Average Order Value
Average Order Value (AOV) is a key metric that measures the average revenue generated from each customer order. Understanding AOV is crucial for businesses as it directly impacts profitability and growth. This guide explores the significance of AOV, how it reflects customer behavior, and provides strategies to increase AOV through cross-selling, upselling, pricing optimization, and enhancing customer experience. By maximizing AOV, businesses can drive revenue growth and improve their bottom line.
What is Average Order Value
Improving the Average Order Value (AOV) for your ecommerce brand is a crucial factor in maximizing the overall profitability and growth of your business. AOV is the average amount spent by a customer during a single transaction, and increasing this figure can significantly impact your bottom line. By focusing on strategies to enhance AOV, such as upselling, cross-selling, and bundling products, your ecommerce brand can increase revenue without needing to invest in acquiring new customers. This ultimately leads to a higher Return On Ad Spend (ROAS) as the value of each purchase increases relative to the amount spent on advertising.
A higher AOV also has a direct impact on your ROAS, as it allows your business to generate more revenue from your existing customer base. With a higher AOV, you can allocate a larger portion of your marketing budget to targeting high-value customers who are more likely to make substantial purchases. This strategy will maximize the effectiveness of your ad spend and result in a more efficient allocation of resources. As a consequence, you’ll see a boost in your overall ROAS as the value of each purchase increases in relation to the cost of your ad campaigns.
Moreover, an increased AOV contributes to the long-term sustainability of your ecommerce brand. By enhancing customer loyalty through personalised offers, loyalty programs, and product recommendations, you can keep your customers coming back for more. This not only increases the lifetime value of each customer, but it also reduces the need for continuous investment in customer acquisition, which can be costly and time-consuming. As a result, your ecommerce brand will witness improved ROAS, customer retention, and overall profitability, paving the way for steady growth and success.Taking the example of a brand that generates €1,000,000 in annual revenue through 20,000 orders, with a current AOV of €50, let’s examine the impact of increasing the AOV by 20% and 40% while keeping the number of orders consistent.
Lets Run The Numbers
Many businesses overlook the potential of leveraging AOV as a powerful tool to bolster their growth and overall performance. They may be more focused on customer acquisition, while neglecting to capitalize on the value of their existing customer base. AOV strategies are often either overlooked or poorly executed, leading to missed opportunities for enhancing revenue and improving ROAS. By recognising the importance of AOV and implementing effective strategies to increase it, ecommerce brands can unlock their full potential, optimize their ad spend, and achieve significant growth in a sustainable manner.
What is a good AOV
A good Average Order Value (AOV) varies across industries, but generally, a higher AOV indicates better revenue generation per customer transaction. The specific benchmark for a good AOV depends on factors such as the product or service offered, pricing structure, and target market. It is essential to analyze industry standards and compare your AOV with competitors to determine what qualifies as a good AOV for your business. Continuously monitoring and striving to increase AOV through effective marketing strategies and customer-centric approaches can contribute to improved profitability and business success.
What is a bad AOV
Identifying and addressing a subpar Average Order Value (AOV) is crucial for business success. A low AOV indicates that customers are spending less on average per transaction, which can negatively impact revenue and profitability.
How to improve AOV
- 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.
- 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.
- Offer free shipping with a minimum purchase amount: 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.
- 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.
- 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.
- Dynamic Merchandising: Traditional merchandising online is not only time-consuming but can also be biased and not cater to each shopper’s individual needs and wants. To capture shoppers’ attention in the first few seconds of visiting an online store, engaging them in real-time and adapting dynamically can help showcase more relevant products, cross-sell and increase the size of their shopping basket.
- Highlighting relevant promotions and popular items can also drive customer interest, further boosting the AOV. Smart, dynamic merchandising techniques leverage AI to automate and optimise the merchandising process, making it more efficient and effective. This approach delivers a more personalised and relevant shopping experience to each shopper, resulting in increased basket size and AOV.
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