Average order value (AOV)
AOV is the average value of all customer orders over a specified period of time.
What is AOV?
AOV, or average order value, is a metric used in eCommerce to measure the average amount customers spend per order over a certain period of time.
For instance, if you run an eCommerce business, you might analyze your AOV monthly to understand the typical order size. If you sell bars of soap online for $10, and you sell an average of three in each order for October, your AOV for that month would be $30.
AOV is a dynamic number that fluctuates over time. Tracking it helps you analyze customer buying patterns and ROI on advertising spend, so you can take steps to improve your profitability.
How to calculate AOV
AOV is a simple calculation you can run in your eCommerce platform reporting or in a spreadsheet. First, create parameters or run a report for the period of time you want to analyze. Then run this simple formula:
To calculate your total order values, leave out sales tax but include the amount customers paid for products, shipping, and fees. For example, if your orders for Cyber Monday totalled $12,600 and you received 120 orders, your AOV would be $105.
$12,600 / 120 = $105
Why is AOV important?
First and foremost, AOV tells you how much revenue you typically receive with each order. By monitoring this, you can track and project your revenue over time and optimize your buyer journey for better profits.
Here are the top benefits of tracking AOV:
1. Grow your revenue
Your AOV tells you how much your customers are ordering. A higher AOV generally points to greater success and revenue gain, since it means your orders were larger, higher value, or more frequent.
2. Improve LTV
When you know your AOV, you can also improve your lifetime value (LTV), which is the average revenue per customer over their lifetime of buying from your brand. Once you understand which factors lead to larger orders (for instance, a customer loyalty reward or free shipping above a certain spend), you can deploy those tactics to encourage repeat purchases and larger orders.
3. Improve margins
Since gaining a new customer is hard work and expensive, a higher AOV can mean higher margins. Each eCommerce order contains baseline costs: ad spend, shipping, and possibly a new customer discount. Once a customer lands on your website and decides to purchase one item, any additional items will add to your revenue. If you’ve drawn a customer in with a discount, convincing them to add a full-price item will greatly improve your margins.
4. Understand channel profitability
In addition to calculating your overall AOV, run calculations to compare AOV between channels. If you sell on a marketplace like Amazon or Etsy, for example, compare each channel against direct sales through your website.
You can also run calculations to contrast AOV and profitability between different advertising sales channels. For instance, you may find that Instagram ads cost double your Google search ad campaigns. But if the users coming from Instagram have a higher AOV than Google shoppers, the higher spend is justified.
5. Get insight into buying trends and patterns
Tracking your AOV helps you predict patterns and trends that impact your operations. The biggest pattern you should be tracking is seasonal swings. For instance, you may expect higher order amounts in Q4 for holiday sales. Jewelers or chocolate sellers may experience a spike in February for Valentine’s Day. By forecasting when customers will have a higher AOV, you can plan your revenue and staffing accordingly.
You should also run analyses on orders with the highest order values to uncover any trends. Did they happen at a certain time of day? Was there a particular promotion that led to higher orders?
What is a good AOV?
There’s no universal number for a good AOV. The AOV for a gaming app can’t be compared to a grocery order, which can’t be compared to a luxury jewelry website. Location, market positioning, and other factors make it difficult to compare yourself with other merchants.
That said, marketing insights provider XP2 has identified some basic benchmarks you can reference to find an overall benchmark by industry:
- Home & furniture: $248
- Fashion, accessories & apparel: $142
- Food & beverage: $94
- Multi-brand retail: $84
- Beauty & personal care: $80
AOV varies by location. Interestingly, purchases made from desktop computers have a higher AOV than mobile purchases. Think about it: you might casually order a book or some socks from your phone while you’re on the bus, but when it comes to investing in a new laptop or washing machine, you probably want to get comfy and do your research on a bigger screen.
When benchmarking, remember that the most important comparison point you have is yourself. Work to improve your own AOV relative to previous time periods, instead of worrying about external benchmarks.
How to increase AOV
AOV is a powerful metric that offers insight into customer behavior. But tracking your AOV is more than just knowledge — once you know your average, you have the opportunity to grow it. While there are many strategies for increasing AOV, they all boil down to two goals: encouraging customers to buy more products and spend more on products.
Here are seven strategies you can employ to grow AOV — and with it, your business.
Upselling
Upselling is the practice of selling a premium or more expensive product shortly before a customer completes their purchase. If a customer has a coffee maker in their cart, for instance, you might suggest the next model up, which includes an espresso machine. Each eCommerce platform has its own way of displaying upsells on a product page or checkout flow.
Cross-selling
Instead of replacing a desired item with a higher-value one, cross-selling lets you suggest complementary products as an add-on. So alongside a coffee maker, you might suggest coffee filters. Some eCommerce sites accomplish this through recommended items on a product page or in the checkout flow itself. You can link recommended items in the back-end of your online store, or even use personalization for successful cross-selling.
Bundling
Bundling helps you grow AOV by getting customers to buy more products. Instead of selling products, X, Y, and Z individually, offer them as a bundle. Continuing with the coffee machine example, you could offer an espresso machine with a milk frothing pitcher and a grinder to give the complete setup to start making espresso drinks.
There are several reasons customers like bundles. One may be because there’s a slight discount and price advantage to buying them together. Another reason is perceived value: there’s a convenience to buying multiple items that you need or want that go together, and it saves them time shopping.
Free shipping (with an order minimum)
Free shipping doesn’t help your margins for a small order, but can create an incentive for customers to place a larger order. A Shopify study found that people spend $22 more per order with free shipping over paid shipping, and that they order 2.5 items per order with free shipping compared to less than two items without.
The key to success with this strategy is strategically choosing an order minimum that’s above — but not too far above — your AOV. For instance, if your AOV is $60, you may want to choose an order minimum of $75.
Applying a percentage discount
Just like with free shipping, you can use a percentage discount to incentivize bigger spending. For example, spend $100, get a 15% discount. If your AOV is $70 and you can convince customers to spend $100 instead, you’re still bringing in more revenue even with the discount.
Loyalty programs
A loyalty program gamifies shopping by offering rewards relative to how much the customer spends. The most effective loyalty programs give transparency into how close someone is to a reward and send offers and reminders to encourage spending. Take Starbucks’ loyalty program, for instance: customers can view their Star balance at any time and take advantage of special offers to double their points earned.
Customer service programs
While it might seem like customer service and order values are unrelated, they’re more closely connected than you think.
Making a purchase, especially for a customer new to the brand, represents a risk. Customers don’t know if the quality will hold up to their expectations, and may start with a small first order or abandon the process completely. Having customer service easily accessible by chat to answer questions allays their concerns. A responsive customer service department gives people the confidence to order more items, knowing you’ll be there for them if they’re unhappy.
Key takeaways
AOV (average order value) is a crucial eCommerce metric that shows the average value of orders placed by customers over time. By tracking and optimizing this number, you can boost your revenue and improve your margins.
- A higher AOV translates into higher revenue and improved customer lifetime value (LTV).
- AOV gives you insights into buying trends and lets you analyze channel profitability.
- A good AOV varies across industries and locations. Instead of benchmarking against competitors, focus on increasing your own AOV each month.
- AOV can fluctuate based on seasonal patterns and events. Recognizing these trends allows you to forecast revenue and adequately prepare for changes in customer behavior during peak periods, such as holidays or special events.
- Strategies for boosting AOV include upselling, cross-selling, bundling, free shipping, discounting, loyalty programs, and customer service.
- With AOV optimization strategies, you can incentivize customers to buy more items and spend more overall.
