What Is Average Order Value and How Do You Increase It?

What Is Average Order Value and How Do You Increase It?

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Average order value (AOV) is the average amount of money a customer spends per order. The figure itself can be calculated by dividing your total revenue by the number of orders. A high AOV is at the forefront of every ambitious ecommerce business, so if you’re wondering what that golden figure should be, Shopify suggests that top performing companies have an AOV around the $100 mark. Maximising a customers’ average spend improves profit margins, plus it’s an essential part of growing an enterprise.

If you’re thinking about implementing an AOV strategy, you’ll need to keep a close eye on your figures. Watch your margins to ensure that the strategy you go with is cost effective. Here are some figures you should be familiar with:

  • AOV – total revenue / number of orders
  • Average shipping cost
  • Weight of all your products
  • Shipping cost of all your products
  • Weight and shipping cost of every bundle (any combination of two or more products)
  • Margin of each product.

How to increase your AOV

An intro to free shipping

Most businesses know that free shipping, whilst a gutsy tactic, can really get things rolling. If your margins can cover it, then it’s a highly effective method to increase AOV. And it’s logical when you consider the customer’s point of view: if they don’t like the product, they can return it, and they won't be out of pocket for their troubles. However, this also means your company is covering all costs. We'd all love to offer free shipping, but sadly it’s often only e-commerce giants such as ASOS who have an average order size big enough to cover shipping costs.

Although free shipping may cause a flurry of activity on your e-commerce store, you’ll also experience return rates soaring. Free anything can attract the wrong kind of customer and before you know it, your business could be paying for its generosity.

Free shipping threshold

Offering a free shipping threshold is one of the most effective ways to increase your AOV. If your margins can’t cover free shipping on individual products, a minimum spend can bump up the average spend so that you can cover shipping above a certain order figure. This is a commonly used tactic. Websites generally communicate it in the format of ‘spend $x for free delivery’. You’re motivating customers to spend a little more in exchange for free shipping. In terms of calculating your threshold, it’s important to get it right. Websites will generally calculate their threshold to be around 15-20% higher than their AOV - any higher than this and you’ve got unrealistic expectations of your market.

Cross-selling

Cross-selling is when a website delivers product suggestions to customers. The most effective cross-selling happens when a browser stumbles upon a recommendation that is actually relevant to them, something they would genuinely choose themselves. A great way to do this is by using a product recommendation engine (PRE). If you pay attention, you’ll start to see ‘complete this look’ banners, or ‘we think you’d like these’ footer bars. Encouraging customers to add more combinations is key to increasing your AOV. A great way to find out which products to cross-sell is by looking at your order history to find out which items people generally bought together. Whilst you’re there, this is also a great opportunity to upsell: provide dearer, but better quality items related to the browser’s interest.

The magic of bundles

Product bundling is an excellent tactic to increase your AOV, and can even improve user experience. Product bundles are a welcome solution for browsers; saving them time, research and money, plus you’re increasing your average order value!

Whatever your industry, offering some sort of starter pack is an easy way for customers to get a better understanding of what you have to offer. Anyone working in leisure will know that starter packs really appeal to an audience who want to get started, and need the basics to do so. In the food and drink sector, curated starter bundles are bestsellers. They appeal to those customers who want to try multiple products with different flavours. The same goes for beauty brands. Customers enjoy the convenience of product bundles, but sometimes they’ll feel bad if they’re spending more money than they’d anticipated. Once you’ve assembled a profitable bundle (calculate your margins), make sure you’re communicating the customer’s savings on each individual item. Let your customers know they’re benefitting from your bundle promotion, and in turn they’ll feel reassured that they’ve gotten a good deal.

Start a loyalty program

If your aim is to increase AOV, then a rewards program works to supplement all other strategies really well. Loyalty programs motivate your customers to:

  • Return to your store.
  • Spend more on your website (not your competitors).
  • Demonstrate their loyalty to your brand.

First time here? Welcome!

In any newly launched business, the majority of customers will be first time visitors to your site. Entice new customers by offering promotions to ramp up AOV. Design a welcome popup that encourages browsers to shop your bundle deals or offer them free shipping.

Scarcity tactics

Scarcity tactics, including time sensitive deals such as flash sales, have also been known to increase AOV. Although this method isn’t the best long-term solution, it sparks urgency in the customer, particularly when they are exposed to live countdowns on your site. Similarly, coupon strategies are a great way to entice customers, especially when they deem your offer as exclusive.

Ready, set, go!

Whatever route you take, a high AOV should be on your radar. Once you’ve implemented specific AOV-boosting tactics, you’ll free up more time to drive revenue, attract new website traffic and nurture your existing customer base. If you haven’t already, subscribe to our newsletter to receive our latest blogs. We’ll keep you up to date on everything Shopify related and so much more. In the meantime, you can contact us here.

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