Analyzing Average Order Value (AOV) and How to Increase It

In e-commerce, there are two main ways to grow your revenue: you can either get more customers, or you can get your existing customers to spend more money with each purchase. While getting more customers is important, one of the most efficient ways to increase your revenue is by focusing on the latter.

The key metric for measuring this is your Average Order Value (AOV).

What is Average Order Value (AOV)?

Your Average Order Value is the average amount of money that a customer spends every time they place an order on your website.

How to Calculate AOV

The formula for calculating AOV is simple:

AOV = Total Revenue / Total Number of Orders

Example:

• Your store generated $10,000 in revenue last month.
• You had a total of 200 orders.
• Your AOV for that month is $10,000 / 200 = $50.

This means that, on average, a customer spends $50 every time they check out from your store.

Why is AOV Such an Important Metric?

• It's a Key Lever for Profitability: Increasing your AOV is a powerful way to boost your revenue and your profit margins without needing to increase your traffic or your marketing spend. If you can get every customer to spend just 10% more, your overall revenue will increase by 10%.
• It Can Offset Your Customer Acquisition Costs (CAC): A higher AOV means you are making more profit from each customer, which can help you to afford a higher cost to acquire that customer through paid advertising.
• It's a Measure of Customer Behavior: Analyzing your AOV can give you insights into your customers' purchasing habits.

Effective Strategies for Increasing Your AOV

The goal is to encourage your customers to add more items to their cart before they check out.

1. Upselling and Cross-Selling

This is the most common and effective strategy.

• Upselling: Encourage a customer to buy a more expensive, premium version of the product they are looking at.
• Cross-Selling: Recommend related or complementary products.
• How to do it: Use "Frequently Bought Together" or "You Might Also Like" sections on your product pages.

2. Offer Free Shipping on Orders Over a Certain Threshold

This is a powerful psychological incentive.

• How it works: Set a free shipping threshold that is slightly higher than your current AOV. For example, if your AOV is $50, you could offer "Free Shipping on All Orders Over $75."
• Why it works: It encourages customers to add more items to their cart to reach the threshold and to avoid paying for shipping.

3. Create Product Bundles or Packages

• How it works: Group several related products together into a single "bundle" and offer it at a slightly discounted price compared to buying each item individually.
• Example: A skincare brand could create a "Morning Routine Bundle" that includes a cleanser, a serum, and a moisturizer.
• Why it works: It increases the perceived value for the customer and makes it easy for them to buy multiple items at once.

4. Implement a Loyalty Program

• How it works: A points-based loyalty program that rewards customers for spending more can be a great incentive for them to increase their order size.

5. Provide Volume Discounts

• How it works: Offer a small discount for buying multiple units of the same product (e.g., "Buy 2, Get 10% Off").

Conclusion

Your Average Order Value is a critical lever for the growth and the profitability of your e-commerce business. By implementing these simple and effective strategies, you can successfully encourage your customers to add more to their carts with each purchase. This will not only increase your revenue but can also create a better and more valuable shopping experience for your customers by helping them to discover more of your products.