Average Order Value (or AOV) is a significant ecommerce metric, averaging $122.82 across industries in 2023 according to Oberlo. Based on the data from the 4500+ companies on Varos, the median AOV for 2023 is $80.71. It looks at the average amount of money that customers spend each time they buy something from your online store during a specific time period. Essentially, AOV shows you how much cash you're bringing in with each order placed. Knowing this average helps businesses maximize revenue from every transaction.
In the bigger picture, AOV matters because it directly represents sales revenue. But it also provides insights into how customers shop and why they're willing to spend.
Think of AOV as dividing the total revenue by the number of orders placed. The math goes as follows:
AOV = Total Revenue / Number of Orders
You'll want to use revenue and order data from the same timeframe to keep things accurate - like a month, quarter, or year. Let's walk through a couple of real-life examples to help explain.
Say you own an online clothing shop that ships products worldwide. In January, your total revenue is $15,000 from 300 orders. So your AOV would be:
Total Revenue / Number of Orders
$15,000 / 300 orders = $50
This tells us that, on average, your customers spent $50 each time they placed an order in January.
Now, imagine in February, your shop had $20,000 in total revenue, and you got 400 orders. If we calculate AOV, we get:
Total Revenue / Number of Orders
$20,000 / 400 orders = $50
Surprisingly, the AOV stayed the same at $50, even with more revenue and orders. Maybe January had bigger markdowns on expensive items, while February had more full-price sales. You can use insights like this to shape future promos and campaigns.
Analyzing your average order value can bring forth a cascade of benefits for your business. Monitoring your average order value can give your business a ton of helpful intel. Here are some of the key benefits:
AOV shows how much shoppers are willing to spend whenever they buy something. You can tailor products, services, and promotions based on their spending patterns.
Compare AOV before and after marketing campaigns launch. Higher AOV means your campaigns are working to increase customer spend. Successful campaigns should drive both more customers and higher spending per order.
Multiplying your average monthly orders by your AOV lets you estimate future revenue. Naturally, increasing AOV boosts these projections. We'll cover some tactics for that in a bit!
Use AOV data to plan inventory needs and spot opportunities to tweak pricing. Low AOV could signal you're underpricing. But if AOV rises after a price bump, you may be able to optimize pricing further.
Low AOV suggests chances to upsell customers to higher-priced items or bundles. This can help lift AOV.
An unexpected AOV drop could indicate problems with your checkout, delivery times, product quality, or other operational factors.
The benefits of tracking AOV are crystal clear. Yet, it's also essential to understand its limitations, so let's go through these right now.
As mentioned above, a singular view of any metric can be misleading. Hence, it is best to gauge other metrics concurrently. Here are some useful KPIs to keep an eye on:
Increasing your average order value means that customers spend more at your store for every transaction. For many ecommerce businesses, lifting AOV is quicker and easier than acquiring all new customers. Here are some proven strategies:
Offering add-ons and complementary products during checkout and in post-purchase emails gives shoppers opportunities to spend more per order.
Free shipping on orders above a certain threshold motivates customers to add more to their carts to qualify. According to Shopify, 78% of consumers are willing to buy more products just to qualify for free shipping. Of course, you will incur additional charges. But you can offset those costs through the higher order values.
Strategic discounts on bigger orders incentivize shoppers to spend more. Graduated tiers like "10% off orders over $200" work well. In some cases, volume order discounts may also extend to coupon offerings. Reward buyers with coupons or loyalty points, and they may just place bigger orders.
Good-better-best product selections entice customers to pay more for versions with better features or components, naturally boosting AOV.
Note that these strategies make great starting points, but they are just that. Testing different approaches with your customers and monitoring the impact over time is critical to finding what works best.
The Average Order Value is a crucial metric in ecommerce, stretching beyond simply counting revenue. Use it to gain insights into customer spending habits and strategy effectiveness.
Several methods can boost your AOV, directly contributing to revenue growth and profitability. The best way to identify and track these opportunities is through Varos. With our benchmarking platform, you can acquire contextual data comparisons against competitors and assess your business health with ease.
Grab this competitive edge today and put your company ahead of the curve.
About the Author
Head of Marketing at Varos