Revenue and profitability growth are the goals of any eCommerce business. There are different ways to achieve revenue and profitability goals. You can either get new customers by marketing to them or get your existing customers to buy more. Although customer acquisition through various channels and marketing methods such as email marketing, social media marketing, video marketing, etc. is important, it is far easier to retain your current customers than attracting new customers.
Increasing the Average Order value is one way to get your existing customers to buy more and reduce additional marketing dollars that would need to be spent in acquiring new customers.
What is Average Order Value?
Average Order Value is the average dollar amount a customer spends on an order in your store. It is a crucial eCommerce metric, and it is calculated using the following formula.
AOV = Total Revenue / Total Orders
Let’s say the total revenue for your store was $1000, and 100 orders were placed. The AOV, in this case, is $10. This means that a customer spent on average $10 on a purchase in your store.
Average Order Value can differ based on industry, seasonality, and device. It would be best if you looked at benchmarks of competitor data, industry data, and your data trends to set an achievable target for the AOV.
How can you increase your Average Order Value?
Now that we’ve looked at what Average Order Value is let’s dive into some of the successful strategies that brands have used for increasing your AOV.
Offer free shipping above a minimum dollar threshold
We’ve seen several retailers such as Amazon, Walmart, Target, etc., use this technique; when you set a minimum dollar amount for free shipping, customers will gravitate towards purchasing an extra item instead of paying for shipping.
The free shipping threshold should be set based on the order value of most of the orders. If most of your customers spend $10 on a purchase in your store, if you set the minimum threshold for free shipping to $15, it is quite likely that the customer will make an additional purchase to qualify for free shipping. On the other hand, if you set the minimum threshold for free shipping to $30, this would likely result in abandoned carts. Both Walmart and Target have a free shipping threshold of $35, and Amazon’s free shipping threshold is $25.
The messaging on your website at every touchpoint is essential. The landing page should indicate the minimum dollar threshold for free shipping. The product detail page should clearly indicate the free shipping dollar amount (example from Amazon below) and the cart page should clearly show the additional dollar amount the customer should spend to qualify for free shipping. The checkout page should display the customer’s shipping savings by qualifying for free shipping.
Upselling is selling a higher-end model of the product or add-on services to your customers by sharing the benefits and value of the higher-end products or services. Suppose you have higher-end products in the same categories that customers have added to their carts; you should display them prominently along with social proof of customers who have already purchased and reviewed the higher-end products or add-on services. For example in the following example from Wayfair, on purchase of a patio daybed, expert assembly and a 5 year protection plan are offered as add-on services.
Cross-selling is selling related or complementary products to your customers, which they are likely to buy along with the product in their cart. For example, if customers purchase mattresses, related items could be mattress frames, mattress protectors, and pillows. When customers buy dresses, you could offer shoes or accessories as related items. Cross-selling can overcome several eCommerce challenges as well as increase Average Order Value, as it encourages customers to purchase products that they would have bought later. In the example below, Amazon displays related items that were purchased by other customers who purchased a particular product.
Create a discount on a minimum spend
Reward customers when they spend more by offering a minimum spend discount. For example, if your average order value is $30, offer customers a discount when they spend $50. This will lead customers to spend more. The discount you offer can be a percentage of the spend amount, or it can be a dollar value that is credited to the customer’s account. The dollar value discount will encourage customers to purchase again instead of forgoing the discount value. You can also offer discounts to first-time customers to encourage them to shop more and spend more.
Use personalized recommendations
When customers purchase products, you can recommend related products or popular products that other customers have ordered in the product or checkout pages. When you offer personalized recommendations aligned with your customers’ needs and preferences, they are more likely to purchase them. These recommendations can be based on the order history, past purchase behavior, location, etc. For example, Amazon displays related items based on the browsing history.
Use discounts for bundles
Bundling products together and offering a discount for bundles is a great way to get customers to buy more, increasing the AOV. The customer may be thinking of purchasing additional products later, but this strategy will nudge the customer towards purchasing other products during the initial purchase. In this example from Perfumania, the customer can choose the items in the bundle.
Create time-sensitive offers
It is natural to purchase any available item at a discounted price. Creating a sense of urgency with time sensitive offers is a great way to increase Average Order Value. Customers, not wanting to miss out on great offers, will spend more on buying products that are sold at a discount. The offers can be a percentage of the purchase amount or a specific dollar amount. You can also offer free shipping, same-day or free one-day shipping options as a time-sensitive offer.
Have a flexible return policy
Customers are often hesitant to purchase items because it is a hassle to return them if they are not completely satisfied with the items. Having a flexible return policy will encourage customers to buy more, knowing that they can return them if they are not suitable. American Eagle has one of the best return policies, where there is no time limit to return. You can return a product at any time if you are not happy with it.
Create a tier-based loyalty program
When you create a tier-based loyalty program and give exclusive and valuable benefits to each tier, this can influence shopping behavior. Customers like to feel valued and treated well. A loyalty program encourages customers to shop more or spend more to be part of a higher tier, thus increasing customer spend and the Average Order Value. Several industries such as retail, airlines, financial services, restaurants and operate on the rewards model. These loyalty programs make customers feel exclusive and part of the in-crowd, enabling you to build relationships with them. Sephora has one of the best loyalty programs, called Beauty Insider which gives members a plethora of benefits according to their spend level.
Use live chat
Even before someone becomes your customer and makes that purchase, you need to make sure that they can have their questions answered anytime throughout their buying journey. This will reduce abandoned carts and be used to cross-sell and upsell products.
Make charitable donations
Offering donations of proceeds of profits earned on purchases made by customers to charities not only increases the goodwill of your brand but increases AOV as well. A good example of this is AmazonSmile. Amazon donates .5% of the price of your AmazonSmile purchases to the charities you choose.
Provide flexible payment options or financing options
Often customers abandon carts while purchasing products because they are more expensive. Customers may want to buy the more expensive products, but they may not afford them in a single go. Providing flexible payment options to the customers will lead to increased AOV. You can allow customers to pay in installments for a slightly higher price or you can give customers financing options from lender partners to support purchases of high-ticket items. When customers have an option to make payments later they will be willing to spend more, increasing the AOV. In the following example, Wayfair allows flexible installment payments from different lenders that is convenient for customers who cannot afford to pay upfront.
Offer freebies for orders above a specific value
Offering gifts when a purchase crosses a particular threshold value is another great way to get users to increase their purchase amount. This signals to the customers that they are getting extra value for their purchase. The following example from Ulta shows how Ulta uses freebies and demonstrates the value the customers get by shopping above a certain dollar value.
To get the best results, you can A/B test the strategies where possible and observe the change in customer behavior. However, you must take care to A/B test one strategy at a time to see which one is more successful. You can also segment your customers and implement one strategy for one group of customers and another strategy for a different group of customers. Ultimately, you can implement a combination of techniques that are both successful and cost-effective for your business.
Author bio: Amrapali is a digital marketing consultant who blogs about business and marketing at Bazaar Expert.