Average Order Value

What Is AOV?

AOV (average order value) is a key performance indicator that informs businesses of their customers’ purchasing behaviors. AOV tracks the average amount spent by customers every time they place an order or make a purchase. 

It’s a tool that can be used to help grow a business, particularly eCommerce entities. However, it’s often an overlooked factor that, when utilized correctly, can provide businesses with the right information to help them improve their marketing efforts and strategies.  


Why Is Average Order Value Important?

AOV provides valuable insight into consumers’ purchasing habits, as well as their buying patterns. Moreover, knowing the AOV enables companies to assess their current and overall marketing efforts and pricing strategies. This will help companies come up with better campaigns and strategies that are tailored to fit their customers’ purchasing behaviors. 

Having a higher AOV translates to increased revenue and profit. It also gives companies more financial freedom that allows them to acquire more new customers. 


How to Calculate AOV

Calculating the monthly AOV is simple. 

To get the AOV, divide the total revenue by the total number of orders for a given period. That’s:

Total Revenue / Total Number of Orders = AOV (Average Order Value)

For example, within a one-month period, a retailer has a total revenue amounting to $50,000 that’s split between 2,000 orders. The retailer’s AOV is $25, which means that a customer spends $25 for each purchase on average. 

Note that the AOV is calculated by sales per order.


Ways to Improve Average Order Value

The premise that revolves around AOV seems simple enough—get enough customers to pay more for each order, and you’ll receive greater returns.

But while the AOV may bring with it the potential of generating more money for companies, it also has its shortcomings. Simply focusing on encouraging customers to spend way past the AOV isn’t exactly the best way to rake in a higher profit margin. 

Businesses can improve their average order value and rake in better profit margins and higher revenue by observing the following tips:

  • Find out what makes customers tick

Businesses should conduct market research and determine what makes their customers tick. What do they need? What motivates them to make a purchase? Why should they want what a brand is selling? 

Having a good understanding of their customer base enables businesses to craft campaigns, messaging, and marketing efforts that cater to that particular base’s wants and needs. One of the best ways to get to know customers is to talk to them. Companies can run a survey, ask for direct feedback, or conduct user testing.

Additionally, they can examine past campaigns and see which ones worked or were most effective in engaging or piquing their customers’ interest.

  • Try cross-selling products

Cross-selling is when businesses put together complementary items with the intent of giving customers additional benefit. An example of cross-selling is a series of products shown under “Frequently Bought Together.”

Cross-selling is also one of the more effective ways to increase AOV. Products and services up for cross-selling can be placed across various locations on the website. They can be displayed on product pages and even in post-sales emails.

  • Offer product bundles

Another way to increase the average order value is to make customers spend more by purchasing more items. This can be done through product bundles or packages. 

Businesses can look at two or more complementary products and market them as a bundle at a discounted price. This gives customers the impression that they’re getting more value while enabling companies to technically sell more products. Product bundles come across as an all-in-one solution that addresses multiple issues all at once, giving customers a more convenient option. Companies can also let customers come up with their own bundles or even customize the items they’re about to purchase.

  • Upsell select products

Upselling is a great way to feature better or higher-priced items. It’s an effective method for companies to increase AOV. By showing customers that a particular product will better address their needs, businesses can persuade customers to make an upgrade on their purchase. 

Other methods that companies can use to increase AOV include offering discounts, free shipping, and returns, opening a direct line of communication, and implementing customer loyalty programs.

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