What Is Average Order Value & Why Is It Important?

Facebook
Twitter
LinkedIn

Want help with your bookkeeping? We make it easy. Get started, Speak w/ a Founder, or Schedule a Callback

You cannot run a profitable business without first understanding your average order value. This metric will give you valuable insight into how much customers buy from you, and also how each of your products can encourage customers to buy other products that you sell.

 

What Is Average Order Value (AOV)?

 

Average Order Value or AOV is an important eCommerce metric that we believe you should keep an eye on. AOV measures the average dollar amount of each order placed on your website, store, or app within a specific period of time. 

 

You can measure the AOV of all your customers in general, or make it more granular to specific groups or products. You can also track the average order value of an individual customer.

 

Why Is It Important for My Business?

 

A woman paying at a store counter.

 

  • Having a higher average order value means higher general growth in revenue.
  • You can see the value of individual customers based on how much they buy from you at each store visit.
  • Average order values give you insights into the behaviors of your customers. For instance, you can see how many items they purchase at a time, which items are selling better or more often with each visit, which items aren’t selling often, and how much each customer is spending per order or per visit.
  • This metric helps you evaluate how effective your current marketing strategies and pricing methods are.
  • AOV is a metric that can tell you if you should invest in customer acquisition or apply strategies to improve customer retention and increase the average order value. Increased AOV efforts typically don’t come with any additional costs while customer acquisition does. 

 

AOV is a necessary aspect when calculating customer lifetime value, a metric  which measures how valuable an individual customer or group of customers is for years down the line, and whether you should invest in nurturing these relationships.

 

How Do I Calculate AOV?

 

You can calculate the average order value of any individual customer or group of customers quite easily. Simply take your revenue and divide it by your total number of orders. You can use this formula to get the daily, weekly, monthly, yearly, or even all-time AOV. Note that AOV uses sales per order not per customer. This means multiple orders from the same customer will impact your AOV score individually.

 

How Often Should I Look at my AOV?

 

average order value

 

Because it is among the most crucial eCommerce metrics to track, your average order value should be kept under close watch. This is especially true if you’re running discounts, special sales on particular days or weeks, or making any significant changes to the store, whether practical or cosmetic. 

 

There are a lot of factors and metrics that play together to influence AOV. As such, you need to make sure that you closely monitor these. This means checking up on the numbers on a weekly or even a day-to-day basis.

 

How Can I Improve my Average Order Value?

 

Pricing Strategies and Package Deals

 

Pricing is a balancing act between making sure you offer competitive pricing without basically giving the product away. Offering discounts, bargains, package deals, or bundles (more on that later) can make your prices look more attractive than the competition and make customers more likely to purchase more products from you. 

 

Packaging items together that are complementary to each other is known as bundling. You can see sellers applying this technique almost everywhere. You see it with physical items in the grocery, like spaghetti noodles and pasta sauce, for instance. It also happens with software packages, like buying photo editing software with a bundled image compressor app. Successful bundling depends on knowing what customers would buy together anyway. It also taps into what you can convince them to buy now since it complements what they are already buying. These bundles are typically sold at a slight discount to make the offer juicy.

 

You may think that because you offer lower prices and discounted deals, you are making less than your competition. But, if customers end up buying more from you, you’ll see an increase in average order value. What’s even better is if that customer chooses to stick with your brand in the long run because you offer discounts.

 

average order value

 

Seasonal Sales and Limited Time Discounts and Offers

 

Seasonal sales are popular and successful for a reason. Discounts are already an incentive to buy something, but they may not buy immediately. If customers believe they will miss out on a great deal, they’re more likely to follow through with a purchase as soon as possible. Customers won’t know when a deal like this will happen again, so they will want to grab the opportunity before it’s too late. 

 

Some businesses even put a countdown timer on their store pages to stress the finite nature of the sale or promotion. Others use this tactic superficially and don’t actually end the countdown. We don’t recommend this because customers will catch on to a dishonest marketing ploy faster than you can say gotcha. This never goes well for a business. When customers feel duped, they will spread the news about your dirty tricks, and yes, faster than you can say sorry.

 

Live Chat and Customer Support

 

Customer support can make or break a sale. Think about it. Say someone wanted to buy from you but had a few questions about the product. The only way to contact you is through email, so they write an email and wait for you to get back to them. While waiting for your reply, they decide not to buy the product anymore, and worse, go elsewhere to make the purchase. This is one scenario that happens more often than you may think. Most customers just don’t want to have to wait to buy something they need.

 

This is why many businesses are opting to go for live chat support options. This way, customers can get in touch with salespeople more quickly, which makes them feel more valued. Moreover, they get to communicate more naturally, which makes them feel more comfortable. Live agents can actually do more than answer all of the questions or concerns that customers may have about a product or service on the spot. They can also offer advice and suggest other products to purchase, depending on which way the interaction goes. They can also discern hesitation more easily, and give the customer the nudge they need to make the purchase. All of this effort goes toward increasing your average order value. In the end, the additional cash you pay out to hire a live agent and get a chat system set up is well worth it.

 

Three smiling live voice chat customer support agents.

 

Sales Techniques 

 

When you already have loyal customers who are purchasing from you, you can improve your AOV through techniques known as upselling and cross-selling. 

 

Upselling is where you encourage customers to buy a more expensive version of what they have been purchasing, or to buy add-on products. For instance, if they have a lower-cost subscription plan, you can encourage them to upgrade to the next tier or convince them to go for the more expensive model of a certain appliance. 

 

Cross-selling is where you try to sell a related or complementary product to a customer. For instance, this could be encouraging a customer who has bought a knife set in the past to purchase a matching chopping board. 

 

Remember to refrain from relying too heavily on these tactics. The hard sell can get very old, very quickly. If you’re too aggressive or do it too frequently, you might end up pushing customers away. This is something that would definitely negatively impact your average order value. 

 

Loyalty Benefits for Long-Time Customers

 

Reward your brand champions and most loyal patrons with exclusive benefits, discounts, points, and other services. Not only does this nurture your current customer base, but it also gives new customers something to look forward to if they do decide to stick with your brand. 

 

Loyal customers who feel cared for will continue buying from you, which means that you can maintain a good AOV. They are also more likely to buy more from you, which increases your AOV. Better yet, they are likely to recommend you to their friends and family, which brings in more customers who can become loyal buyers who further improve your average order value metric.

 

Personalized Product Recommendations

 

A lot of online selling platforms have algorithms and AI that analyze customer buying behavior and recommend to customers similar products or products they might enjoy based on their past purchases. Personalized recommendations drive sales for about 75% of customers according to Automat.ai.  

 

average order value

 

Free Shipping 

 

Free shipping has almost become a must in this day and age of online retail. By offering free shipping, you are improving the experience for existing customers. Free shipping could also encourage new customers to purchase from you. 

 

Another way free shipping can improve your average order value is if you have a minimum order amount that must be met in order to avail of free shipping. For example, a customer can only unlock free shipping if their order is at least $50 or more. This encourages customers to purchase more products so they don’t have to pay for shipping. 

 

With average order value, you can segment your customer base. This way, you can get a better idea of the behaviors of a particular group. Only some strategies will be equally effective across all types of buyers. Use the above strategies in a way that will be most effective for a particular group or individual. Some companies will split their spenders into big and small spenders. Others can group them based on which product they are buying, how long they’ve been a customer, etc. 

 

Remember, the more granular and personalized you can get with your approaches, the better. Know your customer base, evaluate their behaviors, and figure out the best way to reach them and encourage them to spend more with you.

 

Conclusion

 

Average Order Value is a useful eCommerce metric that can help inform your business decisions. AOV provides insight into the minds of your customers. This informs how you go about your marketing, pricing methods, and other sales strategies. Ultimately, you need to know your customers and analyze their behavior. This is how you can fully take advantage of the insights gleaned from your AOV.

 

Want bookkeeping off your plate? We’ve got you! Get started, Speak w/ a Founder, or Schedule a Callback

Recent Posts

Picture of Julia Valdez

Julia Valdez

Julia Valdez is Freelance Writer and Agency Owner. She regularly writes on topics related to Business Finances, Growth, Hiring, Entrepreneurship, and more.

Avoid the Most Common Ecommerce Bookkeeping Mistakes

Get step-by-step processes to avoid 10 common eCommerce bookkeeping mistakes.

Leave a comment

Your email address will not be published. Required fields are marked *

Exclusive finance guide

Want better bookkeeping?

It's possible! Subscribe below & we'll send you our Bookkeeping Packet. A pack of resources to teach you about bookkeeping.

You’ll get our Ecommerce Bookkeeping Guide, The 10 Ecommerce Bookkeeping Mistakes Ebook, our Monthly Finance Meeting Agenda, & a few surprises!