The average order value (AOV) measures the average amount spent on your website each time a customer places an order. The metric is defined over a specific time period and is calculated by dividing the total revenue by the number of orders over that time interval. The AOV formula is, therefore:
AOV = Sum of revenue generated on your website / Number of orders placed
How to calculate AOV – Average order value formula
The average order value is, in fact, the average value of the amount spent by customers on each transaction. We calculate it simple: the total income over a period of time or during the activity, divided by the number of orders. Thus, we obtain the average order value.
Total income / no. of orders = the average order value.
For example, if your online store generated $1,000 in August, and there were 23 orders placed, the average order value is $1,000/23 = $43.47.
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 average order value or customer retention is most of the time 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 manage 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 value of the basket 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 if the volume of the basket exceeds a certain threshold
The first efficient tactic to increase the volume of the product basket is to provide free transport for people who exceed the sum of the average order value. Experts say that users convert more quickly if they have the option of free shipping, conditioned by the value of the product basket.
Attention, this strategy can turn into a trap if you do not know how to use it properly. Even if the value of the order has doubled, you can lose this increase when you find out that the transport price interferes with the profit margin.
How do you solve the problem? Simple, test the version of the absolute free transport and the version of the free transport after exceeding a certain threshold, through A/B Testing. The metrics you have to follow are the average order value, the number of sales, the profit, and the cancellation rate of the product basket. If you improve your AOV the income grows and you can focus on other key metrics.
- Offers discounts depending on the volume of the basket
In case you want to make a stock liquidation but to win even on this occasion, through offers made intelligently, consider the discounts for customers according to the value of the products in the basket. Your customers love discounts, like all customers on this planet, with the full range of words starting with “offer”, “cheap”, “economic”, “discount” and up to “free”. It does not matter that there is a discount of 5%, 10% or 20% as long as you see a decrease in the standard sale price.
Buying through these offers, users have the impression that they have made the best deal of their life. Why not consider this feature of the public to increase your average order value? It imposes a threshold, a price that must pass to receive a discount. Make sure the final price is higher than the average order value.
- Upselling and Cross-selling
Upselling refers to offering a product similar to the one desired by the customer, improved, but with a higher price. The pricing strategy does not work, however, guaranteed every time. Do not require the customer to buy a product that you have in the catalog just because you do not know how else to promote it. Or, worse, do not try to sell all the products in the list on the occasion of the first purchase in the store. This strategy leads to improving the average order value and the total revenue per user.
Cross-selling, although similar to the previous strategy, refers to the promotion of an additional complimentary product, which completes the first order. Let’s say you sell to a client, for example, to a man, a pair of business pants. To make cross-selling, show him your offer of leather belts, with the mention “Those who bought this product were also interested in” or “Complete the outfit”.
This conversion rate optimization strategy acts as an upselling reserve, but its benefits cannot be ignored. All you need to know when doing cross-selling is that you are required to choose relevant products, in direct connection with what the customer bought. After all, it’s normal for a person who purchased a laptop to need a laptop bag, doesn’t it? All are business decisions that might not apply to all businesses, but there are more ways to increase your AOV (average order value).
- Offers on the purchase of a product package
By offers to buy a package of products, I mean the strategy of selling 2 or more products, ensuring a discount (bundling products). Basically, the customer has the opportunity to have an entire set of products at a reduced price compared to the situation in which they would have bought separately.
For example, if you are selling make-up and cosmetic products for women, tell the client that they can have the complete kit of eye make-up products at a discounted price. Also, show them how much you save, taking advantage of this offer. Or, keeping the example, when buying a mask, eye shadow, and dermatograph pencil, the client receives a free eye makeup remover.
Another strategy is the possibility of customizing the package. For example, if you have an online store that sells gifts or during the holidays, regardless of your store, offer to pack the box for the gift recipient, and you have a chance to kick it. Ask the customer for a specific price for the packaging but specify the advantages he/she gains for this modest price. For example, they don’t waste time with the packaging, saves them money on paper, glues and other items for the packaging receives a thank you card in the package, etc. Be inventive and surprise your client so as making him use the card from the wallet.
- Announce a limited time offer
These tools can cause the user to make the purchase decision faster because, as you know, customers have a habit of thinking for a thousand years, before deciding whether or not to buy the product. The worst feeling is when you have the impression that you have managed to convince him and the client leaves at the last moment, without buying anything.
In other words, imposing a time limit on which the customer can take advantage of the discount to the desired product creates the so-called FOMO, Fear Of Missing Out, which causes him to make a decision faster. For example, a “30% discount on all products” will awaken the user’s curiosity, but a “30% discount on all products for the next 2 days” will more than likely gain attention and increase the customers spend.
- 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 has not the pinkest color, when you go through a worse period in terms of sales, etc. Loyal customers are the natural ambassadors of your store and promote you healthy in front of an audience that does not know you yet but trusts them: family, friends, and acquaintances.
To reward them and to 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 and tell friends and acquaintances about the positive experience in the store. Or offer loyalty points to the first 3 orders, which, accumulated, will turn into a discount coupon at the next order.
Customer loyalty programs, reward programs, are used to increase customer retention, customers tend to buy more and follow your rules in order to take advantage of discounts and privileges.
What to do and what not to do when it comes to implementing strategies to increase average order value and gross profit:
How to increase average order value?
- Test with A/B Testing these strategies to find out which works best for your online store;
- Pay attention to the balance between the discounts made and your profit margin;
- Use people’s emotions and speed up their actions by calling on FOMO to boost sales;
- Make a customer loyalty program and reward them with each conversion in order to increase customer lifetime value.
What not to do:
- Do not implement all the strategies presented above at once; take one by one, test it and if the Average order value increases implement the change and pass to the next test on your customer base.
How A/B Testing Can Help Improve Your Average Order Value
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.
How does A/B testing work, and what is its idea? 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.
To begin with, you will need to start by dividing what you want to test in both variants and publish or launch the campaign. Then, once we start collecting information, you can start to see which variant works best. Depending on the purpose of the test, you should pay attention to specific data, such as conversion rate, click rate, email opening rate, or rejection rate.
The first thing you need to do before A/B testing is to set a goal, key metrics you will track. Do you want an increase in general traffic, new customers, or just an increase in return rates for existing customers? Or do you wish to increase your conversion rate optimization, boost sales, and improve your AOV? It is essential to determine the desired result. Otherwise, you will not know when to stop the experiment and evaluate the data you have collected.
You must have a proper tracking system so you can understand how users interact with the app. Depending on the experiment, we recommend tracking items such as clicks, page views, product recommendations, initiated purchases, completed purchases, canceled purchases, and so on. In addition to providing relevant information on how your experiment is performing, this data may also give an insight into other experiments that you might want to run to improve other parts of the application further.
How AOV impacts other business decisions
1. Advertising spending
You need to check how much money is your business spending on advertising, and how is it translating to the average order value. Keep in mind that you are in the wrong position if you are spending equal or more than your average order value to acquire a customer. It is the same situation if you are spending less to acquire a customer than your average order value. You need to think through:
- Advertising costs and spend
- Shipping costs
- Warehousing costs
- Product costs, pricing strategy
2. Buying patterns and trends
You need to know the seasonality, time of the year, which is the most important for your business. What I am trying to say is that you need to see which seasons and campaigns do your highest value customers prefer? You can see this based on the average order value change over time.
3. Conversion costs
If you have a low average order value and high conversion cost, this should alert you, because you could be losing revenue! Your average order value should be at least double higher than your conversion cost or your cost of customer acquisition.
Average order value benchmark and studies
List of eCommerce Average Order Value Benchmarks
British Pounds GPB 86.98 ($100): IRP Commerce (Q1 2019)
US Dollars $133.77: Monetate Ecommerce Quarterly (Q3 2018)
EUROs EUR 282 ($250): Wolfgang Digital KPI Report (2019)
Average Order Value by Industry
The industry-specific benchmarks represent the most useful benchmarks for the good of your growth in business.
The best public company, which offers real-time information on UK markets, is IRP Commerce, which publishes updated values on several verticals. Few AOV by industry: Baby and Child $243, Fashion $150, Food & Drink $140, Pet Care $100, Kitchen $71.
Average Order Value by Channel/Source
Retailers see the traffic routes that have the highest revenue. They can do this by separating the values of average orders by source.
Average Order Value by Source: Unknown: $225; Direct Navigation: $107; E-mail: $99; Search: $92; Social: $74.
Average Order Value by Device and Platform
According to Monetate Average Order Value by Platform: Windows: $200; Macintosh: $123; Linux: $113; iOS: $86; Chrome Os: $73; Android: $69; Windows Phone: $59.
Average Order Value by Device: Traditional: $180; Tablet: $87; Smartphone: $79; Other: $71.
What is the meaning of AOV?
AOV means the average order value, which is represented by the average value of the amount spent by customers on each transaction.
What is a good average order value?
Well, a good average order value, depends on the industry but also if it’s calculated by the source of traffic or device. For real data check the benchmarks above.
Why the average order value is important?
Knowing the average order value offers a window into customer behaviors and how much they are spending on your products. By studying how your clients are spending on every order, you can then organize marketing and pricing strategies to enhance it.
What is the average basket value?
Well, it is the average value spent by customers per transaction in your store.