Average order value (AOV) is an essential metric that reflects the average amount of money customers spend on each order, and it can be used to help understand customers' purchasing behaviours.
For any business looking to increase their profits, increasing AOV should be top priority. Fortunately, there are numerous strategies you can use to do just that, and this blog post outlines some of the most effective ways ecommerce businesses can boost their average order value – so let's get started!
Why Is Calculating Average Order Value Important?
Understanding average order value is critical for ecommerce businesses looking to boost their revenue. It allows businesses to better understand their customer base, identify trends in spending patterns, and gain valuable insights into what strategies are working best and which ones need improvement.
A good AOV also indicates that a business has loyal customers who are willing to spend more per purchase, thus increasing their overall revenue. A higher average order value means a higher ROAS and better ROI on marketing initiatives overall. This allows for further investment to expand product lines, or even give back to their loyal customers through reward programs. Additionally, by understanding average order value, businesses can make smarter decisions about pricing strategies and discounts that will help them increase sales and ultimately drive more profits.
How To Calculate Average Order Value - And Why It Should Be Done Regularly.
AOV is calculated by dividing total revenue by number of orders.
(AOV = total sales revenue / # of orders)
While AOV doesn't describe gross profit or profit margins, it will offer insight into how those figures came to be. For example, an online apparel store might have four t-shirts priced at $19, $25, $29 and $35. Their AOV is $21, which indicates two possible trends:
Customers are not purchasing multiple items per order
The cheaper t-shirts represent most of the sales
An increasing AOV is a good sign that you are maximising the revenue on each purchase. But if the opposite is true, that may be the sign you need to increase marketing efforts on the higher margin/higher priced goods or improve positioning of those products on the storefront.
How Can ECommerce Businesses Use AOV To Increase Revenue?
If you want to maximize your online business revenue, Average Order Value (AOV) is the key. But how do you increase AOV? The most successful approach is to experiment with different strategies one by one and see what works best for your business. Measure the impact of each strategy before making a decision so that you know which ones should be kept in place or dropped altogether.
A. Offer Upsells And Cross-Sells
Upselling involves showing your customers that there are other versions or options available to them that may better fulfill their needs. Cross selling on the other hand, most often appears during the checkout process where product suggestions are made for items that compliment the product you already have in your cart.
The key is in understanding the need of your customer, what they are trying to address and offering them a more suitable option and/or suggesting an additional item that they may not have considered yet but is relevant to addressing their need.
B. Create Bundles Or Kits
Product bundling is a popular strategy to increase AOV. It can increase the revenue and sales of individual items over time. Bundling slower moving items with a faster selling product is one way of reducing dead stock. However, the most important aspect of bundling products is to give your customers value and keep them coming back for more.
There are a number of different bundle types you can try for your ecommerce business: Pure bundles, new product bundles, mix-and-match bundles, cross-sell bundles, gifting bundles, and inventory clearing bundles. View our article on ecommerce bundling to increase AOV.
C. Use Discounts Strategically
Although having savvy discount strategies can work wonders to boost your conversions and customer retention, poor implementation of such approaches can be detrimental to your business. There are so many discount strategies you could deploy, from free shipping to set discounts on minimum orders values, coupons and more. So we have distilled 10 of the best. Learn how to strategise for success when it comes to discounts in our discount strategies for ecommerce blog post, and uncover the secrets behind pricing psychology. We'll show you how customers respond without sacrificing revenue.
D. Offer A Free Gift OR SAMPLE
Set a minimum order value for this one and give customers that extra nudge to spend a bit more and get a bit more. Sample sizes are great to pique interest for that next purchase or if your customers are so inclined, offer a donation on their behalf for all purchases over the minimum amount. Whatever your customers value most, show them how well you know them.
At Mailshop, we work with ecommerce businesses every day to increase average order value and ensure bundles, gifts and kits are fulfilled just as easily as single item orders. We make extra upsells possible during check out too, with gift wrapping and personalised cards providingn that extra value for customers who wish to purchase and send directly to their loved one.
If you're looking for a 3PL partner who can help you improve your average order value, get in touch with our knowledgeable team today.
FAQ:
What Is AOV In ECommerce?
Average order value (AOV) refers to the average amount spent per online order. AOV = Total Revenue / # of orders. An important distinction is that AOV will not tell you the average order value per customer or contribute to lifetime value of a customer. While a customer may return and purchase from your site 3 times, each order will contribute separately to the average order value because it is a calculation across all orders.
What Causes AOV To Decrease?
Tracking AOV on a daily or weekly basis is crucial because it can be adversely affected by various elements. Site usability and website errors, for example, may obstruct customers from navigating your platform easily and ultimately adding items to their carts - resulting in lowered AOV numbers. If you don't use incentives to encourage customers to purchase multiple items, your Average Order Value (AOV) will suffer. To determine the best strategies for your business, continue testing techniques such as bundles, discounts, upsells, cross-sells and gifts one at a time. Track these efforts closely until you find what works for you!