What is average order value?

Average order value, often shortened to AOV, is a simple but powerful number for any business that sells products or services. It tells you the typical amount of money a customer spends every time they make a purchase from you. Think of it this way: if you sell 10 items and make $100 in total, and each item was bought in a separate order, your average order value would be $10.

You calculate AOV by taking your total revenue over a certain period and dividing it by the number of orders placed during that same period. For example, if your online store made $10,000 in sales last month from 200 orders, your AOV would be $50. This metric is a snapshot of how much value you're getting from each individual transaction, not from each customer over time.

Understanding your AOV helps you make smarter decisions about your marketing, pricing, and product offerings. It's a key indicator of customer spending habits and can highlight opportunities to grow your business without necessarily needing to find more new customers.

Why average order value matters

Knowing your average order value is like having a secret weapon for your business. It's not just a number; it's a window into how efficiently your business is running and where you might be able to boost your profits. Here are a few reasons why it's so important:

• Boosts profitability: If you can get customers to spend a little more each time they buy, your total revenue goes up without increasing your marketing costs to acquire new customers. This directly impacts your bottom line.
• Informs marketing spend: When you know your AOV, you can better understand how much you can afford to spend to get a new customer. If your AOV is high, you might be able to invest more in paid ads or other marketing channels.
• Guides product strategy: AOV insights can help you decide which products to bundle, which items to recommend together, or even how to price certain offerings to encourage larger purchases.
• Measures marketing campaign success: You can track how specific marketing campaigns, like a 'buy one, get one half off' deal, affect your AOV. This helps you see what's working and what isn't.

How to improve average order value

Increasing your AOV doesn't mean you need to drastically change your business. Often, it's about making small, smart adjustments that encourage customers to add a little more to their cart. Here are some proven strategies:

Upselling and cross-selling

This is about suggesting related or upgraded products to customers. Upselling encourages them to buy a more expensive version of what they're already looking at, while cross-selling suggests complementary items. Think of an online clothing store showing 'complete the look' suggestions or a software company offering a 'pro' version with more features.

Bundling products

Create packages of related products and offer them at a slightly reduced price compared to buying each item separately. Customers often see the value in a bundle and are willing to spend more upfront. For example, a coffee shop might offer a 'breakfast combo' with a coffee and pastry.

Free shipping thresholds

Many businesses offer free shipping once a customer spends a certain amount. If your AOV is $40, consider setting your free shipping threshold at $50. This motivates customers to add an extra item to their cart to avoid shipping fees, increasing their total spend.

Loyalty programs and discounts

Reward customers for spending more. A loyalty program could offer points for every dollar spent, redeemable for discounts on future purchases. Or, offer a small discount (e.g., 10%) on orders over a certain amount. This encourages customers to spend more to unlock the savings.

Personalized recommendations

Use data from past purchases or browsing history to show customers items they are likely to buy. E-commerce sites are great at this, with sections like 'customers who bought this also bought' or 'recommended for you'. These tailored suggestions can lead to larger carts.

Best practices for tracking average order value

To get the most out of AOV, you need to track it correctly and consistently. Here are some tips:

• Monitor regularly: Check your AOV weekly or monthly to spot trends and understand the impact of your marketing efforts.
• Segment your data: Don't just look at one overall AOV. Break it down by customer type (new vs. returning), product category, marketing channel, or even time of year. This can reveal valuable insights.
• Use analytics tools: Most e-commerce platforms and web analytics tools (like Google Analytics) can easily calculate and display your AOV. Learn how to use these features effectively.
• Test and learn: When you try a new strategy to increase AOV, make sure you measure its effect. Run A/B tests to see which approaches work best for your audience.

By keeping a close eye on your average order value and actively working to improve it, you can make smarter business decisions, increase your revenue, and grow your business more efficiently. It's a key metric for understanding your customer's spending habits and optimizing your marketing efforts.