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.
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.
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.
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.
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.
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.
