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Paid advertising is crucial for attracting traffic and customers to your online store in the current ecommerce landscape. This blog post aims to provide helpful advice on increasing your Return on Ad Spend (ROAS) through increases in your Average Order Value (AOV).

Let’s dive in!

There are only three ways to make your business grow and they are as follows: 

1. Bring in new customers – make some noise and attract new folks to your shop. 
2. Boost your average order value – encourage shoppers to treat themselves to a little something extra. 
3. Increase how often your customers shop – keep them coming back for more!

For the purpose of this blog, we’re just going to focus on increasing the average order value.

A business can increase its AOV (Average Order Value) to boost ROAS (Return on Advertising Spend) by implementing strategies that encourage customers to spend more per transaction. The higher the AOV, the higher the ROAS. 

Increase your Average Order Value (AOV)

Average order value (AOV) refers to the average amount of money a customer spends on a single purchase from your business. To calculate AOV, you can divide your total revenue by the number of orders placed during a certain time period. 

Let’s pause and assess the possible influence on your business if you enhance your average order value (AOV). For instance, if your business currently generates €1 million annually through 40,000 orders, with an AOV of €25 euros per order.

In the table below you can see the impact on the business of increases in AOV and what it can do to the overall sales and ultimately profits of the business. If you can drive higher AOV then the general unit economics of your business will improve in tandem. 

 

Number of Orders	AOV	Revenue
40,000	€25	€1,000,000
40,000	€30	€1,200,000
40,000	€40	€1,600,000

Generally speaking, the higher the AOV, the better, as it means that customers are spending more money on each purchase. This can be especially important if you’re spending money on customer acquisition, as it makes sense to try and build the cart value as high as possible to maximise your ROAS. 

If you spend an average of €10 to acquire a customer and the product sells for €50, then your return on advertising spend (ROAS) is 5. However, if you can add an additional product for €20 as an upsell, your ROAS increases to 7. This can significantly improve the profitability and growth potential of your business.

How to increase AOV to Boost ROAS

We all love a good upsell strategy, but it’s important to strike a balance between wanting to increase the average order value and not overwhelming or frustrating the customer. After all, nobody wants to feel like they’re being constantly bombarded with “add-ons” while they’re trying to make a purchase.

From a customer experience point of view, the best upsells are:

1. Natural 
2. Helpful  
3. Personal

Here are some of the top AOV boosting strategies. 

1. Bundle products: Keep an eye out for products that are often bought together. Offer customers bundled products or services that complement each other. This can encourage customers to purchase additional items, thereby increasing AOV and boosting ROAS. 
2. Upsell and cross-sell: Encourage customers to upgrade their purchase or buy additional products by suggesting complementary items or offering special deals on higher-priced items.
3. Offer free shipping: Set a minimum purchase amount for customers to qualify for free shipping. This can incentivize customers to add additional items to their cart to reach the minimum purchase amount, thereby increasing AOV and boosting ROAS. A good rule of thumb here is to set your free shipping threshold to be 20% over your AOV.
4. Implement a loyalty program: Offer rewards or discounts to customers who spend above a certain threshold. This can encourage customers to make larger purchases in order to earn rewards, increasing AOV and boosting ROAS.
5. Use targeted promotions: Target customers with personalised promotions based on their past purchases or browsing history. This can encourage customers to purchase items that they are more likely to be interested in, increasing AOV and boosting ROAS.

Conclusion

The rising cost of customer acquisition online is becoming a huge challenge for e-commerce businesses. However, by focusing on increasing their AOV, businesses can improve their ROAS and maximise their profits. Strategies such as bundling products, upselling and cross-selling, offering free shipping, implementing a loyalty program, and using targeted promotions can all help to boost AOV and ROAS. 

It’s important for businesses to strike a balance between encouraging customers to spend more and not overwhelming them with too many add-ons. By implementing effective AOV boosting strategies, e-commerce businesses can overcome the challenges of rising customer acquisition costs and thrive in the competitive online marketplace.

Introduction 

Scaling an ecommerce business can be a complex journey filled with unique challenges. Gary, the owner of a Dublin-based women’s apparel brand, experienced firsthand the obstacles of scaling his business since its inception in 2020. As Gary’s business flourished, he found himself grappling with maintaining a high return on ad spend (ROAS) and making data-driven decisions to continue growing his business. 

Like many ecommerce businesses, the cost of advertising on Facebook and Google had become much more expensive, making it increasingly difficult for Gary to make a profit. He wanted to focus on running his business without constantly worrying about changing algorithms from Facebook and Google. Gary frequently came across the importance of being data-driven in the online world, but as he was focused on running the business, he didn’t have the expertise or the time to dive in and truly understand the data. 

Running an ecommerce company today means navigating 10+ platforms that are all working for the same business but are operating in siloes. Gary found it difficult to get a single source of truth from these platforms. This challenge was compounded by the fact that he didn’t have the resources to hire a data analyst, and he admitted that he was mainly making decisions based on gut feeling rather than data. For financial advice, Gary relied on his accountant, who unfortunately lacked expertise in ecommerce, resulting in a limited understanding of key ecommerce and marketing metrics. This oversight turned out to be a significant problem in retrospect. 

In January 2023, Gary turned to StoreHero, a powerful tool specifically designed for ecommerce companies. Over the course of our collaboration, Gary not only gained a comprehensive understanding of his business’s unit economics but also experienced phenomenal growth, increasing his net profit by 324% and sales by 39% compared to March 2022. This case study delves into the challenges Gary faced throughout his ecommerce journey, the transformative solutions StoreHero provided, and the valuable insights he gained to propel his business to new heights.

The Challenge 

Gary’s women’s apparel brand had been operating since 2020, selling directly to consumers through their online store. During 2020-2021, the business experienced impressive returns on their advertising investments. However, they faced challenges in maintaining the same ROAS and grew increasingly hesitant to increase their digital advertising budget. Gary primarily relied on Facebook & Google ads for customer acquisition, yet, like many other ecommerce brands, his understanding of the unit economics contributing to its success remained unclear. 

The Solution: StoreHero Integration 

Upon integrating Gary’s business with StoreHero, we discovered that while he had achieved a remarkable ROAS of over 10x during the Covid period, it had now dwindled to around 4.5x to 5x on a weekly basis. Consequently, the business began to reduce their paid advertising, concerned that the diminishing returns on ad spend would render their marketing efforts unprofitable.

However, when Gary studied the product section in StoreHero, he discovered that the break-even point (BEP) ROAS for their top two sellers was merely 1.64x. Despite the decline in ROAS from 10x to 5x, cutting back on ad spend inadvertently led to a decrease in the number of profitable customers visiting the store. 

 

Overcoming Hesitation: Boosting the Advertising Budget 

In March 2023, Gary decided to take a bold step and more than doubled his advertising budget, resulting in a 117% increase in ad spend compared to the previous year. The impact on the business was outstanding! He spent €7,571 on advertising, generated €76,541 in sales (a 39% increase), and saw the net profit soar to €7,325, marking an impressive 324% growth. 

The Key to Success: Consolidating Data and Gaining Insights 

StoreHero’s ability to consolidate data from multiple sources provided Gary with valuable insights into his business. Gary utilised the insights and recommendations section in StoreHero to quickly understand his ad performance and make changes to his paid marketing setup accordingly. Prior to using StoreHero, Gary was often overwhelmed by the various ad manager platforms. StoreHero explained to him in plain English what was working and what could be improved, simplifying the process and making it much more manageable. With this newfound clarity, Gary was able to make data-driven decisions that optimized his ad campaigns, driving better results for his business.

One of the most alarming discoveries was the amount of discounts he was giving out relative to his bottom line. Upon examining the finance page on StoreHero, Gary realized the negative impact of his discounting strategy. Consequently, he discontinued the Welcome10 discount offered upon email signup. While this led to a slight decrease in email signups, it had a minimal impact on the conversion rate. Yet, the impact on the bottom line was huge.

In March 2022, the value of discounts surpassed the company’s net profit, with discounts making up 2.78% of total sales. However, by March 2023, the discounts accounted for only 0.55% of the total sales, showcasing a significant improvement. This strategic decision, backed by data from StoreHero, allowed Gary to maintain a healthy bottom line while continuing to grow his business.

Efficient Use of Resources: Understanding Operational Expenses and Labour Costs 

Although the increased advertising budget led to a slight decrease in ROAS, the higher sales volume ultimately improved the efficiency of the business’s operational expenses. StoreHero allowed Gary to enter all of his operational expense data, which amounted to €15,979 per month and included staff salaries, rent, software, and agency fees. By boosting the sales volume, Gary was able to maximize the value of these expenses and enhance overall business efficiency. 

In fact, the increased ad spend not only increased sales but also made the fixed operational expenses of labour and rent much more efficient. Labour as a percentage of sales improved by a staggering 28%, which in turn meant that the business was operating on a much leaner basis and therefore generated more profits. 

Gary had never considered analysing labour costs as a percentage of sales, but StoreHero enabled him to do so, leading to better decisions regarding workforce planning. He admits that previously, there was no clear strategy for determining the number of staff needed to fulfill orders. Fortunately, as the business continues to grow, monitoring labour costs as a percentage of sales has provided Gary with a metric to evaluate labour efficiency. This insight allows him to plan effectively for hiring additional staff, ensuring that the business maintains its upward trajectory & profitability as it enters the busy season later this year.

Conclusion 

In conclusion, Gary’s ecommerce business faced difficulties in maintaining a high ROAS and making well-informed decisions due to a lack of clarity of his unit economics, which was exacerbated by relying on an accountant who was not well-versed in ecommerce and its unique reliance on paid marketing. StoreHero provided the comprehensive platform he needed to consolidate his e-commerce, marketing, and finance data, enabling him to make data-driven decisions and effectively scale his ad spend. By leveraging StoreHero, Gary was able to more than double his advertising budget and achieve a massive 324% growth in net profit, along with a 39% increase in sales. 

StoreHero’s ability to integrate various aspects of an ecommerce business into a single, platform allows for a holistic understanding of the relationship between ad spend, sales volume, operational expenses and ultimately net profit. This bird’s-eye view of the business not only benefits individual store owners like Gary but also has the potential to revolutionise the way ecommerce companies approach marketing and decision-making. 

As a result of using StoreHero, Gary has gained newfound confidence in managing his marketing budgets and making informed decisions about his business’s growth. He now has the tools and knowledge necessary to ensure that his marketing efforts are strategic and focused on driving profitability and growth. 

Ecommerce businesses looking to gain control over their decision-making process, enhance net profit, and drive growth can greatly benefit from StoreHero’s comprehensive platform. 

Don’t miss the opportunity to revolutionise your business – explore StoreHero today and unlock your ecommerce potential.