What is the average order value?
Average order value (AOV) is an important ecommerce metric that measures the average dollar amount spent each time a customer places an order. In other words, the more customers tend to spend on their orders, the higher your average order value will be.
How to calculate average order value?
Since average order value is the average amount spent by your customers on each transaction, to calculate average order value all you need to do is divide your total revenue from sales by the total number of orders you’ve received.
Average Order Value (AOV) Formula:
Average Order Value = Total Revenue / Number of Orders
What counts as a “good average order value” depends on the industry you’re in and the types of products you sell.
How to improve the average order value for your online store?
Boosting the average order value is an important goal for online stores.
Customer acquisition costs can be a significant expense, which is why increasing the AOV of your existing customer base is a great way of increasing overall revenue without spending on new customer acquisition.
When your average order value increases, it means that:
- Your customers are buying more expensive products,
- Your customers are buying more products,
- Or both!
Here are four ways of encouraging customers to spend more on each order they make.
1. Free shipping over a certain threshold
Offering free shipping on orders above a certain value is a great way to increase average order value.
This is usually referred to as a free shipping threshold, which means you offer free shipping when someone spends more than a certain amount of money on their order. For example, you could offer free shipping on orders over $50.
If you set the minimum qualifying cart value above the cost of the average item, you’re incentivizing visitors to add more than one item to their order so that they can get free shipping.
A dynamic free shipping bar is a great way to communicate your offer to your customer by showing them how far they are from earning free shipping.
2. Upselling and cross-selling
Upselling and cross-selling are two related sales tactics that can increase revenue and average order value.
An upselling strategy involves selling premium versions of your products that come with a higher price tag. For instance, online businesses often offer upgrades (like higher quality materials) or additional options (such as an extended warranty) for an additional fee. When customers choose these higher-priced options, it results in a higher average order value.
Cross-selling, on the other hand, is about offering complementary products so that customers buy more than one item. A popular version of this strategy that many online retailers use is bundling products together. This means that customers don’t need to add multiple items to their cart on their own—they just add one bundle that contains multiple products.
3. Offer volume discounts
Offering volume discounts (giving customers a better price when they buy more than one product) is a proven business tactic. Sometimes this takes the form of a buy one (or two, three, etc.), get one free offer.
You can also offer discounts that get higher as a customer orders more items. This strategy increases average order value because it incentives larger orders that contain more items.
4. Loyalty program
Loyalty programs usually nudge customers to spend more by offering loyalty points in exchange for larger orders. If you offer a discount on a customer’s next order if they purchase multiple items this time, many people will spend more now in order to receive a discount later.
In addition to boosting average order value, customer loyalty programs are a great way of increasing both customer retention and customer lifetime value. That’s because they push customers to purchase more than once and encourage them to get in the habit of buying certain products from you regularly.
