eCommerce sector is highly competitive. Many online businesses focus on increasing website traffic and social media engagement to increase revenue. Understanding your average order value (AOV) is important. Understanding what it is and how to increase it will help your business.
What Is AOV?
Average Order Value (AOV) is the average amount of money customers spend when they check out of your eCommerce store. It is a key performance indicator that offers valuable insight into your market’s purchasing habits or patterns on the website or application.
Calculate AOV with this formula:
AOV = Revenue / Number of Orders
For example, your gross sales for April are $20,000 while the total orders are 500. Plugging in the figures, your AOV for April is $40. It suggests that, on average, a customer will spend $40 for every purchase from your store. Also, it can mean a customer has placed several orders worth $40 each.
When monitoring this metric, remember the average order value or AOV is a moving figure that only covers a specific period.
Why AOV Is Important
Understanding your AOV is crucial as it helps you assess the value and effectiveness of your marketing efforts, product pricing, and customer retention. Since it gauges customer behavior, it is critical when setting targets and strategies for long-term growth.
Despite its importance, AOV has a drawback: it can be distorted if you sell the same items at widely divergent prices at different times in the year. Some periods may provide higher or lower AOV, particularly during seasons of increasing demand, such as Black Friday or Christmas.
While it does not illustrate your store’s profitability, as it excludes net profits in the calculation, it offers insight into improving it for better returns.
How to Improve AOV or Average Order Value
Compared to other marketing tactics, increasing AOV costs less and produces faster results for your profitability. Here are some strategies for increasing it and driving business growth.
1. Offer Free Shipping or Discounts
Adding free shipping or volume discounts is one technique to encourage buyers to spend more every checkout. Set the threshold higher than AOV but not so high that you increase the risk of abandoned carts.
2. Upsell, Cross-Sell, or Bundle
Bundling products that work together incentivizes buyers with higher perceived value—they get more items at a lower price. This allows them to use the amount saved to purchase additional products from your store.
Cross-selling and upselling, on the other hand, prod customers to buy complementary products or upgraded versions at a somewhat higher price. Ensure that targeted add-ons pair well with what’s in a customer’s cart or intended purchase.
3. Test Strategies and Re-Focus
Not every approach for boosting AOV, or average order value, will work for you; its success will depend on the type of customers and products you have. Therefore, you must test different strategies to see which is most effective. That way, you can implement what works and revisit its effectiveness.
4. Have Knowledgeable Support on Stand-by
Buyers often have questions about your products, and they need answers immediately. If there’s no one to address their concerns, they are more likely to abandon their shopping carts and look elsewhere.
Provide a way for customers to reach out to your company anytime with an efficient contact center, ready to resolve inquiries and service issues. Don’t rely on FAQs alone, since some customers prefer having someone explain the FAQs rather than having to go through the information via the website.