One of the best eCommerce metrics that can help you measure your sales and revenue performance is average order value (AOV). Unfortunately, most salesmen and marketing experts just focus on metrics like conversion rate or website traffic. But, in the grand scheme of things, these metrics won’t matter if the customers don’t spend much money.
Imagine you have spent lots of money on your ads and marketing campaigns. Clearly, you expect your revenue to increase. But what if it doesn’t? Is there something wrong with your sales funnel? Here is where average order value can give us insights that other metrics aren’t capable of.
Let’s see how we can use this AOV metric for the best.
What Is Average Order Value and How to Calculate It?
So, what is the average order value? AOV is an eCommerce metric that online stores use to determine orders’ average revenue. Like other metrics, you can calculate AOV in different periods. But, often, it shows the average revenue in a month.
If we want to provide a mathematical formula for calculating the average order value, it would be like this:
When calculating central tendencies (mean, median, mode), it’s not wise to just rely on one of them. Each one provides us with a vision of a different angle of the subject. Therefore, we should use them together to understand the customers’ behaviors better and more precisely.
Related Article: What Are Funnel Metrics and Why Are They Important in Marketing?
What Is the Importance of Average Order Value?
Let’s start with a simple example. Imagine you have three products for sale, and the prices are $11, $17, and $24. After all of the calculations and mathematical operations, you have an AOV of $15. What does this number tell you? How can you use it to generate more revenue?
From this example, we can understand two significant facts:
- Your customers aren’t buying multiple items from the store.
- The number of customers that purchase low-end products is higher.
So, you have this information. How does it help you? With this information, you can improve your product positioning and group the customers into different segments. This way, you can customize your ads and campaigns for each group according to their spending.
In other words, you can analyze customers’ behaviors and determine your marketing budget according to it.
This simple example shows how essential the AOV metric is. Now you can imagine its usefulness in the grand scheme of things.
What Other Metrics Does Average Order Value Impact?
When we talk about eCommerce metrics, it’s vital to consider their impact on other metrics and vice versa. In this case, we should consider two other eCommerce metrics:
- Lifetime revenue per visitor: This represents each customer’s total worth, as well as the average value of their orders over time. If this is too low, buyers are less likely to make multiple purchases, resulting in a lower return on advertising expenses.
- Cost per conversion: For each customer that we convert, it costs us an amount of money like advertising spending, campaign costs, and so on. So, it should be subtracted from the average order value to get the actual profit per order.
How to Improve Average Order Value?
There are several ways to improve the AOV of your online shop. Some of them are specific to some business industries and some are not.
We mentioned one of the ways to increase the AOV before. You can segment your customers according to their purchase history. Then, include them in your loyalty program and other marketing campaigns.
Here we will mention some other ways for improving average order value.
1. Provide Them with What They Need the Most
This is an empty statement, and we all can say things like this. So, how can we know what our customers need? This is where monitoring services will come in handy.
WatchThemLive is one of the best customer monitoring services out there. Its heatmap service provides you with information about your website design and its pain points for the customer. On the other hand, the session recorder service will allow you to see customers’ journeys through their eyes and understand their experiences.
2. Free Shipment over a Specific Threshold
One of the easiest ways for converting shoppers is to provide them with free stuff such as free shipping. But, only offer free shipping when their basket value exceeds a threshold that you define. This threshold is critical. Because if you miscalculate it, it will hurt your revenue, which is the opposite of what you want.
You can measure this threshold through A/B Testing. Offer free shipping to half of your traffic while the other half gets it over a specific amount. Then, compare the two versions. The metrics you must track are:
- The average order value.
- The number of sales and profit.
- The cancellation rate of the product basket.
When your AOV increases, your income will increase as well, and you will have more time to focus on other important metrics.
3. Upselling and Cross-Selling
Upselling is the process of offering the customer some products similar to their desired one but at a higher price. This is a tricky method and can backfire sometimes. You shouldn’t recommend products with considerably higher prices. But at the same time, you should try to make more revenue.
Cross-selling is a little different. In this method, you offer the customer a product relevant to the chosen item. For example, if they want to buy a pair of sneakers, you can offer them socks, something that completes their set. This way, you can increase the average order value.
4. Limited-Time Offers
As you may know, customers have a habit of overthinking a lot before deciding whether or not to buy a product. Limited-time offers may help them make a purchasing decision more quickly. The worst feeling is when you get the notion that you have persuaded a customer, but they leave at the last minute without purchasing anything.
This offer will get the customer’s attention and is more beneficial than regular offers.
5. Loyalty Programs
It should be obvious that your loyal customers are the core of your business. They are the ones that remain with you on your bad days. But, again, this is them that support your new ideas. So it’s your responsibility to keep them happy.
Loyalty programs are an excellent idea for increasing customer retention and letting customers know that they matter to your business. So make sure to use these programs.
Average order value is related to customers who already want to buy from you. These customers are ready to purchase. Your only job is to find ways to make them buy more products to increase their basket value. This might be the most uncomplicated process throughout your sales funnel.