A Comprehensive Overview Of Average Order Value (And How To Increase It!)
So, you’ve dived into the wonderful world of e-commerce and are learning more and more about it each day. You’ve heard all about the blood, tears, sweat, and success that goes into making an e-commerce store successful and are primed to launch or continue growing your store. That’s awesome! But there’s one key metric that every successful e-commerce store keeps front of mind, and that’s Average Order Value.
Average Order Value, or AOV for short, is an important metric that can help you understand your total revenue and profit you’re making per order. It also gives insight into changes in your total profit and is crucial for assessing your cash flow and profit on a per-order basis. Average Order Value is calculated by taking your total revenue and dividing it by your total number of checkouts.
Average Order Value (AOV) = Total Revenue/Total Number of Checkouts
You can use your AOV to easily calculate your average profit per order. Simply take your Cost Per Order (branding, manufacturing, etc.) and subtract it from your AOV. This gives you your average profit per order and can give you an idea of how much a certain change in your AOV will affect your profits.
Why Is AOV So Important In E-commerce?
AOV is a key metric in e-commerce because it is quite malleable and can be increased or decreased according to a multitude of factors.
Let’s say you’re getting 100 checkouts (a ‘checkout’ is simply another word for ‘purchase’) per day with an AOV of $10. That’s $1000 in total revenue per day and you’re happy with that amount. Well, what happens when our number of checkouts goes to only 50 checkouts per day? If you’re trying to maintain that same $1000 in total revenue per day, then you need to increase your AOV to offset your decrease in daily checkouts. So if you’re only receiving 50 checkouts per day, then you’ll want a new AOV of $20 which will equal $1000 in total daily revenue.
Since we now understand how manipulating our AOV can offset checkouts and affect revenue, let’s talk about how to increase it!
How AOV and Your Website Traffic Relate
Increasing your AOV can be a quick way to boost your cash flow without having to worry about increasing your amount of website visitors. Regardless of your amount of visitors, if you can continually increase your AOV then that means you’re increasing profits (as long as your cost per order isn’t increasing along with AOV). Keep in mind that in our example in the last paragraph we went from 100 checkouts per day to 50, but our increased AOV ensured that our total daily revenue was the same. That makes Average Order Value a powerful and important metric that is worth keeping track of.
Tips For Increasing Average Order Value
Alright, we’ve hyped you up enough. Let’s get to the fun stuff! Increasing your AOV can be done in various ways that are pretty simple. Here’s a few of our favorites:
- Free Shipping Thresholds
Free shipping thresholds work by setting a required amount that visitors need to spend in order to earn free shipping. Let’s say that your AOV is $25, your shipping cost is $5, and you want your new AOV to be $35. Display on your website (this is crucial) that you offer free shipping on order over $35. This will cause you to incur the $5 shipping fee, but your average order value could increase to $35. If a customer has an order totalling $27 (or any other number below the threshold) then just show a message such as: “spend only another $8 and get free shipping on your order!”. This tactic is an effective way to boost your AOV by incentivizing customers to reach your free shipping threshold.
2. Up-sells (“Add On”s)
An up-sell (otherwise known as an “add on”) is a relevant item that is shown to a customer during their checkout process. The customer has the option to easily and quickly add the item to their cart and proceed with their checkout process. This is effective and poses a quick decision making opportunity for the customer. Since the customer is almost already checked out and the item is relevant to what they’re interested in they’re more likely to make the decision of adding the up-sell item, which in turn increases the order value.
3. Displaying Cost Savings
This is a simple way to boost your AOV and involves revealing the cost savings on a product when a user buys more than one of the items. This makes your customer associate an increase in the amount of items with an increase in savings, thus incentivizing them to purchase more.
As we’ve learned, Average Order Value is a crucial metric for the success of your e-commerce business. At Motion Finance, we’re happy to help you grow your e-commerce business by sharing knowledge about how you can be successful. Start growing your e-commerce business today by implementing your knowledge and newly-found techniques on Average Order Value!
We’re here to help e-commerce companies grow! Contact us at firstname.lastname@example.org today and start making the most out of Facebook ads.