What is Average Order Value?
The average dollar amount spent each time a customer puts an order on a website or application is tracked by the average order value (AOV) e-commerce measure. One of the most significant KPIs in the e-commerce sector is AOV. In essence, the average order value could reveal some information about the behaviour of the customers. A lower AOV, for instance, typically denotes that the seller's clients like to make modest purchases with each order.
AOV trends also have an impact on the company's marketing and product pricing decisions, among other important business decisions. For these reasons, an organisation needs to keep a close eye on its AOV. Given how competitive and active the e-commerce sector is, businesses should do a daily or weekly analysis of their AOV.
A business, usually in the e-commerce industry, can learn more about its consumers' spending habits by calculating the average order value (AOV). Monitoring the average order value indicator, in particular, can be useful in determining the effectiveness of upselling and cross-selling initiatives. Upselling refers to techniques used to persuade current clients to switch to more expensive plans or products (i.e., upgrade). Offering complementary or closely related products to current customers or those who are about to check out is known as cross-selling.
How to calculate Average Order Value?
To find your average order value, divide your company's total revenue by the number of orders. Sales per order, as opposed to sales per customer, are utilised to compute AOV. The average quantity of a customer's orders is determined individually for each purchase, even if they make multiple purchases. The average order value demonstrates how gross profit and profit margins are determined even if it has no direct bearing on them.
Here’s a worked example to help you understand this better:
Assume an online retailer received 100,000 orders in total last year and made $2 million in net sales.
$2 million is the total net sales.
100,000 is the number of orders.
We calculate the company's AOV by dividing its net sales amount by the total number of orders.
$2 million ÷ 100,000 = $20 is the average order value (AOV).
Finally, the average order value (AOV) for our business is $20, which corresponds to the average size of consumer orders.
What is a good Average Order Value?
When it comes to purchasing online, clients have a plethora of possibilities thanks to the different online retailers and merchandise. The average order value is higher at an online retailer such as Amazon. The AOVs for the following industries: beauty ($70), health and fitness ($76), fashion ($97), general eCommerce ($97), and home and garden ($353). Thus, an average value of greater than $76 is considered desirable. As usual, however, it is contingent upon transaction volume, profit margin, and delivery expenses.
What are the top ways to increase Average Order Value?
Cross-selling or upselling related goods
If customers see or hear about comparable products, they are more likely to make a purchase. If you offer bundles or indicate in your product descriptions which supplementary products work well together, you're on the correct route. Similarly, by marketing more costly products that are an expanded version of your current offerings, upselling is a terrific approach to raise your average order value.
Increasing the level of personalisation of the online shopping experience
By optimising, personalising, and using data to target your consumers' purchasing experiences, you can raise your average order value (AOV). It is feasible to target particular consumers by looking into their past purchases and developing advertisements that appeal to them. Large quantities of money from clients are more likely to be spent if you can target and customise your marketing. You can also establish a customer loyalty programme to help with customer retention. Better relationships and a rise in the customer's lifetime value will result from doing that.
Giving Out Coupons
If you want to get the most of your product discounts, you need a long-term plan. In this manner, your conversion rate will increase. Discounts ought to be offered to clients who post reviews, subscribe to email lists, or recommend friends. Average Order Values (AOV) will probably rise when you provide discounts or possibly a free delivery threshold. When you offer such advantages for a limited time, more people are drawn to your products.
Bundle products or create packages
Try changing your price strategy to provide product bundles that are more affordable than buying the same goods separately if you want people to buy more items. You can raise the perceived value of a customer's purchase by combining products. Product bundling done right is when a set of items are offered together to provide an all-in-one solution for the intended experience.
Set up a customer loyalty program
If your business sells consumables, which your clientele must constantly repurchase, you might want to think about implementing a rewards or loyalty scheme. Establishing a customer loyalty programme is a retention tactic that aids in building rapport with clients and raising the customer lifetime value.
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