Increasing the average order value (AOV) of your e-commerce website can be beneficial in several ways. The key benefit is that you generate more revenue and save on marketing costs. Before you experience an increase in revenue, increasing the AOV can help you gain more customers and make your store more profitable.
In this article, you’ll learn some common but crucial ways to increase your average order value. You’ll get familiar with AOV and why it’s so important to monitor.
What is Average Order Value (AOV) and why is it important?
The average order value is the average amount of money a customer spends on a single order. The higher your AOV, the more profitable an order is for your business.
It’s important to know that AOV can have different meanings depending on what type of business you’re in. For example, it can refer to:
- The average amount spent per customer who buys something from your store
- The average amount spent per item purchased
The AOV is an essential metric for e-commerce store owners to measure, as it tells them how much each customer is worth on average. Your AOV is also important for understanding customer behavior and monitoring it should be a fundamental part of any business strategy.
A higher AOV means that customers are spending more on each order, which may indicate that they’re more loyal to your brand and willing to spend much more on orders. This metric is used to calculate profitability and set goals and objectives for marketing campaigns.
How to calculate your Average Order Value
From the definition, your AOV can be calculated by dividing the total revenue from an order by the number of orders.
Average Order Value = Total Sales Revenue / Number of Orders
Your AOV can be calculated for each customer or all customers in aggregate. Calculating for all customers (in aggregate) is more often the case when measuring AOV for a company. For example, if you have five customers who have placed five orders with you in total, and each has spent $100 on those five orders, your AOV would be $100 ($500/5).
7 Ways to increase your Average Order Value
Upselling and Cross-Selling
Upselling and cross-selling are the two most common ways to increase an average order value. Upselling refers to selling a customer an upgrade, while cross-selling means selling a customer an additional item that is complementary to what they are already buying.
There are three main techniques for upselling:
- The first technique involves giving customers an incentive to buy more expensive items by offering them discounts on the items or adding freebies.
- The second technique is asking customers what else they need or would like and then suggesting that they buy it now before leaving.
- The third technique is by using a variety of suggestive messages, such as “Would you like fries with that?” which suggests the customer purchase more food than what they initially wanted.
Cross-selling makes use of similar techniques as upselling, but instead, it sells complementary products rather than upgrades.
Product Bundles or Packages
Product bundles are a great way to boost profit, sell more products and secure customer loyalty, and also create an offer that will suit their needs precisely. One popular way of doing this is with the all-in-one solution: a package of products that provides what your customers need and when they need it.
If you have a set of products your customers typically purchase together, create a bundle at a reduced price that saves them money. For example, try grouping products into bundles based on the most popular combos and pricing them at less than when they are sold separately.
Another way to achieve this is to offer custom packages. You can make it easier for customers to choose their packages by allowing them to make their custom products or order the other items they want.
Product Discounts, Free Gifts, or Coupons with Purchase
Providing discounts rather than raising prices might seem counterintuitive when the goal is to maximize revenue. But this tactic can lead to a higher number of sales and therefore change your average order value.
There are two types of discounts: Percentage-based discounts and dollar-value discounts. Percentage-based discounts can range from smaller incentives (like 5% or 10% off) to more significant discounts (like 20% and 25%) to drive sales, or significant ones (like 50% and above) to liquidate old stock. In contrast, a dollar value discount can give the customer a sense that they’ll be wasting their money if they don’t take up the offer.
Gift cards and coupon codes can be a great way to rekindle a customer relationship. The shorter the expiration date, the more likely they are to repurchase from you and the more likely that purchase will be a higher value. These offers are great for increasing AOV and also give customers a sense of urgency.
Free Shipping Threshold
A free shipping threshold can be an effective promotional tactic by encouraging buyers to purchase more items in order to take advantage of the offer. It stimulates buyers to add additional items to their shopping cart and thus helps increase the overall value of their order. According to research done by Shippo, an overwhelming 93% of customers will go the extra mile to receive free shipping when they shop online, mostly through adding extra items to their cart.
Setting the free shipping threshold is essential for staying competitive and providing customers with an affordable shopping experience. The amount you choose to set for your free shipping minimum should be based on factors like processing and delivery fees, average order size, and customer expectations.
How can you tell when the free shipping margin is too high or low? Finding the balance between maintaining free shipping margins and providing a great customer experience can often be difficult to achieve. According to a recent survey conducted, the majority of U.S. consumers expect to spend between $30-$50 on items to get free shipping. A further 25.8% of the consumers believed to spend between $20 to $30, while only 1.6% estimated they would have to spend at least $75-$100.
Customer Loyalty & Rewards Programs
Customer loyalty and rewards programs are an effective way to increase customer engagement, boost sales, and develop a loyal customer base. They help businesses reward their customers for their loyalty by earning points, offering discounts & special offers, and other rewards. By utilizing these programs, businesses can increase the average order value of their customers by encouraging them to make repeat purchases.
Rewards and loyalty programs can be tailored to meet the needs of each customer, making them more likely to stay loyal and engaged with a brand. According to Smile.io, loyalty programs can be quite effective in boosting average order values by as much as 14%. According to The ROI from Marketing to Existing Customers report, loyal customers provide a considerable chunk of the total revenue generated by stores. Although they are just 8% of the total customer base, they have the potential to purchase more items than those who have not previously interacted with the brand.
Engage visitors with policies that make them more confident to purchase such as:
Flexible Return & Exchange Policy
A return policy is a set of guidelines that are put in place by e-commerce store owners to offer customers the option to return or exchange their unwanted or faulty products. Return policies are an extension of customer service and good ones should be flexible to each case’s circumstances.
A flexible return policy with good customer service can help keep more customers long-term. Rather than seeing it as a lost sale, see it as an opportunity to build a lifetime relationship. To prevent misunderstandings, you should display your return policy clearly on your online store so shoppers can easily find it before purchasing. Make sure the return policy is accessible from all purchase confirmations (such as payment screens and checkout pages), FAQ page and website footers, and can be displayed on social media and website banners.
A common way to encourage exchanges over refunds is by only providing free return shipping if the customer opts for an exchange. With an exchange, the loss usually isn’t as significant with solid product margins, so offering a replacement product instead of a full refund can keep your business cash flow positive.
Your visitors tend to be more likely to make purchases if they are aware that other customers have purchased and are satisfied with similar items. For this reason, it is not surprising that social proof has become an effective tool for promoting larger orders and growing average order value.
One of the most effective strategies to demonstrate social proof is incorporating user-generated content into your product images. Additionally, you can display customer reviews and ratings on your web pages and social media platforms to give visitors an understanding of what your customers think about your business. Another common strategy is to advertise the number of customers you have served and the products/sales you have made. Doing this allows potential buyers to feel secure about their purchase, as it shows that your store is trustworthy and will provide a satisfactory delivery.
While optimizing AOV is a common e-commerce practice, it’s not the only important metric to watch out for. Focusing on your Customer Lifetime Value (LTV) can be an even more effective approach to ensuring sustainable growth and success.
AOV can be a key indicator of what items are popular among customers. If the AOV is lower than the cost of most items in the store, budget-friendly products are likely more in demand. If the higher-priced products yield a larger profit, you may need to modify your marketing tactics or strengthen your strategies to maximize the potential of these items.
Calculating the lifetime value (LTV) of a customer is essential when considering how much to invest in acquiring them. Determining marketing costs can be difficult, but understanding the worth of each customer can assist in making an informed decision on how much to spend on drawing them in.
With Conversion Rate Optimization (CRO), you can increase the number of customers who complete their purchases and increase the average value of each order, resulting in higher profits for your business. By using A/B testing, you can accurately measure the impact of small changes to your website or product pages that will have a big impact on your AOV, allowing you to make informed decisions about how best to optimize your website for higher conversions.
At Experiment Zone, we help your business uncover and solve problems that may be limiting your AOV. You can request a free discovery call with our CRO specialist to see how we can optimize your average order value to increase your online orders, sales and ultimately – your overall conversion.