Website traffic and conversions are two important metrics to consider for your online store, but there’s another factor to consider: average order value.
Average Order Value (AOV) is how much customers spend on each order from your store. While AOV is a helpful metric, it’s not the end all be all of your business growth and success. Many eCommerce businesses place a lot of emphasis on AOV and pour effort to increase it. After all, if people spend more on each order, you’ll make more.
But it’s not that simple.
AOV does matter, but there’s more to it than that. Today, we’ll break down how to think of AOV and the best ways to increase it so that you can increase your revenue.
Average Order Value
Your average order value is how much a customer typically spends at your store. You calculate AOV by dividing the total revenue by the number of orders. Many times, you’ll be able to view your AOV in your reports. Most often, businesses focus on getting customers to spend beyond the threshold of the AOV, by offering free shipping over a certain amount spent, etc. While these kinds of promotions can help you bring in revenue, they don’t always offer the best profits.
AOV vs Central Tendency
AOV is a helpful metric, but it’s the most valuable when used in combination with other central tendency values. Only looking at the “average” order value only gives you a partial picture of what your customers are doing. If you want to ensure each order is more valuable, then you should examine all measures of central tendency which include:
- Mean: The mean is the “average” of all orders, and this is the Average Order Value.
- Median: The middle value of all orders.
- Mode: The most often occurring order value.
Outliers (or extremely high or low orders) can pull the AOV in a certain direction, which makes it less reflective of a typical order. If there’s a big difference between the mean, median, and mode, then it’s likely that outliers are impacting your AOV. For example, if your AOV is $25 but the mode is $15, the chances are that a few big-ticket purchase orders are pulling up the average.
When the AOV is skewed by a few very high or very low purchase orders, the best approach is to actually examine the mode. You should try to move up the modal value instead. Your modal, or most frequent order values, are a great starting point for figuring out how to increase your overall revenue.
Essentially, AOV is important to keep track of, but it’s not the only measure of central tendency you need to pay attention to. Examine your modal (most frequent order value) to see where you can increase overall revenue.
Top Ways to Increase Average Order Value
Now that you understand AOV and the importance of central tendency, here are some ways to bring up those values:
- Free shipping order minimum. Free shipping is incredibly appealing to online shoppers, and it’s a good way to entice customers to spend a little more. Calculate the modal order value, and then set an order minimum for free shipping that’s 30% above it. This makes free shipping attainable to most customers, which will bump up your overall revenue.
- Product kits and bundles. Bundling products increases the perceived value of the purchase and can get customers to purchase more items. Combine complementary products that create a comprehensive all-in-one solution, or even allow customers to build their own bundles.
- Upsell/cross-sell. Nudge customers to buy complementary or upgraded versions of what they already intend to purchase. Make sure the upselling is casual and helpful, don’t overdo it or it will become a turnoff. Provide hand-picked suggestions based on their purchases or viewing history. Offer low-value upsells to boost the chances of a purchase.
- Customer loyalty programs. Customer loyalty programs are powerful retention strategies that build relationships with customers and encourage them to keep coming back. The incentives tied to customer loyalty programs can help boost AOV, as customers may be inclined to spend a bit extra to reach the next tier or reward.
- Live chat support. eCommerce sites with live chat sell 10-15% more per cart according to Forrester! Customers can get answers to quick questions, which helps them follow through with their purchases and avoid abandoned carts. Customers can get the confidence they need to proceed with their purchase, and live chat is particularly important for big-ticket items.
Boost Your AOV
When you focus on AOV and the associated measures of central tendency, you are putting your effort into visitors who already intend to purchase. All you have to do is nudge them to buy other items that are relevant to their needs.
Listing Mirror is here to help you increase your AOV and with every other aspect of your online business. Our #1 multichannel listing software has robust features for listing management, order fulfillment, inventory syncing, and warehouse management. Learn more about how Listing Mirror can help your eCommerce business today by trying it for yourself for free. Start your risk-free trial today by clicking the button below.
Erin is the Co-Founder of Listing Mirror.