How much do your consumers spend when they place an order on your website? There is a simple method to find out. Your store’s Average Order Value (AOV) represents the average order value of all transactions done in any particular time period, and it is directly related to how much income and profit you receive. Understanding it allows you to establish your store’s financial health and utilise that knowledge to make smarter business decisions about ad expenditure, product price, user experience, and other factors. In this post, we’ll go through how you can raise your average order value and make more money with each order.
What exactly is the average order value?
Your store’s average order value is calculated by dividing your total income by the total number of orders. This simple algorithm calculates the average amount spent by each consumer when they make an order on your website.
The average order value is a Key Performance Indicator (KPI) that is generally assessed alongside other significant performance indicators such as an eCommerce store’s conversion rate and customer lifetime value. While each of these measures is crucial to monitor on an individual basis, when combined, they provide a comprehensive picture of a store’s overall performance.
Most eCommerce shops reach their average order value in the following two steps:
Step 1: Determine the average order value.
Step 2: Enhance it
Although these methods are simplified, they accurately illustrate how eCommerce business owners deal with typical order numbers. The next sections will go through each stage in further detail.
How to Figure Out Your Average Order Value?
Use the formula below to compute the average order value.
Average order value = revenue / orders in your shop.
For example, if you produced $10,000 in income this year and had 200 orders, calculating your average order value will reveal that it is worth $50 for each order. This implies that for every consumer who successfully checks out their shopping cart, you will receive $50 in income. Revenue and order count statistics for your business should be easily available, either immediately on your eCommerce platform dashboard or via Google Analytics, if it is linked to your store.
The crucial thing to remember when calculating the average order value for your shop is that it is calculated by sales per order, not only sales per client. If a consumer purchases from your website twice, both orders are considered for calculating the average order value. It’s also worth noting that the average order value influences the amount of revenue you make for each order, not the amount of profit you make. This is a critical difference to establish since expenses and costs must be deducted from your average order value to provide a clear picture of how much profit you generate for each transaction on average.
Check your average order value on a frequent basis so you may catch any potential changes that may have influenced it earlier than you would have if you had not been monitoring your average order value on a regular basis. Any modifications to your website, such as product pricing, shipping costs, shipment delays, return policies, and shop navigation, might affect your average purchase value.
How to Increase Average Order Value?
1. Product Bundling
If you offer more than one product on your online store, you may use this strategy to boost your average order value. Combining two or more items at a price that is more expensive than just one product but less expensive than if the buyer purchased them separately raises the perceived value of the bargain and causes them to spend more than they would otherwise.
To implement this strategy for your online business, group together goods that buyers frequently buy at the same time, or products that function in tandem. You may also provide your clients with the option of creating their own bundles by allowing them to pick from a list of add-ons that you supply.
When a consumer is ready to check out or has added a product to their shopping cart, propose that they upgrade to a more expensive version with additional features. McDonald’s, for example, is well-known for its upselling strategy of asking customers whether they want to “supersize” their meals. Supersizing a meal will cost the consumer extra, but they will also receive more food, demonstrating the worth of the upsell.
To use this strategy on your own online business, make sure you first have things to upsell to your clients and then recommend them to them! Often, your website visitors will not look at your higher-value items, but if you offer one to them, they will take it into consideration.
3. Notifications of low inventory
Displaying low inventory notifications is one of the marketing and price techniques you may use to increase average order value. When an item’s inventory is low, discounts can frequently help it sell. This not only helps you to sell out of a product, which is excellent for the books, but it also allows you to earn extra for each order.
Low inventory can be highlighted using badges on product pages or by having a pop-up display at checkout for goods that are “going out fast.” Scarcity can easily force someone to add things to their basket that they weren’t planned on purchasing. As a result, you will be able to enhance the average dollar amount.
4. Price fixing
With price anchoring, you surround your target price (which in this case would be something around the average order value you’re attempting to achieve) with one product that’s much lower priced and provides much less value, and another product that’s much higher priced and provides little more value. The objective here is to make the average order value product appear affordable and well-priced while making the other alternatives appear insufficiently valuable or unachievable in terms of pricing. This strategy will encourage the majority of your visitors to select the average order value product, which is your aim.
This strategy works especially well for digital items, but it may also be used for physical products. It also works well when you bundle things together since the bundle of products may be used as value-added leverage to assist your consumers to justify the costs.
Create a collection of three sorts of items to offer as low-value, average order value, and high-value products on your online store to adopt this strategy. Place these goods (or bundles of products) side by side so your clients can view them together, and then clearly describe the difference between each one, highlighting why the average order value product is the greatest value choice.
This is another often-advised average order value increase strategy that, once again, works effectively for the majority of firms. The purpose of this approach is to propose complementary goods to your consumers before they check out their shopping cart, so they buy more things and improve the value of their transaction.
While the purpose of upselling is to offer a more costly version of the same product (such as supersizing a meal), the goal of cross-selling is to sell a product that complements the existing one the consumer is purchasing. Continuing with McDonald’s example, the company’s well-known cross-selling approach is to ask consumers whether they want fries with their meals.
Find items, or sets of products, that complement one another and recommend them to your clients throughout the purchase process to apply this on your own site. Most eCommerce shop product sites may recommend related goods to the one you’re looking at, or things that other customers have already purchased – this is known as cross-selling.
Use cross-selling methods on product pages and throughout the checkout process to ensure you don’t lose out on opportunities to recommend related goods to your clients. Here are some examples of how you might position cross-sells to your target audience:
“Finish the Look”
“Customers Also Purchased”
“You Might Also Like” “Products That Are Similar To…”
Cross-sells are most effective when they are related to what the consumer was previously looking for, so strive to be as specific as possible with your cross-sell offers.
6. Make a loyalty programme.
Approximately 75% of buyers choose brands that give incentives. Loyal consumers are more likely to spend more money on each order than new customers. Once you’ve earned a customer’s trust, they’re more inclined to return. A customer loyalty programme can be used to encourage customers to shop more frequently and purchase more items. Not only will conversion rates increase, but clients will walk away with new things they will enjoy. Using an app from the Shopify App Store, eCommerce enterprises can quickly develop a loyalty programme. You may use alerts or pop-ups to alert consumers when there is a new offer. Overall, loyalty programmes are an excellent approach to boosting average order value while assuring qualified visitors.
Another motivator for increasing average order values on your website is the availability of financing for high-ticket products. This strategy is best suited for stores that offer high-priced things such as furniture, electronics, or art, and it is unlikely to work for stores that sell low-priced items.
Offering financing relieves clients of the obligation to pay the bill in full, and breaking it down into smaller, more manageable portions that customers may pay off over time stretches out the order value and makes it more achievable. Customers will be more inclined to increase their order value if they feel more comfortable doing so.
8. Emphasize best-sellers
You may promote your best-sellers in a pop-up form when a consumer is ready to check out. You may do this in a few ways: show them your top three best-sellers of all time, the top three best-selling things purchased alongside what they ordered, or show them more of the same product they’re purchasing in various colours or designs. This pop-up should feature a badge indicating goods with low availability to add some scarcity.
When you show popular things to buyers, you may enhance income because the product has previously proved to sell. You might display volume discounts once they’ve added the best-sellers to their basket to avoid sticker shock with their increased order volume. Online stores that showcase their best-sellers will see increased revenue growth.
9. Free shipping minimums
This is another popular method for increasing average order values because it works effectively for the majority of firms. As you can see, most online companies utilise this strategy since it not only works effectively to increase order values, but it also makes consumers pleased to have the choice of free delivery.
To use this strategy in your own online business, first establish your free shipping threshold, which we covered in depth in our How to Offer Free Delivery & Calculating Your Free Shipping Threshold post, and then make it plain to visitors what your minimum purchase for free shipping is.
Most eCommerce companies have a banner at the top of their website, either above or below the main menu, explaining what the minimum expenditure is to obtain free delivery, but another helpful place to inform clients is right in the checkout basket. There, it’s useful to have dynamic content that shows clients how close they are to free shipping and updates when they add or remove items from their cart. Small details like “You’re $13 away from obtaining free shipping on your order!” assist buyers to understand what barrier they must cross to receive free delivery.
The precise free shipping for the minimum purchase amount you create is critical, so calculate it carefully. Make it a point where your clients must buy at least a few or a few things to qualify – it’s pointless if it’s an easy target. However, keep in mind that if it is too high, most consumers would not even attempt to reach it. It’s all about striking a balance between raising the order value, covering your delivery expenses, and pleasing the consumer.
As an added bonus, several companies have varied postage criteria depending on whether the purchases are sent locally or overseas. For instance, a free shipping barrier for domestic sales maybe $85 while one for international orders could be $150. This is important for firms where overseas shipping prices are greater and a bigger order value is required to offset those expenses.
Alternatively, you might provide free delivery to entice customers to buy from your shop in general.
10. Customize the experience
Personalizing the purchasing experience allows an online business to boost the average dollar spent while decreasing user acquisition costs. You may accomplish this by incorporating a part of your website that highlights their buying history. If a consumer was undecided about a product, seeing it again while browsing can persuade them to buy.
Depending on the quantity and popularity of your inventory, you may also be able to provide suggested goods based on prior purchases. For example, if a frequent consumer purchases your store’s “floral collection” on your website, presenting new goods in that collection on your homepage using an algorithm might help them buy more things in the style they want.
While it may appear to be counterproductive, providing discounts on purchased items may nevertheless raise your sales and earnings. By discounting your items, you tempt your clients to buy more in order to spend what they were expecting to spend, giving them the impression that they received a good deal while still earning you revenue and profits.
Here are some various sorts of discounts you may use in your shop to increase average order values:
Volume discounts: The more your consumers buy, the more they save, which is a strong incentive to boost their order value. Create a tier of discounts for consumers based on how much they spend – for example, if a customer spends $50, they receive 10% off their order, if they spend $75, they receive 15% off, and if they spend $100, they receive 20% off. Customize the levels based on your customer’s expectations and the amount of discount you can absorb into your profit margins.
Time-Sensitive Discounts: These sorts of discounts are perfect for establishing a sense of urgency and scarcity, causing on-the-fence customers to purchase more quickly than they would have otherwise. It can also persuade clients who were planning to buy only one product to buy a few or a few more while the offer is still available, boosting their order value.
Discounts for First-Time Customers: This is a terrific method to get new customers to order from your company without making discounts open to everyone. This can be a useful strategy for firms who are unable to offer a discount to all of their clients, or for businesses that wish to increase confidence in their new consumers.
Coupons: Another sort of discount to give that you may publicise on social media, in transactional emails, or in email newsletters.
12. Market replenishable goods
You go shopping in person once a week and buy many products from a store. Any suggestions as to which store? The supermarket. We buy so much food because once we’ve eaten it, it’s gone. As a result, each week, individuals return to buy additional items.
Consider your internet business in the same way. Sell replenishable items and be the only site that sells that exact product if you want to maximise revenue, and improve sales, and average order value. It will not only improve your conversion rate, but it will also improve client retention.
Donating a part of your sales revenues can inspire clients to spend more money on your site. Customers are more inclined to spend more if they can give to a cause they care about or a charity in general.
Consider how you may incorporate this into your own company strategy, as well as the sort (or types) of charities that are relevant to your expertise. Allow your customers to donate to their community or a cause that is important to them just by purchasing at your store!
14. Emphasize customer savings
You may put a promotion on your website’s top banner that shows discounts depending on the average order value. It may state, for example, “15% off orders over $150, 20% off purchases over $200, 25% off orders over 300.” Customers will know exactly how much money they save, and you will be able to meet your key criteria. When they check out, you may show them how much money they saved by displaying the dollar amount.
Your customers will appreciate the savings, but it may also aid in client acquisition for first-time buyers. Determine the price approach that will allow you to have a high conversion rate while being profitable. Consider the minimum purchase total required to make a good profit.
15. Refund procedures that are adaptable
Having a flexible return policy that allows your consumers to send back things that don’t work for them without paying additional shipping expenses means they’ll be more comfortable buying more without being punished later.
Consumers want to shop this way; in fact, Generation Z is the generation most likely to anticipate returning more than 75% of the things they purchase online. Millennials expect a 50% return, whereas Generation X and Baby Boomers expect less than 50%. (Source) This is how consumers purchase now, and if your return policy does not allow this, they may be discouraged from shopping on your site at all.
16. Display many goods at the same time
Showing many goods together in a picture or video, whether on a product page or a social media post, may help boost your average order value and other crucial metrics. You may enhance earnings by uploading a cosmetics lesson to YouTube and linking to all of the goods you use in it. This is also beneficial to website visitors.
Alternatively, you may display many items of apparel on a product page. In their product shot, a woman can be wearing a shirt, slacks, shoes, and jewellery. You may sell everything the individual is wearing by adding a “Shop the look” section to the product page, allowing users to buy everything and re-create the ensemble themselves. Don’t assume that everyone has the same ability to put together an outfit. You may enhance income by showcasing every piece to clients and providing an add-to-cart icon that adds the full outfit to the cart.
To encourage your consumers to spend more money in your shop, provide a gift card when they achieve a minimum expenditure. This strategy has various advantages:
First and foremost, your consumers will enjoy the additional gift card.
Second, you will raise the average order value.
Third, your consumers are likely to return to your business to use their gift cards again.
Calculate a reasonable gift card value that you may offer your consumers, as well as the minimum expenditure required to acquire the gift card. Set the minimum expenditure around the average order value that you want to achieve while also considering what your clients are ready to spend.
18. Include services
Beyond actual product sales, thinking about your eCommerce business may help you enhance customer lifetime value and average order value. For example, if you sell treadmills online and some customers despise putting things together, installation may be a service you offer.
If your company is too small to provide in-person services, you may supplement it with virtual services. If you operate a fashion store, for example, you may provide services such as personal shopping and personal styling.
If you run an auto parts business, you may provide automobile repair advice to do-it-yourselfers who are attempting to repair their vehicle.
Depending on your specialisation and credentials, there is always a service you can give to clients that will help you improve overall income because services are often priced considerably higher than an ordinary products (with a few exceptions, like treadmills).
Use gamification techniques to encourage your consumers to buy or spend more. Fun activities, such as spin-to-win coupons, contests, and sweepstakes, might encourage your consumers to buy more things or spend more money than they would otherwise.
To integrate gamification experiences into your online store, check out Sumo or ViralSweep, and read our Sumo Review and ViralSweep Review to discover more about what each of these services has to offer.
20. Simple browsing
The longer a visitor stays on your site, the more probable it is that they will add additional items to their basket. Keep them interested by encouraging them to navigate your site freely and effortlessly. Maintaining a clear and easy-to-navigate user interface, visible calls-to-action on your homepage and product pages, appropriate product suggestions, and interlinking across pages so clients can browse further into your site will help you achieve this.
60% of people prefer on-page navigation to search, so don’t make your customers search for what they’re searching for. Instead, give them ideas and recommendations they weren’t even looking for, so they don’t have to search to find new things.
The Bottom Line
If you didn’t know what the average order value was when you first started reading this post, we hope you now know. As a store owner, knowing how to calculate your average order value and implement optimization strategies to increase it can mean the difference between making valuable business decisions and not, so now that you know how to calculate your average order value and implement optimization strategies to increase it, you’ll be able to make more data-driven decisions for your business that will hopefully result in more positive outcomes.