Average Order Value, or AOV, is a key number that shows how much money customers spend each time they make a purchase from your store. It’s an important metric for any business, especially for those that sell products online.
By increasing your AOV, you can make more money from the same number of customers. This is important because finding new customers often costs a lot, so getting your existing customers to spend more can help your business grow faster.
How to Calculate AOV
Calculating AOV is simple. All you need to do is take the total revenue your store made in a given period and divide it by the number of orders placed during that time. For example, if your store made $5,000 in a month and there were 200 orders, your AOV would be $25. This means that, on average, each customer spent $25 per order.
Knowing your AOV gives you a clear picture of how much money your customers are spending and helps you set goals for improving it. A higher AOV means more profit without the need to attract more customers.
Why AOV is Important for Your Business
AOV is crucial for any business because it directly impacts your revenue. The higher your AOV, the more money your business makes from each transaction. This is especially helpful in times when attracting new customers is difficult or expensive. Instead of spending more on marketing to find new customers, you can focus on increasing the amount each customer spends.
For example, by improving your AOV, you can cover the costs of acquiring customers more easily. If it costs you $20 to get a new customer, and your AOV is $50, you’re making a profit even after covering the acquisition costs. But if your AOV is only $20, you’re breaking even or even losing money.
Strategies to Increase AOV
There are several proven strategies you can use to boost your AOV. Here are a few:
- Upselling and Cross-Selling: This involves suggesting better or additional products to customers as they shop. For example, if someone is buying a laptop, you can suggest they also purchase a mouse or a laptop bag. Amazon does this very effectively by showing customers related products when they add an item to their cart.
- Volume Discounts: Offering discounts for buying in bulk is a great way to increase AOV. For instance, you could offer a discount like “Buy 3, get 1 free” or “Save 10% when you spend $100 or more.” This encourages customers to add more items to their cart to get the deal.
- Free Shipping Thresholds: Many stores offer free shipping when customers spend a certain amount. For example, you could offer free shipping on orders over $50. Customers who are close to the threshold are often willing to add another item or two to qualify for free shipping, which increases their total order value.
- Bundling Products: Selling products in bundles can also increase AOV. For example, instead of selling a shampoo and conditioner separately, you can offer them together as a bundle at a slightly lower price than if they were purchased individually. This not only increases the AOV but also gives customers a sense of getting a better deal.
- Loyalty Programs: Offering a loyalty program that rewards customers for spending more is another way to boost AOV. For example, you can give points for every dollar spent, and once they reach a certain number of points, they can redeem them for discounts or free products. This encourages customers to spend more to earn rewards faster.
- Limited-Time Offers and Flash Sales: Creating a sense of urgency can also drive up AOV. Offering limited-time discounts or flash sales encourages customers to buy more quickly and often in larger quantities. For example, a sale that offers 20% off all items for the next 24 hours can prompt customers to add more to their cart to take advantage of the discount.
By increasing the average amount that each customer spends, you can increase your overall revenue without needing to attract more customers. This is particularly important in competitive markets where customer acquisition costs are high.
A higher AOV also means that you can spend more on acquiring new customers because you’re getting more value from each one. This allows you to invest in better marketing strategies, product development, and customer service, which can further drive growth.
