Average Order Value and its Importance

Everyone who owns a business wants to increase their sales and see their profits go up. Understanding your Average Order Value (AOV) is a great place to start when building your marketing strategy. This simple-to-use metric allows you to understand on average what your customers are spending on each order and allows you great insight to strategize ways to increase your sales in a measurable way. 


Calculating the Average Order Value


Your average order value is very easy to calculate. You simply take your total revenue and divide it by the total number of orders. You can use this metric for any amount of time, but typically weekly or monthly will give you the most valuable data as you make changes to improve your AOV.


For example, imagine your fancy chocolate shop has a total monthly revenue of $20,000 split between 1000 orders. Your monthly AOV is $20. 


Revenue/ number of orders = average order value.

 

The Importance of Average Order Value

So why is knowing your customer’s AOV important? Having data like AOV matters because it gives you a look at how your customers are making purchasing choices. With this information you can make better decisions on where to place your marketing dollars and also helps you evaluate your pricing strategy.


As you make changes to your marketing and price points you can monitor your AOV to see what is working or what’s wasting your money. Most of the time an increase in AOV means an increase in profits.


Getting leads to your website is hard enough, and requires different marketing strategies. Your AOV is referencing customers ALREADY on your website and filling out a shopping cart. You already accomplished the hard part by getting them here, now the goal is to increase your already existing sales.

How to Improve Your AOV

The two ways to raise your AOV are to encourage your customers to purchase more items per order or purchase more expensive items. There are numerous strategies you can implement across the different stages of your sales funnel.


  • Cross-selling: This is a method to encourage customers to add additional items to their shopping cart that are complementary to the original item placed in the cart. For example, adding a water bottle to the order to complement a yoga mat. Or a new phone case to match with the new phone they just purchased.  

  • Product combos: We are looking for added value to convince a customer to spend more to receive a better deal. Offer bundles of 3-4 items at a slight volume discount. This increases your AOV while also providing value to your customers. If you have a customer that is trying to decide if they really want that extra item, you offering a discount for a combo buy is often the little push needed to make the sale 

  • Upselling: We’ve all fallen for a good upsell before. This is the art of encouraging customers to purchase an item that is more expensive than the original item they were going to buy. Sometimes its as simple as posting a “customers also looked at” section on your product page, and place similar but more expensive items here.

  • Free Shipping And Returns: This is a good incentive to add for your customer spending a certain amount of money on their order. If your current AOV is $40 try including free shipping for all orders over $55. Customers love added value.



Find What Works Best For Your Business


Understanding your AOV is the first step in increasing profitability. Once you know what this number is for your business on a weekly or monthly basis, you can start to make adjustments and get real results. Not all of the above methods may work for your particular business strategy, and you will need to find what works best for you. 


Feel free to reach out to us and ask any questions you may have! We’d love to hear from you.