Average Order Value (AOV)

Definition

Average Order Value (AOV) is a key eCommerce metric that tracks the average amount spent per transaction on a website over a specific period. It provides insights into customer purchasing behavior and helps businesses optimize pricing strategies, upselling, and cross-selling efforts to maximize revenue.

The formula for AOV is
AOV = Total Revenue ÷ Number of Orders

By increasing AOV through bundled offers, discounts on higher-value purchases, and personalized recommendations, businesses can boost profitability without solely relying on acquiring new customers, making it a crucial metric for growth and revenue optimization.

AOV = 
the sum of revenue generated on your website / Number of orders placed

How to Improve the Average Order Value

In many businesses, the customer acquisition cost is an eCommerce metric that gets the maximum attention while increasing the average order value or customer retention is often ignored. 

Simple math shows that, typically, growing traffic is positively affecting the total income of an online store. 

It is precisely for this purpose that you choose to invest time, money, and resources to create a store to take the eyes of anyone who enters the site.

And yes, you managed to reach this stage. 

But something is not right. 

Over time, you notice that the volume of purchases from the site remains constant. Even if you have new and recurring customers who repeatedly order, the basket’s value does not increase, no matter what you do.

You realize that for this, you have to increase the website traffic more and more. 

But this action requires a new investment of time, money, and resources. Fortunately, there are less expensive ways to increase the value of orders.

Offer Free Shipping Past a Specific Threshold

One effective way to boost the number of items customers buy is by offering free shipping for orders exceeding the average order value. Experts suggest that customers are more likely to make a purchase if they have the option for free shipping, provided their order meets a certain value threshold.

However, be cautious. This strategy can backfire if not implemented wisely. Even if order values double, increased shipping costs might eat into your profit margins.

The solution? It’s simple: test both absolute free shipping and free shipping after reaching a specific threshold using A/B Testing. Keep an eye on metrics like average order value, number of sales, profit, and order cancellation rate. Improving your average order value increases your income and lets you focus on other important metrics.

Offers Discounts Based on Basket Volume

If you’re looking to clear out stock and still make a profit, smart discounts based on the total value of items in the shopping basket can be a game-changer. 

Customers everywhere love discounts, from words like “offer,” “cheap,” and “discount” to “free.” It doesn’t matter if it’s a 5%, 10%, or 20% discount – as long as they see a drop from the regular price.

When customers buy with these discounts, they feel like they’re getting an amazing deal. 

Why not use this to boost your average order value? 

Set a minimum price for the discount to kick in, ensuring the final price is higher than the average order value. This strategy taps into customers’ love for great deals, helping your business thrive.

Upselling and Cross-selling

Upselling refers to offering a similar product that’s more expensive than what the customer originally wanted.

But remember, this tactic doesn’t always work. Don’t force customers to buy products just because they’re in your catalog. Avoid trying to sell everything on their first visit. 

This method aims to increase the average order value and total revenue per customer.

Cross-selling, on the other hand, promotes additional products that complement the customer’s first purchase. For example, if someone buys business pants, suggest a leather belt that goes well with it.

Cross-selling is like a backup plan for upselling. 

It’s essential to choose products related to what the customer bought. For instance, if someone buys a laptop, they might need a laptop bag. 

These decisions might not fit every business, but there are various ways to increase your average order value.

Showcase Bundle Offers

Selling multiple items together at a discount is a great deal for customers. They get a whole set of products for less than if they bought each item separately.

For example, if you sell makeup, you can offer a discounted package with eye makeup products. You can also give a free item, like an eye makeup remover when customers buy a mask, eye shadow, and pencil.

Another trick is letting customers customize their packages. 

For instance, if you sell gifts, offer to wrap the items as a gift package. 

Charge a small fee, but explain the benefits, such as saving them time and money on wrapping materials. Be creative and surprise your customers to make them keep your business card in their wallets.

Announce a Limited-time Offer

These tools make customers decide faster because people usually take a lot of time to decide on buying something. It’s frustrating when you almost convince them, but they leave without buying.

Setting a time limit on discounts creates urgency, making people feel they might miss out. For example, saying “30% off on all products” grabs attention, but saying “30% off on all products for the next 2 days” makes customers act fast and spend more.

Create a Loyalty Program

Customers loyal to your brand are actually the foundation of your online store. 

They will remain faithful even when you do not offer discounts, when your public image suffers, when you go through a worse period in terms of sales, etc. 

Loyal customers are the natural ambassadors of your store and promote your brand in front of an audience that trusts them: family, friends, and acquaintances.

To reward them and increase the average order value, initiate a loyalty program. 

For example, offer a 10% or a 20% discount for customers who recommend your store on Social Media.

Or offer loyalty points to the first 3 orders, which, accumulated, will turn into a discount coupon for the next order.

Provide Financing or Payment Plans

Sometimes, even if a customer truly desires a product, he simply can’t afford it. Here’s where the financing or payment plans become effective, making luxury items more accessible to the larger public. 

With the accessibility of expensive items significantly improved, customers will be more willing to spend more in your store. 

Create Targeted Marketing Campaigns

You can target two different customer types with your Ads:

• Customers who already made smaller purchases to promote higher-priced products
• Customers who didn’t go through with the purchasing process to reduce the cart abandonment rates. 

It’s easier to convert consumers who already know your brand and might have bought products than to convert people who’ve never heard of you. 

Be Smart About Acquisition

While relying on acquisition alone isn’t sustainable anymore, it doesn’t mean you should disregard it altogether. 

Use RFM Analysis to identify your best customers, then use their data to create lookalike audiences for acquisition. 

Instead of acquiring whichever prospects you find, aim to convince people who are most similar to your high-spending customers. This way, you start on the right foot and have more chances of retaining and convincing these people to spend more in your store.

Experiment With the Checkout Page

The AOV can be influenced even before a customer places an order. Use A/B tests to create a user-friendly checkout page and reduce abandonment rates. 

Play with the design to help unique visitors easily find what they want, eliminate distractions, and ensure secure payment. 

A smooth and seamless checkout experience will significantly contribute to an increased AOV.

How A/B Testing Can Help Improve Your Average Order Value

Do not implement all the above strategies at once; take them one by one, test them, and if they increase the AOV, implement the change.

A/B testing is an excellent way for you to test online marketing tools or strategies to see which ones are best for your business.

It’s a cost-effective way to test everything from web pages to email campaigns against each other to get the best return on your investment. 

Using this method, you will get the key eCommerce metrics and statistics to see what needs to be changed, adjusted, or left alone in order to increase your AOV.

A/B testing helps you put aside your personal opinions and use accurate data to make a decision because, as we already know, the client is the best usability and design expert.

Are you looking for an A/B testing tool that allows you to test different variations without compromising your website’s performance? Check out Omniconvert Explore – the all-in-one CRO tool for all your website conversion needs!

How AOV Impacts Other Business Decisions

Ad Spend

Be vigilant if your business experiences a low average order value and high conversion costs, as this situation may indicate potential revenue loss. 

Ideally, your average order value should be at least twice the amount of your conversion cost or cost of customer acquisition. Maintaining this balance ensures a healthy profit margin while optimizing your conversion strategies for sustainable growth.

Besides AOV, consider factors such as shipping expenses, warehousing costs, and product pricing strategy to make informed decisions about acquisition campaigns.

Analyzing Buying Patterns and Trends

Identify which seasons and campaigns are favored by your highest-value customers. 

This can be determined by observing changes in the average order value over time. 

By recognizing these patterns, you can tailor your strategies to align with customer preferences, maximizing your business potential.

Average Order Value Benchmarks and Studies

To establish a realistic benchmark, you must be aware of the industry standards within your niche. 

Below, there’s a breakdown of average order values across various industries, providing a comprehensive overview.

As of September 2023, a study (linked below) revealed that the home and furniture sector boasted the highest average order value across all industries, standing at $256. 

This marked a 2.4% increase from the previous month’s figure of $250. 

Luxury and jewelry came in second, with an AOV of $149 per transaction, showing a rise from the preceding month. 

The fashion, accessories, and apparel industry followed closely, increasing its average order value from $140 in August to $142 in September.

The consumer goods industry secured the fourth spot, with an average order value of $124, making it one of the few sectors with values exceeding $100 in September 2023. 

The food and beverage sector occupied the fifth position, with an average order value of $94. 

Notably, the consumer goods industry experienced a decline in its average order value compared to the previous month.

Additionally, the study delved into other sectors, including multi-brand retail, beauty and personal care, and pet care and veterinary services. 

Multi-brand retail recorded an average order value of $84, a slight increase from the previous month. Beauty and personal care decreased to $80, dropping by $3 or 3.6% from the preceding month. 

The pet care and veterinary services industry had the lowest average order value at $66, representing a $4 monthly increase.

Wrap-Up

Beyond all the strategies we discussed, it’s important to note that increasing the AOV is only possible by staying true to your brand values and customers’ expectations. 

Focus on your customer relationships, deliver high-quality products (worth the extra spend), and optimize your business operations.

These ideas will put you on a steady path to long-term success in such a competitive market, establish your brand, and convince people to spend their hard-earned money on your business.

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