What is Average Order Value (AOV)
Average Order Value (AOV) is the average dollar value of the single orders in your e-commerce store. To figure out yours, divide your total revenue by the total number of orders you’ve taken.
This is NOT to be confused with your customer Lifetime Value (LTV) which is the average dollar amount that any one customer will spend with you in their lifetime. This is also a very important metric… but not what we’re talking about today.
Four Reasons Why Average Order Value is important
It Makes Your Store More Profitable
The more money you make per order – the more revenue you’re going to bring in and the more profit you get to keep.
Ad Costs Are Rising
Ad costs have been steadily increasing every year. It simply costs more to acquire a customer than it used to. A higher Average Order Value can help protect your Return on Ad Spend. For example, If it costs you $30 to acquire a customer online, and your product costs $25 – that’s going to hurt more to spend those ad dollars than if your Average Order Value is $35.
It Helps Shift the Tipping Point
Early on in a marketing journey, we are spending money to get customers – money is going OUT. Some e-commerce stores may not make money until the second or third sale. If the Average Order Value goes up, profitability comes quicker.
Higher AOV Allows Us to Spend More Than Our Competitors
“He who is willing and able to spend the most to acquire a customer, wins.”Ryan Deiss
It’s not that we necessarily WANT to spend more money – but the truth is, whoever can spend more is going to sell the most.
Five Ways to Increase Your Average Order Value (AOV)
Free Shipping Threshold
Everyone wants and even expects free shipping from e-commerce stores these days. So this provides an opportunity to increase Average order Value, when you create a price threshold that unlocks free shipping for the customer.
There are a few ways to go about setting your Free Shipping Threshold but as an example, the e-commerce shop above sells a product that averages around $75. We set the threshold at $99, which means people will usually buy a little bit more to get a deal with the free shipping. This has pushed their average order value up to over $115.
You can increase awareness of the deal by including a automatic calculator that let’s customers know how close they are to unlocking the free shipping offer.
Shoppers will usually spend more (and increase average order value) if they feel like they’re getting a good deal. One way to show them how to save more (and spend more) is by bundling items and show them how the price per item goes down the more they spend. It’s a win-win, it’s cheaper per item for the customer and more profit for the store.
Show what the full price would have been – and contrast it with the savings in the bundle. You can do more of the same products OR complimentary items that may include a mix of loss leaders and high-profit items.
Upsells and Cross-Sells
Would you like fries with that?
Would you like a large for only 10 cents more?
We’re all familiar with this concept. When someone is about to make a purchase, what complimentary or upgraded items can we offer to increase the average order value?
Here are a couple of examples, one is a western apparel company that offers branded merchandise when someone is purchasing one of their western shirts. The other is a lens for a welding hood offered to welders who are purchasing the hood (without the lens).
Which products in your store naturally go together?
Bonus Tip: Zipify One Click Upsell is a Fantastic tool to help with these types of offers for Shopify stores.
These offers are usually presented on a Thank You page post purchase. It’s like the pack of gum at the checkout register at the grocery store. They’re the little fun things that can be added to an order that don’t cost a lot for the customer, but add up over time for the store. And these increase Average Order Value.
hint: people love stickers.
One-Time Offers and Limited Promotions
Premium items are great. They give your customer a feeling of elevated status – and they increase your Average Order Value.
Can you release limited edition or holiday versions of your products? Those work especially well for brands that have built a fan base.
Average Order Value is just one of the metrics that we look to improve when we’re helping grow e-commerce stores.
It’s part of our process.
If you want to see how your store measures up – take a quick e-commerce self assessment. It should take less than five minutes and based on your results, we’ll provide you with a free resource that can help move the needle in the right direction for your store (up – the direction is up and to the right).