Varos Glossary

Average Order Value

What is an Average Order Value?

The average order value is the typical sum that a consumer spends on a single purchase from your online store. A rising number of retailers rank AOV is a key indicator because of the invaluable insights it gives about consumer behavior and how to better target their marketing and pricing.

The Formula:

  • AOV = Total money / Number of orders

You may derive the Average Order Value by dividing your total income by the total number of orders. This measure is most often computed every month (monthly income divided by monthly orders), but it may also be calculated on a weekly or even daily basis.

Pros

The success of an online store depends on its ability to monitor and analyze client buying habits, and one key indicator of this is the AOV. Since there are no new transaction costs associated with a higher AOV, it is a very efficient method of generating more money.

Customer lifetime value and optimal pricing and promotion strategies may both be derived from this statistic.

Cons

To a greater extent, this occurs when the prices of the items in question vary widely. Remember that until you replace the revenue with net profit, AOV will not indicate a profit.

Metrics to Consider with AOV

The value of this statistic, like that of any other ecommerce indicator, is directly proportional to the results that it helps to predict. Alongside the AOV metric, two crucial metrics are:

  • The average amount a client will spend throughout their life is what is known as "Lifetime Revenue Per Visitor". If it's too low, then ads aren't generating enough revenue from repeat buyers.
  • When calculating profit per order, the Cost per Conversion should be removed from the Average Order Value to show true profitability.

Improve your AOV

  • Upsell and cross-sell.
    The goal of upselling and cross-selling is to get consumers to buy more or different items, respectively. In addition, like with any strategy, excessive usage might have negative consequences. So, here’s some advice:
    Just as you would suggest something to a buddy, try not to oversell it. Feeling like you're being marketed to is an experience no one enjoys. Your upsell should seem as sincere and useful as a recommendation from a friend. Add-ons and complementary accessories to the item the customer has in their shopping basket will increase the likelihood of a sale.
  • Introduce inexpensive add-ons in an effort to boost conversion rates.
    Convincing someone to spend another $200 when they are already spending $200-250 is difficult, but getting them to buy a $30 accessory item that goes with their purchase is simple.
  • Try out upselling options after a customer has purchased.
    Brands are wary of how product bundling could affect conversion rates, and post-purchase upsells provide a low-risk option to experiment with the strategy. In this method, you may learn from customer purchasing patterns which items are often purchased together. In addition, make a pre-purchase package of the same effect.
  • Provide zero-cost transport.
    Customers have a huge grievance with shipping prices. Consumer expectations have increased as a result of the prominence of free delivery offered by online retail giants like Amazon. When shopping online, many customers will go elsewhere if a certain store doesn't provide free delivery.
    Offering free delivery might significantly increase average order value by incentivizing customers to make larger purchases. Customers may be enticed to spend more than they would have otherwise if you provide free delivery on orders above a certain threshold.

In Conclusion

Average order value in ecommerce is the central metric. Understanding your consumer base intimately is crucial in maximizing your average order value. You need to know your consumers through and out so you can predict their wants and needs and provide them exactly what they want. What resonates with one subset of your clientele may not connect with another.

Knowing which incentives are most likely to work for your clients can help you boost the average order value.