How to Calculate AOV + Strategies for increasing AOV
Average Order Value (AOV) is a crucial metric in e-commerce that measures the average amount each customer spends per transaction. Understanding and optimizing AOV can have a significant impact on your revenue and profitability, as even a small increase can boost overall sales without the need to acquire more customers. In this guide, we’ll cover how to calculate AOV, why it’s essential, and explore effective strategies for increasing AOV on your e-commerce site.
What is Average Order Value (AOV)?
AOV is the average amount of money that a customer spends per order on your website. It’s calculated by dividing total revenue by the number of orders within a specific period.
Why AOV Matters:
- Boosts Revenue Without Increasing Customer Acquisition Costs: Increasing AOV allows you to earn more from each customer without spending additional resources on acquiring new customers.
- Improves Profit Margins: Higher AOV often results in increased profitability, especially if customers are encouraged to buy more premium products.
- Enhances Customer Lifetime Value (CLTV): By encouraging customers to spend more per visit, you can increase the overall value of each customer over time.
How to Calculate AOV
Calculating AOV is straightforward and requires only two data points: total revenue and the number of orders.
AOV Formula:
AOV=Total RevenueNumber of OrdersAOV = \frac{\text{Total Revenue}}{\text{Number of Orders}}AOV=Number of OrdersTotal Revenue
Example Calculation:
If your e-commerce store generates $50,000 in revenue from 1,000 orders in a month, your AOV would be:
AOV=50,0001,000=50AOV = \frac{50,000}{1,000} = 50AOV=1,00050,000=50
This means that, on average, each customer spends $50 per order on your site.
Tips for Tracking AOV:
- Track AOV over time to observe trends and measure the effectiveness of strategies.
- Segment AOV by customer type, channel, or product category to identify high-value segments and target them more effectively.
Strategies for Increasing AOV
Once you understand your current AOV, the next step is to implement strategies that encourage customers to spend more per order. Here are some of the most effective tactics to boost AOV in your e-commerce business.
1. Implement Upselling Techniques
Upselling is the practice of encouraging customers to purchase a more expensive or premium version of the product they’re interested in. This technique increases AOV by offering customers added value and encouraging them to spend a bit more for enhanced features or quality.
Upselling Tips:
- Feature Premium Options on Product Pages: Display higher-end versions of products or related accessories that add value. For example, if a customer is looking at a smartphone, suggest a higher storage version.
- Highlight Benefits of Upgrades: Clearly explain the added benefits of choosing a more premium product, such as better quality, additional features, or extended warranties.
- Offer Discounts on Premium Products: Small discounts on premium versions can make them more attractive and justify the additional spend.
Example:
On an electronics site, when a customer adds a laptop to their cart, show an upgraded version with a larger screen or higher processing power and emphasize the benefits of the upgrade.
2. Use Cross-Selling Effectively
Cross-selling involves suggesting complementary products that enhance the main item being purchased. It’s an excellent way to increase AOV by encouraging customers to buy additional items that go well with their chosen product.
Cross-Selling Tips:
- Bundle Related Products: Offer bundles that combine frequently bought-together items, such as a camera with a memory card and carrying case.
- Recommend Accessories on Product Pages: Display accessories or add-ons on product pages. For example, suggest a case or charger for a phone purchase.
- Use Pop-Up Suggestions in the Cart: When a customer views their cart, display complementary items they may have overlooked.
Example:
For a clothing retailer, if a customer adds a dress to their cart, recommend matching accessories like jewelry, a belt, or shoes that complete the look.
3. Offer Discounts for Minimum Order Thresholds
Encourage customers to increase their cart size by offering discounts or free shipping when they reach a certain spending amount. This strategy can motivate customers to add more items to their cart to qualify for the offer.
Discount Threshold Tips:
- Set the Threshold Just Above Your Current AOV: Analyze your AOV and set the discount threshold slightly above it to encourage customers to add just one more item to qualify.
- Offer Tiered Discounts: Provide increasing discounts or benefits for higher spending amounts. For example, $5 off orders over $50, $10 off orders over $100.
- Promote the Threshold on Every Page: Display a progress bar showing how much more the customer needs to spend to qualify for the discount.
Example:
If your AOV is $60, consider offering free shipping on orders over $75. Customers are likely to add items to their cart to avoid the shipping fee, increasing AOV in the process.
4. Introduce Product Bundling
Product bundling involves offering two or more complementary items together at a discounted price. This strategy encourages customers to purchase multiple items, which can increase AOV.
Product Bundling Tips:
- Bundle Related Items: Group items that are often used together, such as a shampoo and conditioner or a gaming console with a controller.
- Offer a Discount for the Bundle: Make the bundle more appealing by offering it at a lower price than if the items were purchased individually.
- Promote Bundles on Product Pages and Checkout: Display bundles prominently on product pages and during the checkout process to encourage last-minute additions.
Example:
A skincare brand could bundle a cleanser, toner, and moisturizer into a skincare set and offer it at a discounted price. This encourages customers to buy the entire set instead of just one product.
5. Highlight Limited-Time Offers and Deals
Urgency can be a powerful motivator. Offering limited-time deals encourages customers to act quickly, often leading them to add more to their cart to take advantage of the offer before it expires.
Limited-Time Offer Tips:
- Use Countdown Timers: Display a countdown timer on limited-time deals to create a sense of urgency.
- Feature Daily or Weekly Deals: Highlight new deals frequently to encourage customers to visit your site more often and take advantage of special offers.
- Promote Scarcity: Display messages like “Only 3 left in stock” or “Offer ends tonight” to create a sense of scarcity.
Example:
An online electronics store might offer a 10% discount on accessories for 24 hours, prompting customers to add accessories to their primary purchase to save.
6. Create a Loyalty Program with Spend-Based Rewards
Loyalty programs encourage repeat purchases and can increase AOV by incentivizing customers to spend more to earn rewards.
Loyalty Program Tips:
- Offer Points for Every Dollar Spent: Let customers accumulate points based on how much they spend, which they can redeem for discounts or special offers.
- Create VIP Tiers: Offer benefits like free shipping, exclusive discounts, or early access to new products for customers who reach certain spending thresholds.
- Send Reminders About Points: Email customers reminders of their points balance and suggest ways they can earn more by increasing their spend.
Example:
A clothing brand could offer one loyalty point per dollar spent and provide a $10 discount for every 100 points earned, motivating customers to spend more per order to reach the reward faster.
7. Display “Customers Also Bought” and “Recently Viewed” Sections
Adding “Customers Also Bought” or “Recently Viewed” sections can help increase AOV by reminding customers of items they may be interested in based on their browsing behavior or what other shoppers have purchased.
Tips for Related Product Recommendations:
- Place on Product Pages and Cart Pages: Show related products when customers are browsing an item or viewing their cart.
- Use Data to Personalize Suggestions: Personalize recommendations based on the customer’s browsing history or past purchases.
- Experiment with Product Types: Display complementary items as well as frequently bought-together products to see which combinations yield higher AOV.
Example:
For a customer looking at a coffee maker, show accessories like filters, coffee beans, or a grinder as related products.
8. Use Gift Cards as an Upsell Option
Offering gift cards as an upsell option at checkout encourages customers to buy more, either for themselves or as a gift for others.
Gift Card Upselling Tips:
- Suggest Gift Cards at Checkout: Display gift cards as an add-on during checkout to encourage last-minute purchases.
- Use Gift Cards as a Spend Incentive: Offer customers a small gift card for spending a certain amount, incentivizing them to reach the threshold.
- Promote Gift Cards During Holidays: Highlight gift cards around holiday seasons when customers are more likely to be shopping for gifts.
Example:
Offer a $5 gift card for orders over $100, which customers can use on future purchases, encouraging them to spend a little more to qualify for the bonus.
9. Provide Flexible Payment Options
Offering Buy Now, Pay Later (BNPL) options can increase AOV by allowing customers to make larger purchases and pay in installments. Flexible payment options make it easier for customers to add more to their cart without feeling the immediate financial burden.
Tips for Payment Flexibility:
- Display BNPL Options on Product Pages and Checkout: Show the option for installments directly on product pages to make high-ticket items more appealing.
- Highlight Payment Flexibility in Promotions: Mention BNPL options in marketing emails and banners to remind customers of this convenient option.
- Offer Multiple Payment Options: In addition to BNPL, offer credit cards, PayPal, and other payment options to increase customer convenience.
Example:
A furniture store could display the monthly installment amount under the total price, encouraging customers to add more items to their order without immediate financial strain.
10. Offer Free Shipping with Minimum Spend
Free shipping is one of the most effective incentives for increasing AOV. Setting a minimum spending threshold for free shipping encourages customers to add more items to their cart to qualify.
Tips for Implementing Free Shipping:
- Set Threshold Based on Your AOV: If your AOV is $50, consider setting the free shipping threshold at $75 to encourage larger orders.
- Display Progress Towards Free Shipping: Show customers how close they are to qualifying for free shipping as they add items to their cart.
- Advertise Free Shipping Threshold Sitewide: Use banners or pop-ups to remind customers about the free shipping offer.
Example:
If your AOV is $40, you could offer free shipping on orders over $60. Many customers will add an extra item or two to avoid paying for shipping.
Conclusion
Increasing AOV is a powerful strategy for boosting revenue and profitability without needing to acquire more customers. By implementing these strategies—from upselling and cross-selling to offering loyalty rewards and free shipping—you can encourage customers to spend more per transaction. Remember that the most effective tactics will vary depending on your products and audience, so testing and analyzing results is essential. With the right approach, you can optimize your AOV and create a more profitable and customer-friendly e-commerce experience.
