Average Order Value: What It Is & How to Calculate It

Average Order Value (AOV) is an essential but eventually imperfect statistic to track as your company expands. It’s one of the first things business owners want to enhance to boost revenue or maximize the return on ad spending.

Businesses want to raise their average order value, especially those in the online retail sector. This is because increased AOVs will lead to better overall revenues. This way, profits can gradually rise for a company.

This blog will explain average order value (AOV) in detail, covering its calculation and improvement ways.

What is the Average Order Value (AOV)?

The average order value (AOV) is the amount customers spend on average when they buy something from your website or mobile app. This metric especially helps online stores figure out how their customers buy things.

AOV assists you in setting goals and strategies and evaluating how effectively those efforts perform. It aids in evaluating your total online marketing activities and pricing strategy by providing the measurements required to calculate the long-term value of individual customers.

Calculation of Average Order Value (AOV)

AOV measures the average amount spent when a customer places an order on a website or mobile app. To calculate it, divide the total revenue amount by the number of orders placed in a certain period. Mathematically, the formula is as follows:

Let’s say an online retailer had 200,000 orders overall last year, resulting in $4 million of revenue. Then, the Average Order Value (AOV) = $4 million / 200,000 = $20

As an alternative, Google Analytics provides information on Average Order Value (VOD). Following the path mentioned below will allow you to find out quickly and save time.

A business can learn about the purchasing habits of its clients by calculating the average order value (AOV). It is a key performance indicator. AOV can be measured for any period, like other vital indicators, although most businesses focus on the monthly average.

How does Average Order Value impact business decisions?

AOV trends affect the company’s most important business decisions, such as advertising spending, customer behavior, or conversion expenses. Let’s take a quick look at this:

  • Advertising Spending: Check how much your company spends on advertising and how it relates to the average order value. If you are paying as much as your order value or more to acquire a customer, keep in mind that you are in the wrong position.
  • Customer Behavior: Understanding and raising your AOV can effectively affect your business. For example, Halloween Day campaigns may be successful for fancy dress businesses but unsuccessful for home products businesses. This can help you determine which season is the most important to pay attention to for your business.
  • Conversion Expenses: Your business could lose money if you have low average order values and high conversion costs. When calculating your average order value, ensure it is at least twice as large as your conversion or acquisition costs.

How to Increase the Average Order Value (AOV)?

Customer segmentation can improve AOV. Simple client segmentation based on previous or current purchase patterns is all that this strategy entails. Following the segmentation of your consumer base, you can next tailor your marketing strategy to these different customer groups. Additionally, you can raise your AOV by implementing a few of the following approaches for various customer groups:

  • Increase Product Price

The easiest way for an online seller to raise the average order value is to increase the prices of the products they sell. An increase in product prices boosts revenue and average order value.

By raising the price, you may lose customers, resulting in a drop in revenue. That’s why testing the strategy’s viability before implementing it is critical.

  • Upselling

Offering a product that is upgraded and more expensive than the one the customer wants is known as upselling. The upselling technique seeks to boost profits from every order. For example, consider smartphone plans. A customer may have selected a phone with 6GB RAM, but an 8GB RAM option is listed on the same website, and you can offer this phone by an advertisement as an upgrade for only a few dollars more.

  • Cross-selling

Cross-selling is similar to matching. It suggests that a vendor invites customers to purchase other or related goods to the one they are now buying. For example, a set of earrings could be recommended to your customer when they’re browsing for a dress. Increased revenue per order is one of the goals of this method.

  • Offer Discounts

Providing customers with promos and discounts when they add things to their shopping cart is another excellent approach to increase your AOV. For example, customers who order $50 or more will receive a 10% discount.

People make purchases through these offers and feel they have scored the best possible deals. Be sure that the final price is higher than the average order value when you calculate it.

  • Offer Free Shipping

You could create a limit for free shipping as an alternative to discounts. This is usually given when a certain amount is spent. It lets people spend a little more to save a little. For instance, a seller might provide free shipping to customers who buy more than $100 worth of goods.

Please be aware that it could become a trap if you do not know how to apply this tactic correctly. Even if the order’s value has increased, this gain could be lost if it turns out that the transit cost reduces the profit margin.

  • Create A Loyalty Program

Creating a customer loyalty program can be an excellent way to keep your customers because it helps build relationships with them and encourages them to return. Several ways to reward loyal customers include allowing them to earn points or discounts on purchases.

With this loyalty program, you may create a more extensive customer base that will likely make more purchases by encouraging repeat sales. Your Average Order Value may rise as a result of this tactic.

Conclusion

This blog has discussed Average Order Value (VOD) and how it is calculated. We also looked at several methods you could employ to increase AOV. Online retailers all around the world are already utilizing these tactics.

Regarding AOV, remember that nothing beats having a solid grasp of your target audience. If you don’t know what motivates your customers, you won’t be able to get them to buy from you. To get to know your customers, you need to know what they are thinking and what they want from you. A research tool can be a great approach to efficiently gathering and analyzing customer data.

QuestionPro has a variety of choices and settings to help you with customer data research. It can assist you in getting the most out of your data by helping you through the process. Try QuestionPro Now!