- Average Order Value (AOV) is the average spend per customer and crucial for understanding marketing and pricing effectiveness.
- To increase a low AOV, provide incentives like free shipping for larger purchases or discounts for repeat buying.
- The AOV is calculated by dividing total revenue by the number of orders (e.g., $35,000 / 700 orders = $50 AOV).
- Techniques to boost AOV include cross-selling, consumer financing, setting minimums for free shipping, offering product bundles, and implementing loyalty programs.
- Increasing AOV aids in maximizing ROI, and professional services like Prismfly can help optimize this metric through targeted strategies.
As a small business owner, you might already know how much money you roughly bring in each month or how many customers you have. But metrics like revenue and customer account don't really tell you how much money you can expect to earn for each newly converted customer from your target audience.
To understand that, you need to know the average order value or AOV for your online business. Let’s break down average order value and look at some ways to improve this metric.
What Is Average Order Value?
Put simply, average order value is the average dollar amount a customer spends at your store, whether it’s a retail location or an ecommerce shop. AOV includes the average amount of money a customer spends when they purchase something, subscribe to a service, or otherwise transfer money to your business’s bank account.
Why Is AOV Important?
AOV is important primarily because it helps you determine how effective (and cost-effective, more specifically) your marketing efforts and pricing strategy are.
When you know how much the average customer spends on your brand, you can determine:
- Whether you are spending an appropriate amount of money on your digital marketing
- Whether you need to acquire many more customers for optimal revenue growth
- Whether you should adjust your product pricing or set a minimum purchase amount to increase the AOV and overall revenue
Think of AOV as a benchmark of customer behavior. Once you know the average order value of your customers, you’ll be able to set even better goals and strategies and make overall more effective business decisions.
As an example, if your AOV is relatively low, you can improve it by:
- Offering incentives to your customers to convince them to spend more money per purchase. For example, you can waive shipping costs for purchases over a certain amount.
- Offering discounts to customers to get them to come back for repeat purchases. For example, you can offer discounted add-ons when customers purchase expensive products.
In many cases, it’s wiser to focus on increasing average order value as opposed to increasing the number of customers your brand sees each month. It usually takes more money to increase your marketing such that you acquire a certain number of new customers. In comparison, increasing AOV is relatively affordable and cost-effective.
How Do You Calculate AOV?
You can calculate AOV with a straightforward formula displayed below:
- Average order value = total revenue / number of orders
The revenue is the total amount of money you receive from your customers in a certain timeframe. Divide that by the number of orders in the same timeframe, and you'll get your AOV. Let's look at an example.
Say that in July, your e-commerce shop had $35,000 in revenue. You had a total of 700 orders.
Plug those numbers into the formula to get the AOV:
- $35,000 / 700 = $50
In other words, the average customer spent $50 at your store for the month of July. Depending on your other metrics in your overall profitability, you can focus on increasing the AOV or be satisfied with where it’s currently hovering.
How Can You Increase Your Average Order Value?
You can increase your average order value by practicing a few different strategies. Use these strategies in conjunction with each other to maximize your AOV increase for your ecommerce business.
1. Cross-Selling & Upselling
Cross-selling and upselling are popular means to increase average order value and for good reason. Once a customer has decided to buy something from your store, they’re more likely to be convinced to spend a little extra money for more value.
For example, if a customer purchases one item at your store – like special footwear – you can design your site to suggest complementary items for the initial purchase, such as leggings.
Cross-selling and upselling can greatly increase both AOV and the overall revenue your brand takes in. Plus, you’ll also increase customer lifetime value — another of the most important metrics or KPIs to track.
2. Consumer Financing
Another good way to increase the AOV you see on your site is to offer consumer financing methods. Consumer financing requires partnering with a third party, like PayPal Pay in 4, Afterpay, Affirm, and more, to offer financing arrangements to your customers.
Consumer financing can be highly beneficial for high-value, expensive items that many customers may be unable to afford outright, like furniture, luxury apparel, or electronics. By offering consumer financing, you’ll make it easier for customers to spend money at your store, increasing the AOV in the process.
Make sure you partner with consumer financing brands that offer reasonable interest rates, low fees, and other perks and benefits to attract as many prospective customers to use those financing deals as possible.
3. Create a Free Shipping Order Minimum
One of the most effective means to increase AOV for e-commerce sites is to create a minimum price threshold for free shipping. Online shoppers love free shipping more than any other perk, but they also understand that it costs businesses significantly to offer it.
You can meet your customers in the middle by mandating an order minimum of $30, $50, and so on. You might be surprised how many customers are willing to put a few additional products in their shopping carts just to meet a free shipping threshold. This trick may also increase your total number of orders and profit margin.
4. Offer Bundles for Complementary Products
Above, we mentioned how cross-selling and upselling complementary products is an excellent way to increase average order value. You can double down on that idea by offering bundles and discounts for complementary products.
Say that you sell electronics at your online store. If an electronic device is $500, and a case for that device is $75, you can bundle both products together for $525. This is a good way to get customers to make more purchases at your store and increase the average order value at the same time. Customers might be willing to spend a little extra money to snag a great deal even if they didn’t intend to spend that much when they initially visited your shop.
5. Provide Sales and Discounts
Naturally, regular sales and discounts are key, effective tools you can and should leverage to increase AOV over time. Regular sales and discounts drive traffic to your online store, bringing new and former customers back to your shop.
Those sales and discounts should be strategically levied across different products and services. For example, if you’re trying to clear out inventory of one type of product, offer a special sale or discount for that product until you sell them all.
This is an excellent way to increase customer satisfaction, as shoppers love to feel like they are getting good deals. Your AOV will also increase as you drive more and more distinct or separate purchases among more unique customers.
Keep in mind that discounting depends on your brand positioning — it won’t always be a realistic option. If you’re running a luxury brand, for example, it won’t make sense to rely on discounting to increase your AOV. Your products are priced high for a reason, and providing discounts won’t be in line with your overall brand strategy.
Instead, consider combining several of the other options on this list to drive up your AOV in a way that aligns with the brand you’ve built.
6. Offer Bulk Product Options
Some of your most profitable clients and accounts will want what you have — and a lot of it. You can treat those customers right and increase your average order value simultaneously by offering bulk product options.
When your customers purchase your products in bulk, you should offer them a volume discount such that they save money as opposed to buying all those items individually. You can come up with a good price point that ensures you still make a profit while also satisfying your customers so they come back for future purchases later down the road.
7. Start a Loyalty Program
Loyalty programs are some of the most effective ways to build a long-term, loyal customer base. When you offer longtime shoppers or repeat customers loyalty points, perks, and other benefits, you make them more likely to return to your store and recommend your brand to others – an invaluable benefit for your marketing efforts.
Loyalty programs also increase your AOV because customers are more likely to shop at brands where they are members or rewarded for their loyalty, even if a competitor has slightly lower prices. For example, if you reward your members with free shipping, they'll likely choose your products over another brand.
Alternatively, allow your repeat customers to build up points and perks with each purchase. Those customers will return and keep making purchases until they unlock special bonuses or benefits. Thanks to higher customer loyalty and better customer retention, you might be able to reduce your ad spend, too.
8. Show Personalized Product Recommendations
Last but not least, don’t forget to show customers personalized product recommendations. These days, people don’t like to feel impersonally marketed to – they want to feel like they are seen as unique individuals.
You can do that with your online marketing and your product recommendations when someone visits your ecommerce store. Personalize those product recommendations, and new site visitors will be more likely to make initial purchases. They’ll feel like you offer exactly what they need and know what they like.
Once they’re satisfied with that initial purchase, those same customers are likely to return — and you can keep this positive feedback loop going by personalizing offers, discounts, and special bonuses via email marketing.
In this way, you can combine the above best practices to offer a holistic, satisfactory, and overall memorable shopping experience for every prospect and customer.
The Bottom Line
Average order value can tell you a lot about how much money the average converted customer brings to your business. With this information, you can adjust and optimize your marketing and website pages for even better ROI.
Even better, you don’t have to do all this alone. Prismfly can help in more ways than one, such as by focusing on conversion rate optimization, UX or UI design, and much more. Contact us today, and let’s get started.