Running an ecommerce store is complex and requires analyzing many different metrics that indicate how your store is performing over time. One of the most important metrics that ecommerce store owners need to pay attention to is Average Order Value (AOV).
Average Order Value shows you the amount your customers spend on average for each order that they place with your store. AOV also helps your company evaluate the effectiveness of marketing efforts and allows you to implement changes where you see fit.
Below, we’re exploring why AOV is so important, and how you can leverage its power to increase your revenue and profitability as an eCommerce business.
What is Average Order Value?
AOV tracks the average amount each customer spends per order on each purchase from your store. To calculate your brand’s AOV, you need to divide the total revenue by the number of orders you’ve received over a specified period. The formula looks like this:
Average Order Value (AOV) = Revenue / Number of Orders
A simple example of an AOV calculation is if your store did $10,000 in sales last month. If customers placed 200 orders during the month, your AOV would equal $50.
Many retailers track AOV over weeks, months, and years. Analyzing the AOV over these periods lets you see if AOV is getting better or worse over time.
Why Is AOV Important?
Average Order Value is crucial to the success of ecommerce brands because it shows marketers how they should spend their advertising dollars and which channels they should focus on the most. AOV also helps determine strategies involving pricing, presentation, user experience, and merchandise selection.
Tracking how AOV is trending over time gives digital marketing teams the ability to run A/B campaigns to test out the most effective strategies and which ones are not working well. Using AOV in conjunction with other ecommerce metrics like lifetime value (LTV) and customer acquisition cost (CAC) gives you further insight into the best ways you can optimize your marketing efforts.
How To Optimize AOV
Increasing your Average Order Value will improve profitability and your Customer Acquisition Cost (CAC). Some of the best ways you can optimize your AOV include:
- Customer loyalty programs
- Offering free shipping
- Bundling your products
CUSTOMER LOYALTY PROGRAMS
Loyalty programs are a proven strategy that reward customers for spending money at your store, and many well-known brands worldwide are choosing to implement these programs.
These reward programs encourage customers to spend more to reach different tiers and qualify for other free rewards.
Customer loyalty programs can be especially beneficial for ecommerce stores that sell products that customers need to repurchase. Products like shaving cream, candles, and other consumable products can work very well with a loyalty program since customers will continue to purchase the products, increasing their lifetime value (LTV).
Upselling your ancillary products to customers before they checkout is one of the oldest and most effective ecommerce and sales strategies. However, overdoing your upselling offers can put off your customers and cause them to abandon their order cart.
It’s also important to price your upsells effectively. If your customer is about to purchase $50 worth of merchandise, it doesn’t make sense to upsell them on a different product that costs $100. Use upsells by offering smaller products that complement the customer’s order that they can add when they’re about to finalize their purchase.
OFFERING FREE SHIPPING
Giving your customers free shipping drastically increases the likelihood of adding items to their cart and following through with their purchase.
Ensuring you offer free shipping at the right price is essential so your profits aren’t adversely affected by your shipping costs. Depending on your location and the size and weight of the package, shipping can be costly when sending packages across the country or internationally.
To find the right threshold to offer free shipping, you should determine your AOV and then set the order value to 30% higher than this figure. For example, if your AOV is $35, customers must spend at least $45 to get free shipping with their order.
BUNDLING YOUR PRODUCTS
If your goal is for customers to buy more products and increase your AOV, bundling your products will be one of the best strategies you can implement. Bundling your products is done by offering discounts to customers who purchase multiple items together or offering a package of products for one flat price.
For example, if you are a retailer of cooking equipment, you may choose to sell a frying pan along with items like hot pads, cooking utensils, or baking sheets in a complete package for one fixed price.
The Bottom Line
Running a successful ecommerce store takes a lot of time and effort and extensive knowledge of digital marketing strategies, sales copywriting, and graphic design. By increasing the AOV of your customers, you will increase your company’s profitability, decrease your customer acquisition cost, and drive up the lifetime value of your customers.
Implementing the strategies we’ve covered have been proven to optimize AOV and will position your ecommerce store for near-term and long-term success.
With AnswerRocket, brands can optimize their AOV via automated analysis and insights that allow them to easily track performance changes, identify issues, and understand which segments are helping or hurting AOV.