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:
- Bring in new customers – make some noise and attract new folks to your shop.
- Boost your average order value – encourage shoppers to treat themselves to a little something extra.
- 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|
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:
Here are some of the top AOV boosting strategies.
- 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: 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.
- 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.
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.