The main reason you’re in business is to make money. When you increase Average Order Value (AOV), you make on average more money each time a customer places an order on your site. The result is a more profitable store.
When the value of your customer goes up, you can spend more to find a new one. Seth Godin
How to calculate Average Order Value?
To calculate your store’s AOV, simply divide total revenue by the number of orders for a given period of time.
For example, if in any given month your revenue was €15,000 and you had 200 orders, your AOV is €15,000 divided by 200, so your AOV is €75.
It’s useful to look at how your AOV trends over time. Most ecommerce store owners like to monitor AOV on a monthly basis, but it’s useful to look at the last 7 days or the last 30 days.
It’s also a good idea to look at how your AOV is influenced by your marketing campaigns. Keep track of the start and end dates of your campaigns and you’ll be able to make decisions later on about which initiatives delivered the highest AOV.
Why is Average Order Value so important for profitability?
The maths is pretty simple, increase your AOV by €10 and from your next 1000 orders you’ll generate an extra €10,000.
This impacts your business in many positive ways.
It increases the net profit per order, reduces shipping costs as a % of the order and allows you (if you want) to spend more money on acquiring a customer in the first place.
AOV is a bottom line metric that if managed right will bring about long-term profitability.
At Hang Ten Media we help our clients focus on business profitability and increasing the bottom line. AOV is a bottom line metric that if managed right will bring about long-term profitability.
Don’t forget about your conversion rate
Although focusing on your average order value can be a great way to increase your gross profit, you also need to keep an eye on your conversion rate.
Your store’s conversion rate is defined by the number of sales divided by the total number of visitors. You don’t want to increase your AOV only to find your conversion rate bottoms out.
If you create a great experience and desire for your products, you’ll naturally encourage your customers to want to spend more. Find that AOV sweet spot and you’ll be well on your way to a successful ecommerce store.
Here are some proven tactics to help you increase AOV:
1. Leverage your Free Shipping Threshold
Free shipping is one of the greatest marketing tools available to an online store.
In a survey by Walker Sands Communications, 90% of people said that having an order ship for free is the biggest incentive to add more to their cart.
Not only are you helping your customers save money, but it’s a great way to squeeze a little extra from every sale by encouraging visitors to add an extra product to their cart to reach that free shipping threshold.
Check your AOV for the last 30 days. If for example it’s 70 €, then offer free shipping over 80 €.
Make sure you have the products available to enable people to easily add an extra 10 or 15 € to their cart. If you’re a fashion store, t-shirts, accessories and one size fits all caps and beanies are great for this.
Add site-wide messaging to advertise your shipping offer. Some Shopify themes include a message bar at the top of the site. This is a great slot for a message like: Free Shipping on Orders Over €80.
You can go a step further to reaffirm the message by using Bold’s Sales Motivator app. The app works by promoting your offer when the customer loads the home page, updating in real time when they add products to their cart encouraging them to spend more to reach the free shipping goal!
2. Offer bundle deals
Offering bundle deals is a sure fire way to increase your average order value – buy 3 t-shirts for the price of 2, buy 2 t-shirts get the 2nd 50% off, mix and match multi-buys, buy 3 get the cheapest free. If you need inspiration, just take a look at the offers available on your next food shop – supermarkets are the masters of the bundle deal.
In Shopify you can create bundle deals by selecting the Buy X Get Y discount type. The only limitation with the inherent Shopify discount functionality is that the customer has to add each product to their cart for the discount code to be valid. For a smarter, more user friendly solution, you can use the Free Gifts app.
Before you offer a bundle deal, make sure you do the maths. Although the offer will drive up your AOV it will also bring down your margin. You need to make sure your products are priced in a way that you can afford to cover the costs of the reduction while still making more profit from the bundle deal.
According to Inc., bundling will be the new ecommerce standard as customers demand more personalised choices and convenience. If you can group products together in a way that helps your customers make a decision, you’re actually improving the customer experience, and increasing average order value at the same time.
3. Offer cross-sell and upsell items
One way to increase AOV and convert more new customers is with upselling and cross-selling promotions. These promotions are designed to improve the customer experience by offering visitors more of what they want. This naturally boosts AOV.
What’s the difference between upsell and cross-sell promotions?
An upsell is an upgrade to the item they’ve selected, replacing the original product in the cart.
A cross-sell is a complementary product to the item they’ve already selected, which is added to the cart alongside the original item. For example, if a customer has a surfboard in their cart, you could offer them a traction pad, a leash or a set of fins.
The trick is to make it an easy decision. Upselling and cross-selling are very much psychological. With upselling, you draw people in with a low-priced offer and then show them something better while you’ve got their attention.
Your customers aren’t stupid, they know the difference between low cost and good value. If the price increase is low in comparison to the additional benefits offered then it’s an easy decision for them to make.
4. Offer a gift with purchase above a certain basket value
Free gift app / Bold commerce
5. Spend and save
6. Fast action follow up email
Email Allstars / Klaviyo
Up Next – Customer Retention
When you look at the maths, the way you truly start on the journey of long-term business success is when your customers come back to purchase again.
Here’s a few suggestions on how to improve your customer retention and grow your bottom-line
By rights, as your traffic increases should your sales. If they’re not it’s a sign that something’s amiss. If you’re confident that the quality of your traffic hasn’t decreased, then that something is your conversion rate.
So how do you convert those extra visitors into buyers? The answer is conversion rate optimisation.