What is AOV (Average Order Value) and how can you increase it?
Average Order Value (AOV) is one of the most important metrics that brands can track and set goals for. Optimising an eCommerce store’s AOV can significantly increase profits, yet many AOV marketing tactics don’t cost much to implement.
With this in mind, let’s walk through the meaning of AOV and some of the most effective ways to improve it.
What does AOV mean?
AOV stands for Average Order Value. This is an eCommerce metric that indicates the average amount a customer spends during each transaction.
If your online store’s AOV is increasing, it may mean that customers are buying more expensive products. It could also signal that they are adding more items to their shopping cart before they check out.
Brands across all industries should aim to increase their AOV as this can directly boost revenue. Tracking average order value also allows brands to make informed decisions in key areas like marketing, product pricing and customer acquisition investment.
How do you calculate AOV?
Calculating the average order value of your eCommerce store is simple. You just divide the total revenue earned by the number of orders received within a defined period of time.
AOV = Total revenue ÷ total orders
For example, if a brand earned £150,000 of revenue and processed 2,500 orders in the month of April, its average order value would be £60.
April’s AOV = 150,000 ÷ 2,500 = 60
Because it’s so easy to calculate, brands can track their average order value across all their sales channels. At a minimum, it is recommended to calculate it once a week so trends can be identified quickly. This makes it easier to track down the reasons behind dips and spikes too.
Why is AOV important for brands?
As mentioned, understanding and setting targets for AOV can help brands make key business decisions. Let’s take a closer look at why this is such an important eCommerce KPI.
AOV helps us understand customer behaviour
Monitoring average order value can provide a glimpse into the purchasing habits of an average customer. This knowledge can then help brands figure out how to get more from each and every sale.
For example, a shoe store might sell a value option for £50, a mid-range option for £100 and a premium product for £200. If this store’s AOV is £70, it tells us that most customers prefer the cheapest product. It also indicates that they usually buy just one item.
This suggests that current customers are price sensitive. It could also indicate that the brand needs to differentiate its products more through distinctive branding, design or USPs.
As a result of this one insight, the shoe brand could adjust its ad targeting, messaging and much more to boost the revenue generated from each sale.
It allows brands to set targets for customer acquisition cost
Knowing the average amount of money spent on each order tells marketers how much they should be spending on customer acquisition.
Ideally, the average order value should be a lot higher than the amount spent to acquire each new customer. For new brands, this isn’t always the case but they can look to their AOV to set future targets for customer acquisition cost.
It impacts your brand’s profits
Knowing the average order value across your sales channels will allow you to implement pricing plans, advertising, discounts and other AOV marketing tactics to increase that value.
Brands that can do this without reducing the number of orders they receive will see a significant increase in incoming revenue. It will also improve their marketing ROI and ROAS.
Pros of Average Order Value as a metric
AOV is strongly connected to profitability. Raising it means more cash coming in without increased spend on customer service, delivery, or conversion. In some cases, targeting AOV is going to be the cheapest way you can increase revenue.
As we’ll see soon, this metric also has a lot of synergies with others. You can use AOV to help work out how much one customer spends with you across their whole lifetime, for example. That’s a strong insight that can inform the way you approach pricing.
Negatives of Average Order Value as a metric
AOV might not be the most reliable metric if you’re selling a lot of different products across a broader price range. It can get distorted by particularly big or small orders. Likewise, it’s particularly important to put this metric in its proper context.
It’s possible your AOV might look artificially inflated if, for example, your customer retention is lacking. A surge of customers at certain times might even make it look artificially low. Let’s take a look at how other metrics can give you a clearer picture of what’s happening with your AOV.
Metrics related to Average Order Value
AOV is most useful when you track it in relation to other relevant metrics. In that respect, it should slot in nicely with your other eCommerce KPIs.
Lifetime revenue per customer plays particularly nicely with AOV. This is the average value of everything a customer spends with you across their entire association with your business.
If this figure is low, that suggests people are only making a handful of purchases from you. In practice, that might make your AOV look impressive, but it’s really not translating into as much revenue as you’d think.
Cost per conversion is another metric with good potential synergies. The amount you spend to get a customer to shop with you in the first place cuts into your AOV.
Take your cost per conversion away from AOV to get a more accurate value. In conjunction with lifetime revenue per customer, you can get a sense of whether you need to be doing more to retain customers after that initial conversion.
Conversion rate is another strong pick. This is another example where, if conversions are low, that could artificially inflate your AOV. Healthy conversions give you a more accurate picture.
How to increase your average order value
There are lots of AOV marketing tactics that can improve your revenue. Many of them will help you boost conversion rates and customer lifetime value too.
Here are nine of the best:
1. Cross-selling complementary products
One of the quickest and easiest ways to increase your average order value is to get customers to add more products to their cart.
Brands can do this by promoting complementary products in product descriptions or at the bottom of product pages. A camera company could showcase lenses, bags, tripods and straps for each camera, while fashion brands could promote other pieces worn by the model in its product photo.
If your products don’t complement each other, you could try a ‘Customers also bought’ bar to drive AOV instead.
Upselling is about encouraging customers to upgrade to more expensive products and add extra items to their shopping carts.
For some verticals, volume discounts and subscriptions are a great way to drive up order totals. For example, sustainable toothbrush brand Blue Rock offers 10% off when customers sign up for an annual subscription. This pleases customers and drives up AOV at the same time.
Upselling can be particularly effective for products that require replenishment. Once customers like a brand, they’ll be more open to trying a new product or spending more on a premium line.
3. Fine-tune product pricing
One of the quickest ways to increase average order value is simply to raise prices. However, price hikes have to be implemented very carefully to ensure it doesn’t negatively impact conversions.
To gauge the price shoppers are willing to pay for your products, you need to test their price sensitivity. You can do this by setting up A/B tests which compare different price points.
4. Experiment with offer thresholds
To drive up AOV, well-known brands like The North Face, Marks & Spencer and Target offer 10% off once customers spend a certain amount of money. Other brands like SportsDirect, Walmart and Tesco, offer free shipping instead.
As part of their AOV marketing, brands should set these thresholds just above their average order value (It shouldn’t be any more than a third higher!). This should nudge customers to spend a little more on each order without leading to a spike in cart abandonment.
5. Create a loyalty programme
Collecting points or receiving rewards as part of a loyalty programme can make customers significantly increase the size of their orders.
In fact, one piece of research suggests that basket sizes tend to be 39% higher among programme members. So, if your brand is really serious about AOV marketing, setting up a generous rewards system is key.
6. Offer other perks
Beyond free shipping and discounts, brands are launching all sorts of promotions to increase average order value.
Cosmetics brand Rituals offers a variety of free gifts to encourage shoppers to add more and more to their eCommerce cart. Basic, premium and deluxe gifts are available with minimum order requirements that range from €40 to €120.
To nurture both average order value and repeat purchases, Argos often gives customers a £5 voucher when they spend £50 in a single transaction. This increases to £10 when customers spend £100.
Brands should think of unique, on-brand promotions that will appeal specifically to their audience. For example, an electronics brand could offer online setup support, while an appliance company could provide free installation with big-ticket items.
7. Invest in customer service
People feel comfortable spending more when they’re confident that they’ll receive great quality products and service.
To remove any reluctance about placing high-value orders, brands need to build their reputation. The easiest way to do this is through social proof, like reviews, ratings, recommendations and testimonials.
Providing top-class customer service is one of the simplest ways to ensure your shoppers are saying positive things about your brand. Then, as part of your AOV marketing, you can implement strategies to promote this content.
This is particularly important for brands that sell big-ticket items, like mattresses or appliances.
8. Piggyback off the reputation of other trusted brands
A recently published consumer research report suggests that 86% of shoppers are willing to pay more to purchase from a brand they trust.
This behaviour creates barriers for startups and brands that are entering new markets. However, their reputation will receive a boost if they move beyond D2C channels and sell products through trusted retail sites and marketplaces.
These brands can add ‘Where to Buy’ solutions to their websites to showcase all the places that their products are on sale. This association increases trust and helps boost AOV across all sales channels. Shoppers can then convert on your website or head directly to their favourite retailer to make a purchase.
9. Learn from consumer behaviour on external sales channels
Data-driven brands that take advantage of ‘Where to Buy’ technology can also learn from the actions of consumers who have left their website.
After directing shoppers to their preferred retail store, brands can track their actions and see what products they add to their final order. These insights can then be used to inform product bundles, cross-selling campaigns and other AOV marketing strategies.
By doing exactly this, smart home technology brand tado° was able to spot trends in complementary product purchases and demographic-specific behaviour. As a result, it increased online sales and exceeded AOV targets.
Average order value benchmarks
So, what’s a good AOV for your business? That depends on what you do and how customers can find you. Let’s start with your industry. According to UK firm IRP Commerce, some sample benchmarks include:
- £189.35 for baby and child products
- £113.92 for food and drink
- £76.49 for arts and crafts
- £37.96 for health and wellbeing products
How your customer prefers to shop also has an effect. Statista reports Q3 2020 AOVs of:
- $103 from customers visiting you from email marketing
- $101.72 when they navigate to your shop directly
- $96.01 when they use search engines
- $74.47 from customers who reach you via social media
Finally, think about the devices your prospect typically uses. According to Kibo:
- Desktop users spend the most per order, with AOVs of $179.98
- Tablet users hit around $87.01
- Smartphone users spend a relatively low $79.33 per order
Using what you know about your customers, you’ll be able to set a reasonable benchmark for where you want your AOV to be by a given period and take more informed steps to get there.
AOV marketing is a great investment because it focuses on getting more out of visitors who already plan to make a purchase.
Brands should introduce just one AOV marketing tactic at a time. This way they can clearly see the impact each action has on their store’s average order value.
They should also keep an eye on other critical metrics like conversion rate, revenue per visit and customer acquisition cost. This will provide a complete overview of how each tactic affects profits. We dig deep into the essential 12 KPIs that you should be measuring for your eCommerce strategy in our guide here.
Want more information on how you can optimise your eCommerce strategy? Talk to a member of our team today.