Average Order Value (AOV) is a helpful, albeit ultimately unreliable, metric to track as your business expands. It’s customarily one of the first figures that business owners look to raise in order to boost sales or maximize return on advertising investment. And it seems straightforward enough: you’ll make more money if you can persuade customers to spend more per order, right?
What is Arena of Valor? | Arena of Valor – TiMi Studios
Why is average order value important?
Businesses can use their average order value metric to learn about the shopping trends and habits of their customers. When a business calculates its average order value, a lower number indicates that its customers typically make smaller orders from the store. These insights can be used to evaluate and modify different business tactics, such as pricing and marketing, to raise your average order value and profit margins.
Let’s say you discover that the average amount your customers spend per order is $20. As a result, you can start establishing objectives to raise your average order value and putting those objectives into action. You might discover opportunities to upsell or cross-sell customers on their purchases, for instance. These methods can help you raise the value of the orders from your current customers. Instead of spending money and time trying to attract new customers to your website, this strategy enables you to utilize the potential of your current customers.
What is average order value?
The average order value is a measure used in e-commerce that calculates the typical amount of money spent by customers when placing an order. Instead of focusing on sales per customer, this metric examines sales generated per order. Therefore, each of a customers orders is measured separately. Businesses typically look at the average order value over a month to determine their profitability. Divide the total revenue made over a period by the number of orders placed during that period to get your average order value. You can use the following formula:
Average order value = revenue / number of orders
How to calculate average order value
The steps listed below can be used to determine your average order value:
1. Choose a period to assess
This calculation examines the typical order value over a given time frame. You must first decide which time period you want to study. Businesses can monitor any time period they choose, but they frequently focus on their monthly average order value. Lets say you choose the month of April. After choosing this course of action, you will need to calculate the total revenue amount and the number of orders placed in April.
2. Identify the total revenue for that period
$45,000 / total orders in April represents the average order value.
3. Identify the total number of orders for that period
Find the total number of orders placed in April in a manner similar to the preceding step. Instead of focusing on sales per customer, the average order value examines sales per order. Each order a customer places during a month counts separately, even if they place multiple orders at once. Let’s say that in April, your store received a total of 1,500 orders. Your calculation now looks like this:
Average order value of April = $45,000 / 1,500
4. Perform the calculation
You can perform the calculation now that you have all the necessary information. You must divide the total number of orders by your total revenue for the month of April:
Average order value of April = $45,000 / 1,500
This calculation leads you to the conclusion that the typical order value for April was $30. This outcome indicates that your customers spend $30 on average per order. This amount can reveal information about the kinds of products your customers purchase or the quantity of their orders, depending on your industry and pricing. Depending on what you need, you can use this information to start developing marketing or pricing strategies.
Tips for increasing your average order value
Businesses can use a number of different techniques to raise the average order value. These tactics try to persuade customers to buy more, usually by buying more expensive or larger items. You can use the following advice as direction to raise your average order value:
Add a free shipping minimum
Customers who place orders with a minimum dollar amount can get free shipping. For instance, offer free shipping on orders worth $60 or more. To receive this benefit, a customer making a $40 purchase might be prepared to increase their order by $20 in value. Select a price that your company can afford and that is not significantly higher than the typical order value.
Use upselling techniques
Your company offers customers an upgraded or premium version of the products they intend to buy when employing upselling techniques. Offering add-ons that enhance functionality or have other advantages is another possible tactic. If you sell purses, for instance, you might let customers personalize their bags by offering them the choice to add a monogram for $10.
You can also try convincing customers to buy a more expensive version of the item they were planning to purchase. Streaming services, for instance, frequently provide base and premium subscription options. The service provider shows a comparison chart with the features offered by each option when the customer wants to order a subscription. This graph may show that the customer can get 10 more features for just $5 more.
Use cross-selling techniques
Cross-selling is yet another strategy used to boost sales profits. Cross-selling, on the other hand, suggests customers add related items to their order while upselling concentrates on upgrading the products in their order. Cross-selling can help increase the number of items in an order while upselling can help increase the order’s dollar amount. For instance, if a customer buys a cellphone, the salesperson might advise them to also purchase a case to safeguard it.
This technique is also often used in online shopping. Customers may see a carousel of products labeled “frequently bought with” or “customers who bought this item also bought” when they click on a product. ” Similarly, clothing websites often feature images of outfits. The website may advise a customer who likes a T-shirt to buy the jeans and jacket worn by the model to complete the look.
Offer coupons or discount codes
Offering a coupon or discount code for purchases over a certain amount is another strategy that might encourage customers to make a larger purchase. For instance, you could inform clients that if they spend at least $70 today, they will receive a coupon for $10 off their subsequent purchase. You could also incorporate this idea through a loyalty program. The customer receives a certain number of points for each order based on their purchases. You can then establish a threshold for receiving a coupon code or store credit, such as 250 points.
Provide volume-based discounts
Providing discounts based on the size of the order is another way to use discounts to persuade customers to spend more. For example, you may sell bar soaps for $5 each. Then, if a customer purchases four or more soaps, you can give them a 20% discount. A customer who was only going to purchase one or two bars of soap now has an incentive to place a larger order.
Partner with a nonprofit
Cause marketing is a tactic where companies work with charities to advance the latter’s mission and boost their own profits. By including donations in customer orders, you can use this tactic to raise your average order value. For instance, you could state that $5 will be donated to the business’ nonprofit partner for each $50 or higher purchase. Through this partnership, you may occasionally even sell an exclusive product that draws customers and boosts their order volume.
Set a return policy for expensive items
The average order value of your clients may increase as they purchase more expensive goods. Some customers may be persuaded to make such purchases if the return process is made to appear simple or easy. Some people hesitate to make expensive purchases out of concern that they might not enjoy the item or think it was worth the high price. However, this policy might reassure them that they can return it without difficulty if it doesn’t live up to their expectations.
FAQ
What does high AOV mean?
The higher your AOV, the more profit you are making from each customer and, consequently, from each dollar spent acquiring those customers. AOV should be closely monitored, ideally daily or weekly, just like any other business metric.
What is a good AOV increase?
Setting your threshold at 30% more than your AOV is what Aaron Zakowski advises (though once more, think about using your modal order value here). The objective is to make free shipping seem approachable to as many customers as possible, increasing your overall revenue.
What is AOV and why is it important?
Simply put, average order value is the typical sum each customer spends when placing an order on your website. Because it gives them crucial insights that can guide their pricing and marketing strategies, retail businesses increasingly view AOV as one of the most crucial metrics.
Is AOV a KPI?
AOV is an acronym for Average Order Value. For eCommerce websites, AOV is a crucial key performance indicator (KPI). It is employed to assess marketing outcomes over a predetermined time frame.
