So, you’ve built an ecommerce store with a lot of customers and high conversion rates. The revenue that your online store is generating is also high. But have you stopped to think how many orders it takes for you to generate that revenue? Some stores can generate hundreds of dollars in revenue with just one transaction, while others require tens of transactions to generate the same. Why is this so?
The answer lies in average order value. Focus on increasing average order value by convincing your customers to spend more in each transaction. This allows you to provide better offers and services to your customers in each transaction, which they also benefit from. In this guide, we’ll discuss what average order value is and how you can increase AOV for your online business.
What is AOV?
Average order value (AOV) is the average amount spent by a customer per order on your online store within a specific time period. The more money each customer spends in each transaction, the higher is the average order value.
How to measure average order value?
Measuring average order value is quite simple and can be calculated with the below formula:
Average order value = Total revenue in a specific period / Total number of orders in the same period
Here, total revenue represents the total income from all sales within a specific period and the total number of orders indicates the number of orders placed during the same period.
Important considerations when calculating AOV
1. Calculate average order value using different time periods to identify trends
When you calculate the annual average order value of your store, you will get a fixed number. However, if you calculate the same on a month-on-month basis, it will show how your store's average order value has fluctuated over the year. This will also give you an insight into the effectiveness of your marketing efforts.
2. Consider the type of average you are calculating
When you’re calculating the average order value, you might want to use mean or median, depending on your requirements. Mean gives the average order value of all placed orders, while median AOV helps you determine the middle point in terms of purchase value.
Example: Suppose you run an online store selling electronics including smartphones, tablets, and accessories. Most of your items are between $50 to $500 price range. However, you also offer a premium subscription priced at $5000.
Now, let’s say you have 100 orders, generating a revenue of $15,000. The mean AOV is $150 per order. This includes all orders, including premium subscriptions. But this calculation doesn’t reflect the typical spending behavior of your customers, as most of them bought products between $50 to $500 range. To get a better understanding of typical purchase behavior, calculate the median AOV. The median AOV is the middle point of all your orders, i.e., the value of the 50th order (arranged in ascending order of purchase value).
What’s a good average order value?
There isn’t a one-size-fits-all benchmark for a good average order value. Here are some average order value statistics for different industries for April 2024.
| Industry | Average order value |
|---|---|
| Fashion, accessories, and apparel | $121 |
| Multi-brand retail | $89 |
| Food & beverage | $106 |
| Home & furniture | $396 |
| Beauty & personal care | $74 |
| Consumer goods | $231 |
| Pet care & veterinary services | $69 |
| Luxury & jewelry | $466 |
7 ways to increase average order value
Here are 7 effective ways you can use to increase the average order value (AOV) of your online store.
Set a minimum order requirement for free shipping and gifts
Offer free shipping to your customers if they spend a specific amount to make them spend just a little bit more. Find out the current average order value and determine a suitable threshold that covers your shipping costs and where you’re willing to offer free shipping or free gifts and customers are willing to match so they don’t have to pay for shipping. This way, it can be a win-win for both of you.
Also, make sure your customers are informed about the free shipping threshold and how close or far their current shopping cart value is from reaching it. You can include banners on your product pages, checkout pages, and so on.
Wayfair, for instance, is an American ecommerce company that offers free shipping on orders above $35. They display it on the product page itself. This strategy helps the company to increase its average order value by encouraging shoppers to order more than one item.
Cross-sell products
Cross-selling involves offering complementary products to a customer who is already purchasing something. For example, if a buyer is buying a laptop, you might suggest a laptop bag, antivirus, or a mouse to buy with it. According to MarketSplash, 20% of the average order value can increase through strategic cross-selling.
These products can be offered as ‘related products,’ ‘shop the look,’ or ‘frequently bought together’ items. Display them in a product recommendation carousel product and offer limited time discounts on popular products to create a sense of urgency and entice buyers to add more items to their carts.
New Look, a British global fashion retailer, demonstrates this by showing a product being worn by a model along with other items to complete the look. When shoppers click on ‘Shop the Look,’ they can view other products the model is wearing for better styling.
Upsell products
Upselling involves convincing customers to buy more expensive or upgraded versions of the product they are interested in. For example, you might upsell a smartphone model with higher storage capacity when a customer is planning to buy the variant with the base storage option.
Kopari Beauty is successfully upselling to its customers to increase AOV. When shoppers add their product moisturizing lip glossy to their bag, they are recommended the whole set of which the product is a part of.
Product bundle deals and discounts
Product bundles are an ideal strategy to achieve a higher average order value by combining two or more products in a package. This helps ecommerce store owners to sell more and ship all the items in one go. The buyers, on the other hand, spend more money than they initially intended but feel happy with the value, ease of purchase and discount received in buying the bundle. Additionally, offering product bundle deals and discounts can entice customers to buy additional products, increasing the average order value for your store.
Coconu, an intimacy lubricant brand, started offering product bundles in 2020 at a discounted rate to motivate shoppers to try each of their new products.
We’ve seen a 20% increase in average order value since implementing these bundles and the free shipping threshold.
- Sarah Belzer, President, Coconu.
Here’s another example of an irresistible bundle by Bubble’s Day and Night Routine.
Bubble combines a range of skincare products covering an entire day and night routine, including acne-treating serum, gel cleanser, tone and texture serum, and a hydrating moisturizer, considering their importance in a skincare regimen.
If you like the idea of product bundling, check out our related guide below to learn all about it.
Personalized recommendations
60% of customers show an interest in becoming repeat customers after experiencing a personalized shopping experience. You can recommend products depending on the customer’s purchase history, browsing history or based on their locations to enhance customer experience and encourage repeat purchases. Offering these personalized recommendations during the checkout is also a good idea. These recommendations often get picked as impulse purchases by the customers.
Sephora, for instance, is a French multinational retailer of personal care and beauty products that offers personalized product recommendations when customers add products to the cart. This convinces the shoppers to explore more products, increasing chances of impulse shipping, thereby increasing AOV.
Volume discounts
Volume discounts influence customers to buy more items by offering a lower price per unit for larger quantities. Customers understand they can save money by buying more, so they increase their order size, buying more products per transaction, which increases AOV. Time-limited offers, such as 20% off when buying 3 or more t-shirts, is create a good sense of urgency example volume discounts that encourages customers to act fast and potentially purchase more than they originally intended.
Lovepop is a Boston-based company that sells greeting cards and gifts and offers an option to unlock special pricing where customers can get discounts by adding a total of 5 items to their carts.
Have a minimum amount limit to avail coupons
A great way to boost AOV is to provide incentives such as discount coupons to your customers. When offering these discount coupons, ensure to include a minimum spend clause. For example, you can offer a 10% discount coupon for orders above $100.
Foxtale, an online retailer of skincare products, offers exclusive discounts to customers by promoting different coupon codes. They persuade buyers to buy more products to unlock a higher tier of discounts, thereby increasing AOV.
Conclusion
Increasing AOV demands a strategic approach to offer desirable items to customers. This means selling more to customers who want to buy. By targeting customers who are either ready to buy or have items in their carts, you can help them in finding and purchasing relevant items with fewer obstacles. Rather than constantly trying to get new customers, focus on increasing value exchange where the more customers spend, the more they receive.
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