How to Improve Your eCommerce Business’s Average Order Value

When you improve your average order value, your business makes more money from every transaction. Here are some proven ways to increase AOV.

What Does Average Order Value Mean?

While many eCommerce retailers focus on attracting additional customers, savvy business owners know that if you can sell more to your existing customers, your revenue will grow. Increasing your average order value, or AOV, means encouraging the customers you already have to buy more from you.

AOV is also sometimes referred to as average cart value or average basket value. It’s a measurement of the average dollar amount spent whenever a customer places an order on your website or mobile app.

AOV matters because when you can sell more products with each order, you tend to make more profit overall. This metric is one of the most valuable insights you can get into customer purchasing behavior.

Why Does Average Order Value Matter?

Optimizing your business’s AOV is a crucial part of increasing your revenue. It’s essentially like taking your business’s pulse. When you understand this vital sign, you can implement strategies to maximize your AOV, which will allow you to increase revenue without increasing your marketing and sales spending. AOV optimization is one of the more effective KPIs for eCommerce businesses.

How Can You Calculate Your AOV?

It’s not complicated to arrive at your average order value calculation. Simply divide your business’s total revenue by your total number of orders. So for example, say you have an eCommerce business that sells sneakers. Last month, you generated $20,000 in total revenue, spread out over 250 orders.

To calculate your average order value, divide 20,000 by 250. This calculation tells you that on average, a customer spends $80 on each purchase made from your sneaker site. Some customers may have spent more, and some spent less, but the average spent per order is $80. Remember that this calculation doesn’t factor in your account marketing spend.

What Are the Benefits of Increasing Your  AOV?

Optimizing AOV lets you focus on customers who have already indicated their intent to purchase items on your website or mobile app. Once they’re already on your site, your job is to encourage them to buy other products that may interest them.

Better AOV means more revenue and profit. The more money you earn per order, the more your eCommerce business will earn overall. Boosting your AOV lets you put more money back into your business and earn a bigger profit as well.

A higher AOV also means you’re selling larger amounts of inventory by getting out more merchandise, often in a more efficient way. This positive flow of products breathes life into your eCommerce business.

A higher AOV also means your marketing efforts are yielding more cost-effective returns. If you spend $30 on marketing to sell a pair of sneakers and your AOV is $80, once you subtract product costs, you’re not left with much. The more your AOV rises, the more negligible your marketing spend becomes in the big picture of your total business expenditures.

How Can You Increase Your  AOV?

Now that you understand what AOV is and why it’s so important, here are 5 proven approaches for how to increase AOV in retail.

1. Ensure a smooth purchasing process for customers

‍We’ve all felt the frustration of filling an online cart only to have our efforts derailed by website glitches or extra steps we weren’t anticipating. It seems intuitive, but making sure your checkout process is simple and fuss-free goes a long way towards minimizing cart abandonment and churn.

Be sure your customers know about any additional costs and shipping fees in advance to avoid unpleasant surprises. Allow customers the option of checking out as a guest so your site isn’t one more thing they have to create an account for. You can ask them to register after their purchase is complete, and if their experience was a good one or you’re offering a future discount, they may comply.

2. Set a free shipping threshold

‍This is an easy and popular way to increase AOV. Remember how your sneaker store’s AOV was $80 in our example? Dangle that free shipping offer just out of reach to encourage customers to spend enough to qualify for it.

A good rule of thumb is to add 30% to your AOV to determine your optimal free shipping threshold, which will take you to $104. If you offer customers free shipping on all orders over $100, customers will be far more likely to add another pair of shoes to their order. Be sure to add a notification on your site or app so customers know how much more they need to spend to qualify for free shipping. This simple step can be a huge motivator.

Another successful approach is to offer customers a discount on orders over a certain price threshold. For your sneaker business, you can offer $20 off a purchase of $200 or more, or a free gift with a purchase of over $150. Basic consumer psychology is often all it takes to gently nudge your customers towards increasing their purchase, ultimately raising your AOV.

3. Offer bundle deals

‍Give your customers a better deal when they buy multiple items together, increasing the perceived value of their purchase. Value meals at fast food restaurants, shampoo and conditioner sets, and triple-play offers on internet, phone, and cable tv packages are all examples of bundle deals.

For bundling to have a positive impact on AOV, be sure to bundle products together in a way that makes sense. Bundle items that are commonly purchased together. Offer an attractive discount if a customer buys two or three pairs of shoes. If you notice many customers buying a fashion sneaker and a running shoe at the same time, suggest this to them so they don’t have to spend time and effort looking for each item individually.

4. Upsell and cross-sell

‍Cross-selling can improve your AOV with minimal effort. If a customer is shopping for a pair of sneakers, suggest they “complete the look” with another item. Offering them moisture-wicking athletic socks, sneaker cleaning cloths, or an extra pair of shoelaces. Upsell to your customers by suggesting premium footwear they may want to consider based on the items in their cart, or higher-performing sneakers that perform better.

You can still upsell or cross-sell after a customer completes a purchase. Instead of sending them to a generic order confirmation page, offer an add-on product or give them an attractive coupon that’s valid on a purchase made now. Many customers will go for these attractive deals, improving your AOV.

5. Have a customer loyalty program

‍Loyalty programs boost your AOV by rewarding customers who make repeat purchases. They nurture the bond between your brand and your customers, incentivizing them to buy more from you. Customers who are part of a membership rewards program tend to spend more per order and have a higher customer lifetime value as well.  

Offer exclusive member deals so customers feel like insiders, and don’t be shy about rewarding customers who spend more with more membership points. The boost to your AOV will more than make up for the discount you’re offering, and you’ll solidify your base of loyal customers to boot.

How Does Your AOV Measure Up to the Competition?

Improving your AOV is one of the most important things your business can do to work smarter, not harder. ECommerce businesses of all kinds can attest to the fact that increasing the value of each order placed is one of the most effective tools they use to boost total revenue.

To properly analyze and optimize this essential KPI for eCommerce, you’ll need to know your peers’ AOV over the same period of time. You’ll also want to track your performance compared to the rest of the market. A decrease in AOV may be less about what you’re doing wrong and more about an economic downturn or decreased overall demand. If you can anticipate market trends or notice spikes and dips in your peers’ AOV, this information can better direct your campaigns and strategies.

Varos is the competitor benchmarking tool that gives you a clear indication of how you’re doing within the overall industry and how your AOV compares to other companies in your sub-vertical. With anonymous, accurate data from nearly 3,000 companies, Varos is your secret weapon to learn about your performance and compare it to that of your competitors. Track your AOV over time, discover trends, and learn how you stack up against your peers. Identify products that are underperforming so you can apply one of the strategies above to increase AOV.

Varos integrates with your existing platforms and lets you break down data according to date range, vertical, audience, spend-per-month, and more. Varos gives you actionable insights and the confidence to know that your approach is moving your AOV in the right direction.

AOV can be analyzed within every integration on the Varos platform.

Set the parameters you want to analyze. In just seconds, you’ll gain real-time benchmarking data that lets you discover how competitors in your sub-vertical and spend level are performing.

Varos’s AOV function lets you see how your average order values compare to other companies in your industry so you can learn what’s working for your competition and how you can apply it to your business. Analyze performance and gain insight by identifying trends over days, weeks, months, and long-term. Discover AOV for specific time periods like peak holiday sales seasons and learn what constitutes a good AOV in your industry.

To learn more about how Varos can optimize your AOV and much more, visit varos.com.

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About the Author

Yarden Shaked

Co-founder & CEO at Varos

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