What is AOV in eCommerce? Understanding and calculating your Average Order Value (AOV)
Average Order Value (AOV) is a statistic used in ecommerce to assess the amount of money spent per transaction by consumers.
It is derived by dividing total revenue by total orders. AOV is a significant indicator for ecommerce organizations since it may give insight into consumer behavior and buying patterns and assist in identifying areas for sales process improvement.
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What is AOV in eCommerce?
Average Order Value (AOV) is a metric used in ecommerce to measure the average amount of money spent by customers during a single transaction, which can provide insight into customer behavior and purchasing habits.
For example, if AOV is low, it may indicate that there are opportunities to upsell or cross-sell to customers or that the prices of products need to be adjusted.
On the other hand, if AOV is high, it may indicate that the business is effectively utilizing upselling and cross-selling strategies or that the prices of products are set correctly.
AOV can also be used to set business targets and identify trends and patterns in customer behavior. By tracking and analyzing AOV, ecommerce businesses can make informed decisions to improve their sales and increase revenue.
AOV is a key performance indicator (KPI) that is often used for a number of reasons. For example, it helps online businesses track and figure out what their customers buy and how often they buy it. AOV can be tracked for any length of time, just like most online metrics, but most companies keep an eye on the moving monthly average.
How is eCommerce AOV calculated?
The average order value may be calculated using a simple formula:
Total revenue / Total number of orders = Average Order Value (AOV)
In August 2022, your shop made $10,000 from 252 orders. Your store’s typical client spent $39.68.
The method is simple and may be measured for any period, although most marketers track the monthly moving average. Thus, they can track client purchase trends.
How is AOV used for eCommerce?
Now that we understand what Average Order Value (AOV) is and how it can be increased, it’s important to know how to use it effectively.
Here are a few ways that AOV can be used to improve ecommerce businesses:
- Benchmarking: AOV can be used to compare the performance of different products or product categories. For example, if the AOV for a particular category is significantly lower than the overall AOV, it may indicate an opportunity to improve the sales of those products.
- Setting targets: AOV can be used to set targets for the business. For example, if the current AOV is $50 and the target is to increase it to $60, the business can focus on implementing strategies to achieve that goal.
- Identifying trends: By tracking AOV over time, businesses can identify patterns in customer behavior. This can help to identify which strategies are working and which are not and make adjustments accordingly.
- Improving customer lifetime value: AOV can measure the customer’s overall value to the business. By increasing AOV, businesses can improve customer lifetime value and ensure they get the most value from each customer.
- Identifying opportunities for upselling and cross-selling: As mentioned earlier, upselling and cross-selling are effective ways to increase AOV. By analyzing AOV, businesses can identify opportunities to suggest higher-priced items or complementary products to customers.
AOV extends beyond profit margins. It shows you ways to increase the store’s efficiency.
If your AOV is $24 and your items are priced at $18, $22, and $30, buyers are buying cheaper items or not buying numerous things. Knowing this will improve your AOV strategy.
AOV may also help you calculate customer value and discount and promotion budgets. When combined with LTV, returning rate, and cohort AOV, you can better estimate how much you can discount. Understanding cohort ROI helps.
You can figure out different kinds of AOV that tell you more about what’s working and what’s not:
- Cohort AOV per Month: This shows monthly cohort AOV changes. Monthly AOVs show consumer value and when to discount.
- AOV: Your average order value where you divide the total revenue by the total orders.
- Net AOV: The average net sales per order you’re accounting for
- AOV (new): Shows how much new customers spend on each order on average. This may help you evaluate new-customer discounts.
- AOV (returning): How much your regular customers spend on average with each order.
- AOV Gross: The average gross income per order, as the name suggests.
- AOV Net New Customer: How much a new customer spends on average when they place an order.
- AOV Net Returning Customer: The net AOV of a returning customer
It is important to note that while AOV is a valuable metric, it should not be the only metric used to measure the performance of an ecommerce business.
Other important metrics include the number of transactions, the conversion rate, and the customer lifetime value.
By analyzing AOV in conjunction with other metrics, businesses can better understand their performance and identify areas for improvement.
How can I increase the AOV for my eCommerce store?
Upsells, cross-sells, bundle offers, package discounts, free shipping and returns, a well-designed website, a loyalty program, and personalization may enhance AOV.
A well-designed, user-friendly website may also boost AOV. Visitors are more likely to buy from a website with straightforward navigation. As more people purchase online on their phones, a mobile-friendly website may boost AOV.
Finally, customizing shopping may boost AOV. This may include tailored suggestions, discounts, and promotions based on a customer’s browsing or purchase history. Personalizing the buying experience may make consumers feel cherished and increase sales and AOV.
Improving your Average Order Value (AOV) in 5 Steps
Here are five easy tactics you can do immediately to increase your AOV. These are solid beginning ideas for any company seeking to raise AOV.
However, a more in-depth investigation of your customers’ purchasing habits can help you determine which techniques are best for your firm.
1. Increase the Free Shipping Threshold
Free shipping is a popular marketing tactic that can help increase your eCommerce Average Order Value (AOV) by encouraging customers to purchase more items in a single transaction. Here’s how it works:
- Encouragement to add more items: By offering free shipping, customers are incentivized to add more items to their cart since they are not being charged for shipping. This increases the overall value of the order, leading to a higher AOV.
- Bundle savings: When customers see that they can save money on shipping by purchasing multiple items, they may be more likely to add additional products to their cart. This creates a sense of value for the customer and increases the overall value of their purchase.
- Increased customer loyalty: Offering free shipping can also help to build customer loyalty. Customers may be more likely to return to the store to take advantage of similar promotions.
- Improved customer experience: By offering free shipping, customers can get more value for their money, leading to a better shopping experience. This can also help reduce the potential friction shipping costs can cause in the customer’s purchasing decision.
In conclusion, offering free shipping can help increase the AOV by encouraging customers to purchase more items, creating a sense of value, building customer loyalty, and improving the overall customer experience.
Your store can use this customer preference to increase the AOV. You can do this simply by picking a number above the current AOV.
For example, say your modal AOV is already $95. You can increase the free shipping threshold to $99 to get customers to buy more.
However, before setting the threshold, you should carefully assess your profits. Ensure that you will still make a profit after offering free shipping.
2. Create Product Bundles
Another way to increase AOV is by offering bundle deals or package deals.
Product bundling is simply incentivizing your client to purchase more by making an offer that combines comparable things that the consumer needs at a discount. Thus, the consumer receives a discount, and the average transaction value of your business grows.
Bundle deals are when a business offers multiple products for a discounted price, while package deals are when a business offers a set of products together for a lower price than if purchased separately.
This can effectively increase AOV because customers may be more likely to purchase additional items if offered at a discounted price.
3. Offer a Discount on the Second Product
Discounting the second product can help increase the Average Order Value (AOV) by encouraging customers to purchase more items in a single transaction. Similar to increasing your free shipping threshold, offering a discount on the second product helps increase your AOV by:
- Encouraging the customer to add more items: Customers are enticed to add a second item to their basket by providing a discount on the second product. This improves the order’s total value, resulting in a greater AOV.
- Bundle savings: When consumers discover that they may save money by buying numerous things, they may be more inclined to add more items to their shopping cart. This gives the buyer a feeling of value and raises the total worth of their purchase.
- Increased customer loyalty: Providing discounts on numerous goods might also aid client retention. Similar promos may encourage customers to return to the shop.
- Improved customer experience: By giving a discount on the second item, buyers may get more value for their money, resulting in an enhanced shopping experience overall.
In conclusion, discounting the second product can help increase the AOV by encouraging customers to purchase more items, creating a sense of value, building customer loyalty, and improving the overall customer experience.
4. Cross-sell and Upsell
One way to increase AOV is by offering upsells and cross-sells to customers. Upselling is when a business suggests a higher-priced item or upgrade to a customer. Cross-selling is when a business suggests related or complementary products.
For example, a clothing retailer may upsell a customer by suggesting a more expensive clothing item or cross-sell by suggesting a matching accessory.
Identifying similar items or offering a premium version of the present product is all required.
Ensure, however, that you are not cross-selling or upselling products with a significantly different price point. Add-ons should be priced just high enough to boost your AOV but at a level consumers are willing to pay.
5. Offer a Free Gift
Similar to free delivery, complimentary gifts may encourage customers to spend more. This is a fantastic method of demonstrating gratitude to your consumer base and fostering brand loyalty while raising AOV. Choose a present by selecting an item with a cheap cost to you but a high selling price.
This puts you in an excellent position to enhance gross profit by requiring clients to spend more to get the free gift. This is also a way to increase the lifetime value of your consumers if you can entice them with a free present item that they may want to refill or buy often.
So, you are not just raising AOV to bring them to the free gift but also exposing them to more related items. Additionally, you may choose your free gift-giving by examining your consumer activity data to see which goods are often bought together.
You may utilize this to boost the AOV during a sluggish season of the year, which you can detect if you’ve been correctly monitoring the AOV.
Another way to increase your eCommerce AOV is by offering a loyalty program. A loyalty program can encourage customers to make repeat purchases by offering rewards or discounts for repeat customers.
It can also help increase AOV by encouraging customers to spend more money to reach a higher loyalty tier and receive more significant discounts or rewards.
In conclusion, AOV is an essential metric for ecommerce businesses to measure and track. By understanding how to use AOV effectively, businesses can identify opportunities to increase sales and revenue and improve customer lifetime value.
Businesses may acquire a more thorough knowledge of their performance and find opportunities for development by examining AOV alongside other measures.
AOV provides insight into the health of a shop. However, you must compute many AOV kinds to get an accurate picture.
The optimization of your eCommerce AOV has a domino effect on all following orders. Additionally, it contributes to brand loyalty in the long term. You improve your current marketing initiatives ROI and return on ad spend (ROAS).
Whether launching a new discount code or analyzing a decline in sales, AOV can provide in-depth insights about your growth, which may inspire new acquisition and retention marketing strategies.
Tracking AOV and establishing benchmarks while making changes to your shop reveals the effectiveness of those adjustments, allowing you to determine what is working and what is not rapidly. For instance, increasing eCommerce AOV after adding upsells indicates they are effective.