What Is: Average Order Value (AOV)? | Rahul Singh | 2023
What is: Average order value (AOV)?
Average order value (AOV): The average amount spent for each customer order. Often used as a performance metric.
E.g., “As a business owner, looking at the average order value is a great metric to gauge annual revenue growth.”
Average Order Value Formula / How to calculate AOV? :
Average order value (AOV) tracks the dollar amount spent each time a customer places an order on a website or mobile app.
To calculate your company’s average order value, divide total revenue by the number of orders.
“Average Order Value (AOV) refers to the average amount of money a customer spends in a single transaction. It is a commonly used metric for e-commerce businesses and brick-and-mortar stores to measure their performance and revenue growth. By calculating AOV, a business owner can see if their customers are spending more or less on each purchase and make informed decisions to improve the customer experience and increase sales.”
Why does average order value (AOV) matter?
It’s always exciting to see a business’s success, and the average order value (AOV) is a great way to measure that success!
AOV looks at how much money each customer spends when ordering. This metric is super helpful for tracking revenue growth over the year and seeing how customers across different channels shop.
By comparing the AOV between online and in-store customers, a business owner can better understand which channels are more profitable.
Plus, AOV can help measure customer loyalty — customers who spend more on each purchase are more likely to become repeat customers.
Overall, AOV can give a business owner lots of insight into the success of their business and their customers’ spending habits — how cool is that?!
E.g., “As a business owner, looking at the average order value is a great metric to gauge annual revenue growth.”
For example, if your business has an AOV of $50, it means that, on average, each customer spends $50 per purchase.
This information can be handy in determining your overall revenue growth and making decisions to improve the customer experience and drive sales.
So, in a nutshell, AOV is a critical metric that can give you valuable insights into your business’s financial performance.
Don’t forget these metrics when evaluating AOV.
When understanding the performance of an ecommerce business, it’s important to look at multiple metrics and how they relate to each other.
One such metric that’s commonly used is the Average Order Value (AOV), which essentially tells you how much money a typical customer spends in a single transaction.
However, to understand the impact of AOV on your business, it’s essential to look at a couple of other key metrics alongside it. Here are two that I think are particularly important:
Lifetime Revenue Per Visitor: This is the total value of each customer and notes the average amount they’ll order over time. If this is too low, customers aren’t making multiple purchases, which means a lower return on all investments in advertising.
Cost Per Conversion: This metric notes how much it costs to get each customer to convert. It should be subtracted from Average Order Value to display the actual profit per order.
So, when you’re assessing the success of your AOV strategies, make sure to look at these related metrics as well. They can provide valuable insight into how your business is performing and where you might need to make changes to boost your profits.
10 tips for improving average order value (AOV)
You can use some strategies to get your customers to spend more and increase your average order value.
These tips encourage customers to buy more items than planned or upgrade to fancier products.
Doing this can boost the overall value of each transaction and help your business make more moolah.
So, why not give these strategies a try? They might be the ticket to taking your sales to the next level!
Here are 7 tips to improve the average order value (AOV):
- Upsell and Cross-sell: Encourage customers to purchase complementary products or services by recommending them during checkout. By doing so, you can increase the total value of their purchase. For example, suppose a customer is purchasing a phone. In that case, they should add a phone case, charger, and screen protector.
- Bundle Products: Create product bundles or packages that offer discounts when customers purchase multiple items. This can encourage customers to spend more money by showing them the value of buying numerous things at once.
- Free Shipping Thresholds: Offer free shipping for orders that exceed a specific value. This can motivate customers to add more items to their cart to reach the threshold and get free shipping.
- Limited Time Offers: Create limited-time offers only available for a short period. This can encourage customers to purchase before the offer expires and often motivates them to add additional items to their orders.
- Loyalty Programs: Implement loyalty programs that reward customers for spending more money. For example, you can offer a discount or free product for every $X spent on your website.
- Personalized Recommendations: Use data and machine learning to provide personalized product recommendations to each customer based on their purchase history, browsing behaviour, and interests. By offering highly-relevant suggestions, customers are more likely to add additional items to their order.
- Post-Purchase Upsells: Follow up with customers after purchasing with additional recommendations or offers to encourage them to buy more products. For example, you can send a follow-up email recommending complementary products based on their previous purchase.
- Coupons: Offer coupons and discounts that are only applicable for orders that exceed a certain amount. This will motivate customers to add more items to their cart to reach the minimum threshold to receive the discount.
- Donations: Give customers the option to donate during the checkout process. You can offer them a choice of different donation amounts, and by doing so, you can increase the total value of their order.
- Return Policy: Communicate your return policy to customers, including any minimum order values required for free returns or refunds. This can reduce the number of returns and encourage customers to keep their entire purchase instead of returning some items. You can also offer customers a discount on their next order if they keep their original purchase instead of replacing it. This can increase customer loyalty and encourage them to spend more money with your brand.
Conclusion
To sum it up, finding ways to increase your average order value (AOV) is super important for growing your business and bringing in more cash.
That’s why we’ve talked about some cool tactics like upselling, bundling products, offering free shipping, creating special deals, and more, all of which can help persuade your customers to spend more.
You can also provide coupons, donation options, and a clear return policy to keep them coming back for more.
So go ahead and experiment with these strategies and see which ones work best for you — happy selling!
Frequently Asked Questions (FAQs) :
Why is AOV used?
The average order value is, quite simply, the average amount each customer spends when ordering via your website. Retail businesses increasingly view AOV as one of the most important metrics because it provides them with important insights which can inform their marketing and pricing strategies.
What does high AOV mean?
A higher AOV indicates that customers are spending more money per purchase; therefore, the business is doing a good job selling more expensive products and services. A higher AOV indicates that customers are more likely to return and become loyal.
Is high AOV good?
A high or increasing AOV is a good sign for your spending. It shows that you are maximizing the revenue on each purchase. A low or dropping AOV means your transaction revenue is lower than ideal. It indicates that you need to adjust your strategy to offer more options to customers making purchases.
What is the calculation of AOV?
To calculate your company’s average order value, divide total revenue by the number of orders.
- Average Order Value (AOV) = Revenue / # of Orders
Is AoV a KPI?
AOV is a commonly used key performance indicator (KPI) for many reasons. For example, it helps online businesses to measure and, thus, understand their customers’ purchasing habits. Like most online metrics, AOV can be tracked for any time period, but most companies monitor the moving monthly average.
How do I optimize my AoV?
Originally published at https://rahulsudha.com on February 7, 2023.
