What is Average Order Value?

Average order value (AOV) is a metric that tracks the average amount of money customers spend each time they place an order on a website or mobile app. To calculate AOV for your company, simply divide the total revenue generated by the number of orders placed.

AOV serves as a critical performance indicator for online businesses, offering insights into customer purchasing behavior. Like other key metrics, AOV can be measured over any period, but many companies track it on a rolling monthly basis.

The Formula for AOV (Average Order Value)

Why does average order value matter?

AOV is a key metric for online businesses, offering insights into customer behavior and helping evaluate marketing and pricing strategies. Tracking and improving AOV can be more profitable than increasing traffic, as it boosts revenue without adding transaction costs.

Ways AOV Impacts Business Decisions

Increasing Average Order Value (AOV) not only boosts revenue but also improves business efficiency. It enhances customer insights, boosts conversion rates, frees up advertising budget, and optimizes pricing strategy, making AOV a key business metric.

Customer Trends

AOV reveals which campaigns resonate with top customers. Analyze AOV fluctuations to refine future campaigns and pricing, ensuring alignment with customer behavior.

Conversion Costs

A low AOV with high acquisition costs leads to losses. To stay profitable, AOV should be at least twice your customer acquisition cost.

Advertising Spend

AOV influences marketing effectiveness. Ensure advertising costs don’t exceed AOV, and assess profit margins by considering all related expenses.

Pricing Strategy

Adjusting pricing impacts AOV. Higher AOV with stable or increased ROI suggests effective pricing while aligning with brand perception helps sustain profitability.

Strategies to increase average order value

Offer free shipping thresholds

Shipping costs play a key role in boosting average order value. Free shipping remains a popular and effective strategy to encourage higher spending, and it’s easy to implement on Shopify.  

To set your threshold, use the most common order value (modal value). For example, if most orders are around $35, offer free shipping for orders over $50. 

Aaron Zakowski, digital marketing consultant, recommends setting it 30% above your average order value (AOV) to make free shipping appealing without risking abandoned carts.  

Alternatively, you can offer volume discounts for orders above a certain amount.

 

Try cross-selling

Cross-selling is an easy way to add complementary items to a customer’s cart. There are various ways to evolve your upselling strategy:

  • Don’t upsell too much: Nobody wants to feel like they are being sold. Make your upsell feel helpful, like a friend’s recommendation. Suggest products that naturally pair with items in the cart, like accessories or add-ons (e.g., a mouse for a laptop).
  • Offer low-value upsells to increase the likelihood of purchase: If someone plans to buy items totaling $50 to $100, it’s challenging to persuade them to spend an additional $100, but it’s much easier to convince them to add a complementary $20 product to their purchase.
  • Test with post-purchase upsells: If a brand is concerned about impacting conversion rates when bundling complementary products, a safe way to experiment is by offering post-purchase upsells. This approach allows you to gather data on which products are commonly bought together, and then create pre-purchase bundles based on that information.

Bundle products

To boost sales, offer product bundles priced lower than buying items separately. 

Bundling increases AOV while giving customers better value. You can create all-in-one bundles or let customers customize their own by choosing features or add-ons.

Reward loyal customers

If your store sells consumable items that customers regularly need to repurchase, consider implementing a rewards or loyalty program. This is a retention strategy that helps build relationships with customers and boosts their lifetime value. 

It’s also crucial to ensure your loyalty programs adapt to changing consumer preferences. For example, during a global pandemic or economic downturn, offering extravagant rewards for high spending might not be practical. 

By giving customers incentives to earn points through your loyalty program, you can anticipate a substantial rise in your average order value.