The Average Order Value or AOV is a metric for eCommerce businesses that measure the average total for each order that gets placed with a business over a specific time period. The AOV happens to be one of the most essential metrics for online stores that need to be considered because it will determine vital business decisions like product pricing, store layouts, and ad spending.
How AOV Gets Calculated
The formula for calculating the AOV is your revenue dividing by your Number of orders.
AOV = Revenue ÷ Number of orders
AOV will get based on your sales for each order and not based on your sales for each customer. Even though a single customer can come back several times to purchase items, each order is considered to be a single order for the AOV. Your AOV also does not mean your profit margins or gross profits, but it can show what your numbers may look like. For instance, if you are selling coffee online and you sell some for $33, $28, and $20 with an AOV of $27. That indicates two trends in consumer behavior in the shop window: Customers are not buying multiple items.
- Low-end shirts account for the majority of sales.
- Customers are not buying multiple items.
If you assume that the more expensive items that have higher margins that there would be a significant chance to improve the positioning and marketing. When you increase your AOV, then your business is increasing your ROAS and ROI for the marketing that is done. The higher that your AOV is, the more you will get from each of your customers, and that means that from every dollar, you spend acquiring those customers.
AOV should be monitored just as closely as any other trade measure – preferably daily or weekly. If there are dips or spikes, every aspect of the business needs to understand what may have triggered the trend closely. New campaigns, buying seasons, and any aesthetic changes to a website are possible factors that can influence fluctuations in AOV.
Improving your AOV
Understanding the average value of all orders is helpful, but it is not the only way to calculate an average. For instance, stores can segment their customers into different groups based on the history of their purchases. Many stores divide their customer base, but it is also possible to segment customers based on the frequency of orders, the types of products they buy, or some other method that meets their needs and their supplies.
Once customers are separated, they can get targeted with ads tailored to their group. Frequent customers and high spenders can enroll in loyalty programs that provide them with rewards, while low spenders can be targeted for cross-selling and offers that improve the value.
Other methods of increasing the average order value include:
- Apply a discount package to minimum order values (and, if applicable, bulk orders)
- Add a free shipping threshold average
- Cross-selling, upselling, and bundling of additional services and products
Do not try all methods to increase the order value by the same time. Instead, test each option, determine which one is most effective for the store in question, and then stick to what works.