Keeping track of the right metrics is key to growing your ecommerce business.
If you’re new to this, it may seem there are quite a few of them to keep track of: lifetime customer value, conversion rate, cost of sale – the list goes on and on…
One of these metrics, especially important for you as an ecommerce website owner, is average order value or AOV.
When done right, tracking and increasing your AOV can help you grow your online store. But this metric doesn’t work in a vacuum, either.
Wondering what the best approach is? Here is everything you need to know about average order value:
- What is average order value
- Why average order value matters for your online store
- How to calculate your own average order value
- How to increase your AOV
What is average order value?
Just like the name suggests, AOV is the average value of each order placed on your ecommerce store.
What does that mean? So, let’s say you just received $1500 of orders this past month, with a total of 50 orders. If you divide the total value by the number of orders – or 1500 divided by 50 – you get a total of 30.
This means that on average, each customer that submits an order can be expected to spend $30.
However, if you have the same total order value, but only three orders, then your AOV is 500. See the difference?
Why average order value matters for your online store
By itself, AOV is just another number.
However, it can be useful for many things.
First off, you can compare your cost per sale (CPS) – how much it costs you, as a business owner, to generate one sale – compared to your average order value to see how profitable you currently are.
For example, if your CPS is $10, but your average order value is $50, then you’re golden!
On the other hand, if you have the same CPS of $10 with an AOV of $15, that doesn’t leave you much for operating costs, the cost of your products, and your profits.
In short, your average order value helps you determine:
- If your pricing strategy is working
- If you can be profitable in the long run
- Where you should focus your growth efforts
However, your average order value isn’t the only metric you should track to measure your growth.
For instance, the conversion rate of your online store matters, too. How many people who land on your website actually convert into paying customers? A low conversion rate means that increasing your traffic won’t help you raise your AOV.
Conversely, your revenue per visit, which calculates how much sales revenue you can expect every time one person visits your store, is a good indicator of whether or not increasing traffic will help you increase your profits.
How to calculate your average order value
You should always calculate AOV in a given period of time. You can choose to calculate your monthly, daily, weekly, or even yearly AOV depending on what you’re trying to achieve.
To calculate average order value, divide your total gross revenue by your number of total orders – in a given period.
And that’s your AOV!
How to increase your AOV
Now that you know your AOV, what can you do if you want to increase it?
By increasing your average order value without decreasing your website’s conversion rate or cost per sale, you’ll increase your revenue.
Here are some pointers to get you started.
1. Create upsell and cross-sell notifications
When your customers add one item to their cart, there are two things you can do to increase that order’s value:
Suggest a product that will complement their existing purchase…
… or suggest a more expensive upsell that will improve the value of the product they picked.
The first is an example of a cross-sell. Amazon does this extremely well every time you look at an item on the marketplace using their ‘Frequently Bought Together’ feature.
On the other hand, an upsell offers an upgrade of the item they want to purchase. An upgrade can consist of better features, or a more expensive version of the item currently in their cart.
You can offer cross-sells and upsells:
- Directly in the shopping cart when your customer checks out
- On the product page, just like the Amazon example
- On any page as a pop-up notification when customers add certain items to cart
Depending on the platform you’re using for your online store, you may want to use a dedicated app or plugin to set up upselling and cross-selling offers. However, you can also easily create individual offers and display them on selected pages using popups like this:
Just make sure that the items you’re suggesting make sense with the products your visitors are trying to buy.
2. Bundle items together
Bundles are similar to cross-sells because they offer similar items together. However, instead of offering said items only when the customer adds something to their cart, bundles already exist in your ecommerce store as a feature or an item.
It’s so much easier to purchase more than one item when they already come pre-bundled together, or if you can get a better price for them.
This increases the perceived value of your products and will entice visitors to add more value to their cart before checking out.
There are two ways you can bundle items together. The first is a custom bundle offer, just like this one from La Petite Ourse.
If you purchase 20 cloth diapers, they offer a flat price of $295, which results in a cheaper per-item price.
Instead of offering a pre-made bundle, shoppers can pick and choose their own designs.
On the other hand, you can offer pre-existing bundles that shoppers can easily add to their cart. For example, Holo Taco offers several bundles, both for nail polish and nail care items, because they know that many customers will want to purchase more than one of these items, anyway.
Keep in mind that a bundle CAN be a good cross-sell or upsell idea, too.
3. Offer free shipping over a certain price threshold
It is so much more cost-effective for online shoppers to spend more – and thus increase your AOV – to qualify for free shipping.
This is especially true if you have shoppers from outside of your country who may have to spend more money on expensive shipping and customs import fees.
Let’s bring back that screenshot from Holo Taco. Notice their offer at the top:
Holo Taco is manufactured and shipped from the United States, but the website detects that I’m shopping from Canada. If my order value is over $99, I qualify for free shipping.
Now the big question is: how much should your customers spend for free shipping?
There’s no magic number or easy answer to this question because it depends on so many factors.
For example, the minimum order amount for free shipping should definitely be higher than your current AOV, especially if you want to increase it.
You should also consider your cost per sale. The more expensive your cost per sale, the higher the minimum order amount should be for free shipping.
But those aren’t the only considerations to take. How much does it cost you and your business to ship products? For example, Holo Taco decided to absorb all customs fees for Canadian orders, so shipping is actually very expensive for this brand.
With this in mind, it makes sense that the minimum order value required to get free shipping is so high.
If you don’t have a free shipping bar like in your store yet, you can add one using this template below.
Make a click on it to activate the preview mode and follow the prompts to add it to your website. Then just edit the copy and select the minimum order value based on your calculations.
Don’t look at other stores and decide you should do the same – evaluate your own situation and come up with a number that makes sense for your brand.
4. Add a loyalty program
So you want to increase your average order value, but what do your customers actually get in return for spending more and thus increasing that metric for you?
With a loyalty program, your customers will have yet another incentive to add more value to each order and get more rewards.
David’s Tea does this brilliantly. With their Frequent Steepers program, customers get a free 50g of tea for every $100 spent.
However, this $100 needs to be spent in a single month. This encourages customers to purchase higher values each time they make their monthly tea orders.
This doesn’t make sense for people who only occasionally drink tea. But for daily tea drinkers – or frequent steepers, hence the name of the program – this is a great value! It’s much more encouraging to bump your order up to $100 or more when you know you’ll get an extra bag of tea.
5. Test out pricing strategies
Every audience will have a different optimal pricing point. And without testing out your pricing strategies, you’ll never know what that is for YOUR audience.
There are no magic numbers here, unfortunately. Increasing or lowering your prices may work, but you won’t know until you try it.
For example, increasing your product prices could decrease your conversion rate, which would also increase your cost per sale. This isn’t so good, unless it dramatically increases your AOV.
On the other hand, if you decrease your prices, you could lower your AOV because items are cheaper, while also increasing your conversion rates. However, it could also lead to increasing your AOV because your customers may add more items to their cart due to the more affordable price points.
It’s difficult to know what will happen unless you try it yourself.
Do some research in your niche and see what other stores similar to yours are doing to get an idea of what your audience may be looking for.
Include AOV growth tactics in your marketing strategy
There you go – by trying these tactics, you will be able to increase your average order value and thus grow your ecommerce business.
If your AOV is going up, but your other metrics are going down too drastically, take a step back and reconsider what you are doing, because AOV is not the only metric that matters.
It’s okay for some of your metrics to go down, as long as your AOV is going up high enough in return.
For example, if your cost per sale used to be $10, and your AOV used to be $25, but now your CPS is $15 and your AOV is $50, that’s great!
But if your CPS rises to $30 and your AOV rises to $35, that’s… not so great.
While you work on increasing your average order value, you should also optimize your website to increase your conversion rate so that you get more orders, not just more valuable orders. You can do this by using Getsitecontrol popups to sell more items and capture email addresses of your visitors.
Charlene Boutin is a freelance content writer & email marketing strategist for hire specializing in helping Ecommerce and SaaS businesses increase conversions by growing authentic relationships with their audience. She loves helping business owners tell their unique stories to capture the hearts of more customers.
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You're reading Getsitecontrol blog where marketing experts share proven tactics to grow your online business. This article is a part of Ecommerce marketing section.