What Is Average Order Value (AOV): And How To Optimize It

Do you know what your average order value is? If not, you're missing out on potential revenue. Learn what average order value is, why it matters, and how to boost your business' AOV.

What Is Average Order Value (AOV): And How To Optimize It

Everyone is always looking for ways to optimize their business, and rightly so! One metric that can significantly impact your bottom line is average order value (AOV). In this post, we'll look at what AOV is and some tips on how to increase it. Let's get started!

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What Is AOV And How Is It Calculated

Average Order Value (AOV) is the amount of money your customers spend during one transaction. By understanding your AOV, you can gain insights into the effectiveness of your pricing strategy and which products are selling the best. Higher AOVs indicate that you are successfully selling higher-priced items and that your customer base is willing to spend more on your product.Β 

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Thus, AOV is a crucial metric for eCommerce businesses as it can be a leading indicator of overall company health.

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To calculate AOV, take the total revenue and divide it by the number of orders during that period. For example, if your store had 100 orders in April with a total income of $10,000, then your AOV for April would be $100.

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Related: eCommerce Metrics You Need to Start Tracking Right Away

Factors That Influence AOV

Several factors can influence your average order value. Some of these factors include:

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Type of products

If you sell high-priced items, your AOV will naturally be higher than if you sell lower-priced items.

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Your AOV is the average price you can charge for each item. If your products are higher priced, then it's likely that customers will be willing and capable of paying more than if they were selling lower-priced items, which means an increased chance of making a profit!

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Target customer

If your target customer is more affluent, they may be willing to spend more per order. If you're catering to a particular group of people with higher incomes, they may be ready and eager to spend more per order.

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Promotions and discounts

If you offer discounts or promotions, customers may be encouraged to buy more products or higher-priced items. The customer is always looking for a good deal. If you provide them with one, they'll be more likely to buy from your store and spend more money on higher-priced items too!

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Shipping costs

If you offer free shipping, customers may be more likely to add more items to their cart to reach the free shipping threshold. Some people are more likely to buy an item if they get it for free. Shipping is one of those things that makes consumers think about adding even different products into their cart before reaching the threshold, which could lead them in a direction where there was never any intention of buying from you initially!

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Related: How to Calculate the Estimated Shipping Cost

Number of Items Per Order

The more items customers order, the higher our overall order volume is. This positively impacts our business and helps us continue serving our wonderful customers.

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Pricing Strategy

If you have a pricing strategy, such as dynamic pricing, this can help you stay competitive and maximize your profits. However, it is essential to consider other factors, such as your cost of goods sold and customer demand, before implementing any changes.

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Related: Essential Shopify Pricing Strategies to Follow

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Average Order Size

The average order size is the average number of items per order. You can use this number to help understand customer behavior and preferences. Average order size can give insights into what things are typically purchased together and influence future Promotions and product bundling.

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Why Is AOV Important For eCommerce Businesses

AOV is a crucial metric for eCommerce businesses as it can be a leading indicator of overall company health. By understanding your AOV, you can gain insights into the effectiveness of your pricing strategy and which products are selling the best. Higher AOVs indicate that you are successfully selling higher-priced items and that your customer base is willing to spend more on your product.

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How Can You Optimize Your AOV

There are several strategies you can use to optimize your average order value. Some of these strategies include:

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Offer Discounts or Promotions

Offering discounts or promotions are a great way to encourage customers to add more items to their cart and spend more per order. You can offer discounts through coupons, promo codes, or free shipping.

  • Offer a discount that is significant enough to encourage customers to add more items to their cart but not so high that it eats into your profits
  • Be strategic about when you offer discounts or promotions. You don't want to become known as the company that is always offering discounts, as this can devalue your brand
  • Make sure your advertisements are targeted and relevant to your audience. Offering a discount on items that your customers don't want is not going to encourage them to spend more per order

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Bundle Products Together

Bundling products together is a great way to increase average order value as it encourages customers to buy multiple items simultaneously. Customers often perceive bundled products as a better deal than buying the items separately, so they are more likely to add more items to their cart.

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Tips for Bundling Products:

  • Make sure the products you bundle together complement each other and that there is a logic behind the bundle
  • Offer a discount on the bundled products to encourage customers further to buy
  • Be careful not to bundle too many products together as this can be overwhelming for customers

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Upsell or Cross-Sell Products

Upselling and cross-selling are great ways to encourage customers to spend more per order. Upselling is when you offer a higher-priced version of the product the customer is already interested in. Cross-selling is when you offer complementary products to the customer.

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Recommend Additional Products

You can also increase your AOV by recommending additional products that complement the items in the customer's cart. For example, if a customer buys a coffee maker, you can recommend coffee beans, filters, and mugs.

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Focus on quality over quantity

A few well-chosen products are more effective than a large selection of random products. It's essential to offer products that complement each other and that your customers want to buy.Β 

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Make sure your site is easy to navigate

If your website is challenging to navigate, customers are less likely to stay on your site and make a purchase. Make sure your site is easy to use and that customers can easily find the products they are looking for.

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Provide excellent customer service

Ensure you provide excellent customer service so that customers have a positive experience with your company. Excellent customer service will encourage customers to come back and make future purchases.

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Don't be too pushy when upselling or cross-selling

Customers can tell when you're just trying to make a sale and not genuinely interested in helping them. If you're too pushy, customers will likely leave your site and take their business elsewhere.

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Explain why the higher-priced product is a better value

Customers need to see the benefits of spending more before they will be willing to do so. Please explain why the higher-priced product is a better value and that it is worth the extra money.

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Change Your Pricing Strategy

If you're unhappy with your current AOV, you may need to change your pricing strategy. You can do this by implementing a new pricing strategy or adjusting your products' prices.

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Examples Of Strategies To Increase Your AOV

Here are some examples of companies who have successfully increased their average order value:

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1. Amazon Prime

Amazon offers a membership program called Amazon Prime. For a yearly fee, customers get free 2-day shipping on all orders, as well as access to exclusive deals and discounts. This membership program has incredibly succeeded in getting customers to spend more per order.

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2. Warby Parker

Warby Parker is an online eyeglasses retailer. They offer a Try-On program where customers can select five frames to try on at home. They then return the frames they don't want and only pay for the ones they keep. This program encourages customers to order more frames, which leads to a higher average order value.

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3. Birchbox

Birchbox is a monthly subscription service for beauty and grooming products. They offer various subscription plans, encouraging customers to spend more per month. They also provide the option to add additional items to each box, increasing the average order value.

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Tips To Help You Track And Measure Your AOV

You can do a few key things to track and measure your average order value.

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1. Calculate Your AOV For A Specific Period

This could be daily, weekly, monthly, or annually. To calculate your AOV, divide the total revenue for the period by the number of orders.

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Example:

If you had 100 orders in a month and your total revenue was $10,000, your AOV would be $100.

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2. Start To Look At Ways To Improve It

One way to do this is to look at your top-selling products and see if there are any patterns. Are there certain products that are consistently purchased together? If so, you could consider bundling these products or creating a promotion around them.

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You can also look at your average order size and see if there are any trends. Are customers ordering more items per order? If so, this could indicate that they are responding well to your upsells and recommendations.

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Factors To Consider On How To Improve The AOV

Relevancy Of The Product To The Customer: The product must be relevant to the customer's needs for them to make a purchase.

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Quality Of The Product: The product must be of high quality and meet the customer's expectations to make a repeat purchase.

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Price of the product: The product must be priced competitively for the customer to make a purchase.

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Ease of purchase: The purchasing process must be accessible and seamless for the customer to complete their purchase.

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Customer service: Customer service must be responsive and helpful for the customer to have a positive experience.

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3. Track Your AOV Over Time To See Any Trends

Are you seeing a steady increase in average order value? If so, this could indicate that your efforts to optimize AOV are successful.

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You can track and measure your average order value in a few different ways.

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Google Analytics

You can track your AOV in Google Analytics by going to your "eCommerce" report and selecting "AOV" from the drop-down menu.

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Shopify

If you have a Shopify store, you can track your AOV by going to your "Orders" report and selecting "AOV" from the drop-down menu.

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Salesforce

If you use Salesforce, you can track your AOV by going to your "Reports" tab and selecting "AOV Report" from the drop-down menu.

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Related: 5 Things You Need To Consider When Choosing An Online Ordering System

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4. Compare Your AOV To Your Competition

One way to see how you're doing is to compare your AOV to your competition. This will give you an idea of where you stand and what you need to do to improve.

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You can compare your AOV to your competition in a few different ways.

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Google Shopping

One way to compare your AOV to your competition is to use Google Shopping. This tool allows you to see the average order value for a specific product.

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Enter the product you want to search for and select "Show average order value" from the drop-down menu. You will then be able to see the average order value for that product and the average order value for the competition.

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Shopify

Another way to compare your AOV to your competition is to use Shopify's built-in tool. Go to your "Orders" report and select "AOV" from the drop-down menu.

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You will then be able to see the average order value for your store and the average order value for the competition.

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5. Use AOV To Inform Your Marketing And Advertising Efforts

One way to optimize your AOV is to use it to inform your marketing and advertising efforts. For example, if you know your average order value is $100, you can use this information to create targeted ads and promotions.

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You can also use this information to segment your customers. For example, you could create a segment for customers with an AOV of $100 or more. This would allow you to create targeted campaigns specifically for these customers.

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6. Optimize Your Checkout Process

Another way to optimize your AOV is to optimize your checkout process. The goal is to make it as easy as possible for customers to complete their purchases.

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There are a few different ways you can do this.

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First, you can offer multiple payment options. This will allow customers to choose the payment method that is most convenient for them.

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Second, you can offer discounts and coupons. This will give customers an incentive to complete their purchases.

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Third, you can streamline the checkout process. This includes reducing the number of steps required to complete the purchase and eliminating any unnecessary fields.

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7. Segment Your Customers Based On Their AOV

This will allow you to see which customers spend the most with your business. You can then target these customers with specific promotions and offers.

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8. Use AOV To Inform Your Pricing Strategy

If you know that your average order value is $100, you can use this information to inform your pricing strategy. For example, you could offer discounts for orders over $100. This would give customers an incentive to spend more with your business.

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Conclusion

AOV is an essential metric for any eCommerce business. By understanding what factors influence it, you can take steps to optimize it and see a significant impact on your bottom line. Need help implementing some of these strategies? Our team at Simpl can assist you with fulfillment and other aspects of your eCommerce business to focus on increasing your AOV.

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Recommended: 8 Supply Chain Metrics & KPIs You Need For A Successful Business

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