it all.
Machine-readable catalog: A machine-readable catalog is product data exposed so price, availability, variant and identifier can be parsed reliably without executing JavaScript or reading a layout.
MCP (Model Context Protocol): MCP is an open specification published by Anthropic that standardises how an AI agent discovers the tools a system exposes and calls them with typed arguments.
Structured data: Structured data is machine-parsable markup — usually schema.org vocabulary in JSON-LD — that states facts about a page explicitly rather than leaving them to be inferred.
UCP (Universal Commerce Protocol): UCP is an open standard from Google and Shopify that lets AI agents read merchant catalogs, retrieve live pricing and inventory, manage carts and complete purchases.

Subscriptions

Churn rate: Churn rate is the share of subscribers or subscription revenue lost over a period, most commonly reported monthly for DTC subscription businesses.
Cohort retention: Cohort retention measures what share of customers acquired in a given period are still active after each subsequent period, tracked separately per acquisition cohort.
Dunning: Dunning is the automated process a subscription business runs after a payment fails: retrying the charge, notifying the customer, and requesting an updated payment method.
Grace period: A grace period is the interval after a failed payment during which a subscriber keeps access or continues to receive deliveries while recovery is attempted.
Involuntary churn: Involuntary churn is subscription revenue lost when a renewal payment fails and recovery attempts are exhausted, rather than because the customer chose to cancel.
LTV (customer lifetime value): LTV is the total contribution a customer is expected to generate over their whole relationship with a brand, best measured net of goods and fulfilment rather than gross.
Pre-dunning: Pre-dunning is contacting a customer to update their payment method before a renewal predicted to fail, usually because the stored card expires before the next bill date.
Prepaid subscription: A prepaid subscription is one where the customer pays upfront for a fixed number of future deliveries — commonly three, six or twelve — rather than being billed at each cycle.
Proration: Proration is adjusting a subscription charge to reflect a mid-cycle change, so the customer pays only for what applied during each part of the period.
Replenishment subscription: A replenishment subscription delivers the same consumable product on a repeating schedule matched to how quickly the customer uses it.
Voluntary churn: Voluntary churn is subscription revenue lost because a customer actively chose to cancel, as distinct from a subscription ending due to payment failure.
Win-back: A win-back is a campaign aimed at customers who have lapsed or cancelled, intended to restart a relationship that has already ended.

Payments

Account updater: Account updater is a card network service that pushes reissued or renumbered card details to enrolled merchants so stored credentials keep working without customer action.
Authorization rate: Authorization rate is the share of attempted card charges that issuers approve, and it is a direct revenue lever for any business billing on stored credentials.
Chargeback: A chargeback is a forced reversal of a card payment initiated by the cardholder through their issuing bank rather than through the merchant.
Decline code: A decline code is the reason an issuing bank gives for refusing a card authorization, and it determines whether retrying that card could ever succeed.
Merchant of record: The merchant of record is the legal entity on the customer's statement, responsible for payment processing, tax remittance, chargebacks and compliance for a sale.
MIT (merchant-initiated transaction): A merchant-initiated transaction is a charge submitted against a stored credential without the cardholder present, such as a subscription renewal or a retry after failure.
Network token: A network token is a card-network-issued substitute for a card number that lets a merchant charge a stored credential without holding it, and survives card reissue.
Payment tokenization: Payment tokenization is replacing card details with a reference token so a merchant can charge a stored credential repeatedly without holding the card number itself.
Representment: Representment is the process of contesting a chargeback by submitting evidence to the issuer that the original transaction was valid and authorized.

Measurement

ARPU (average revenue per user): ARPU is total revenue in a period divided by the number of active customers in that period.
Attribution window: An attribution window is the period after an ad interaction during which a resulting conversion is still credited to that interaction.
CAC (customer acquisition cost): CAC is the total cost of acquiring one new customer, calculated as acquisition spend divided by new customers acquired in the same period.
Cohort: A cohort is a group of customers who share a starting characteristic — most often the period in which they made their first purchase — and are then tracked together over time.
First-party data: First-party data is information a business collects directly from its own customers and its own properties, rather than obtaining it from a third-party source.
Incrementality: Incrementality is the share of conversions that happened because of a marketing activity and would not have happened without it.
MER (marketing efficiency ratio): MER is total revenue divided by total advertising spend across all channels, measured at the business level rather than per campaign.
Payback period: Payback period is how long it takes for the contribution margin from a customer to recover what it cost to acquire them.
RFM (recency, frequency, monetary): RFM is a segmentation method that scores customers on how recently they purchased, how often they purchase and how much they spend.
ROAS (return on ad spend): ROAS is revenue attributed to advertising divided by the spend that produced it, usually reported per campaign or channel.
Server-side tracking: Server-side tracking sends conversion and behavioural events to analytics and ad platforms from a merchant's own server rather than from the shopper's browser.

Commerce operations

3PL (third-party logistics): A 3PL is an external provider that stores inventory and picks, packs and ships orders on a brand's behalf.
Abandoned checkout: An abandoned checkout is a session where a shopper entered the checkout flow and provided identifying information but did not complete the purchase.
AOV (average order value): AOV is total revenue divided by number of orders over a period, measuring how much a customer spends per transaction.
COGS (cost of goods sold): COGS is the direct cost of the products sold in a period — typically unit cost plus inbound freight and duties — excluding marketing, overhead and outbound shipping.
Contribution margin: Contribution margin is revenue minus all variable costs of fulfilling an order — goods, processing, shipping, packaging and returns — leaving what covers fixed costs.
Destination-based fulfilment routing: Destination-based fulfilment routing picks which warehouse or 3PL ships each order from the delivery address, stock and cost, rather than using a fixed default location.