DATA & INSIGHTS | 3 minute read
Average Order Value (AOV)
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What is AOV?
Average Order Value is a metric that calculates the average revenue per order placed on your website or platform. The formula for AOV is straightforward:
AOV = Total Revenue ÷ Number of Orders
For example, if your e-commerce store generated 500 000 in revenue from 1 000 orders in a month, your AOV is 500. This means that, on average, each customer spent 500 per transaction.
Why is AOV important?
AOV is a crucial metric for several reasons. Raising AOV helps you make the most of your existing customer base. By encouraging customers to spend more per transaction, you can grow your revenue without increasing customer acquisition costs (CAC).
A higher AOV maximizes the return on ad spend (ROAS) by spreading marketing costs across larger transactions. If customers spend more per order, your marketing investments yield better results. Larger orders often mean better utilization of shipping and operational resources, leading to higher profit margins.
How to improve your AOV
Improving AOV requires a blend of pricing, merchandising, and marketing strategies designed to encourage customers to spend more. Here are some proven tactics:
Create bundles or packages
Create bundles that combine complementary products at a slightly discounted price. For instance, a skincare brand might offer a cleanser, moisturizer, and serum together as a package deal. Customers perceive greater value, which motivates them to buy more.
Implement volume discounts
Reward customers for buying more by offering tiered discounts, such as “10% off when you spend 1 000 or more”. These incentives increase the average transaction size.
Set free shipping thresholds
Encourage customers to spend more by offering free shipping for orders over a certain amount. For example, “Get free shipping on orders over 750” motivates shoppers to add items to their cart to meet the threshold.
Conclusion
Average Order Value (AOV) is a vital metric for e-commerce businesses looking to grow revenue and maximize customer value. If you’re ready to optimize your AOV, start by analyzing your customer behavior and experimenting with strategies like free shipping thresholds, product bundles, and personalized recommendations. To evaluate the effectiveness of improvement strategies, track AOV over time and compare it to other key metrics like Customer Lifetime Value (CLV).
Contact us to learn more about how we can help you improve your digital strategy to increase AOV.
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