As a merchant, your ultimate goal is to boost revenue. And we bet the first thing many eCommerce business owners think of is trying to win more customers. However, there are alternative strategies for growth. One such approach is to concentrate on increasing the Average Order Value (AOV) alongside targeting new customers. By extracting more value from your existing customer base, you can expand your business without incurring excessive costs in marketing, advertising, and other areas.
What is the Average Order Value? How to calculate it? Why is it important? How to increase Average Order Value? This is what we’re talking about today. Let’s start.
Definition of Average Order Value
Average Order Value (AOV) refers to the average monetary value of each customer transaction or purchase within a given period. A higher AOV indicates that customers are spending more on average per transaction, which can contribute to increased revenue and profitability for a business.
How to calculate AOV
Imagine you own an online clothing store. Over the course of a month, you receive a total of 100 orders, and the total revenue generated from these orders is $10,000. To calculate the AOV, you divide the total revenue by the total number of orders. In this case, the AOV would be $10,000/100=$100.
This means that, on average, each customer who places an order in your online store spends $100. So, if you have a better understanding of your AOV, you can make informed decisions about your pricing, marketing, and sales strategies.
Benefits of increasing AOV
Average Order Value (AOV) is an important metric for several reasons:
- Revenue maximization
AOV directly influences the revenue generated by each customer transaction. By increasing the Average Order Value, businesses can maximize their revenue without necessarily increasing the number of customers or orders. This can significantly impact the bottom line and overall profitability.
- Cost efficiency
Increasing AOV allows businesses to extract more value from their existing customer base. This means that marketing, advertising, and other customer acquisition costs can be spread over a higher revenue per customer, making the business more cost-efficient. It is often more cost-effective to encourage existing customers to spend more than to acquire new customers.
- Customer segmentation and personalization
Average Order Value helps in segmenting customers based on their spending behavior. By analyzing AOV data, businesses can identify high-value customers and tailor personalized marketing strategies to encourage them to make larger purchases. This segmentation allows for targeted marketing efforts and enhanced customer satisfaction.
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- Product and pricing strategies
AOV provides insights into the performance of different products or pricing tiers. By understanding which products or price points contribute to higher Average Order Values, businesses can optimize their product mix and pricing strategies accordingly. This data can inform decisions on product bundling, upselling, and cross-selling opportunities.
- Growth evaluation
AOV serves as a benchmark for evaluating the effectiveness of marketing and sales initiatives over time. By monitoring changes in Average Order Value, businesses can assess the impact of various strategies aimed at increasing customer spending and identify areas for improvement.
And now that you know what the Average Order Value is and how your eCommerce business can benefit from it, let’s take a look at some effective strategies to boost your AOV and maximize your revenue potential.
10 ways to improve AOV
#1 Set up a free shipping threshold
One effective strategy to enhance your Average Order Value is by implementing a minimum order requirement for free shipping. For instance, you can offer free shipping on all orders exceeding $80.
After calculating your AOV, consider increasing it. The aim is to set the discount you provide at a price point that is slightly higher than your Average Order Value, without being excessively higher. The aim is to encourage customers to add additional items to their basket beyond what they originally intended to purchase. However, it is important to strike a balance and avoid suggesting items that are too expensive and may exceed their budgetary limits. According to findings of Aaron Zakowski, a B2B SaaS marketing leader and CEO at the advertising company “Zammo Digital Marketing”, the golden mean would be 30%.
For instance, if your Average Order Value is $200, a 30% increase would bring it up to $230. Set this new value as your minimum order requirement for free shipping — e.g., free shipping on all orders over $230.
Make sure to prominently display the free shipping offer on your website. Utilize plugins or extensions that can integrate a notification during the checkout process, notifying customers if their order falls below the free shipping threshold. This notification serves as a gentle reminder and encourages customers to add more items to their carts in order to qualify for free shipping.
#2 Implement first-time offers
If your brand is relatively new, with less than six months of operation, the majority of your customers are likely to be first-time visitors. Offering special deals to new visitors can help increase the Average Order Value. You can provide this specific audience with a one-time discount when they purchase multiples of a trending product or exclusive bundle deals exclusively available to first-time shoppers.
When customers place orders for multiple items and have a positive experience with their purchases, it becomes easier to entice them to shop again. They will have already experienced the process of shopping on your website firsthand. As a result, you have a better opportunity to convert them into repeat customers.
#3 Leverage cross-selling during checkout
Although it may appear obvious, effectively cross-selling requires a thoughtful approach to avoid stagnating the Average Order Value. The key to a successful cross-sell lies in offering items that enhance the customer’s experience rather than presenting unnecessary or unrelated products. For instance, if a customer is purchasing a smartphone, it would be appropriate to showcase compatible phone cases or screen protectors as cross-sell options. The focus should be on providing valuable additions to the customer’s purchase.
#4 Utilize post-purchase upsells
Utilizing upsells to enhance AOV involves providing customers with a compelling reason to spend more while creating a sense of urgency. Typically, businesses direct customers to a thank you or order confirmation page after checkout. However,you can leverage this opportunity to present an upsell instead.
For instance, if a customer purchases a product for $75 and is about to leave the website, rather than redirecting them to a thank you page, guide them to an upsell page. Offer a related product to what they just bought and highlight that if they purchase the additional product now, they will receive a 20% discount.
#5 Provide gift cards
Using gift cards is another effective option to improve AOV, even when providing a small one at no cost. For instance, if your retail price exceeds $40, you can offer a complimentary $5 gift card for customers to utilize in their future purchase. By having a gift card, customers are more inclined to make additional purchases.
However, it is crucial to ensure that your product prices are sufficiently high to prevent the gift card from resulting in a free purchase for the customer, which could lead to a loss in profits. Additionally, make it clear to customers that the gift card cannot be used for the current purchase or shipping (if you offer free shipping on specific products).
Furthermore, offering gift cards encourages future purchases, ultimately reducing the need for extensive advertising expenditure. It serves as a valuable incentive to offer customers during periods of lower seasonal sales. Avoid providing this deal year-round, as its effectiveness may diminish over time.
It is important to note that even without offering a free $5 gift card, gift cards themselves can still contribute to an increase in Average Order Value, as most customers do not spend the full value of the card or end up paying more than the card’s provided amount.
#6 Leverage bundling
Bundling products can be a highly effective strategy for increasing the Average Order Value of your eCommerce business. By offering product bundles, where multiple items are packaged together at a discounted price compared to purchasing them individually, you create a compelling value proposition for customers.
Bundles tap into the concept of upselling and cross-selling by encouraging customers to add more items to their cart in order to take advantage of the bundled discount. This not only increases the overall order value but also enhances the customer’s shopping experience by providing a convenient and cost-effective way to acquire complementary products.
Bundled products can entice customers to explore and purchase additional items they might not have considered otherwise, ultimately driving higher AOV and maximizing revenue potential.
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#7 Start a loyalty program
Leveraging loyalty programs can be a highly effective strategy for both brand building and financial growth. Every time a customer makes a purchase, they have the opportunity to accumulate points or receive discounts as a token of appreciation for their loyalty.
The advantage of implementing a loyalty program lies in its ability to cultivate brand evangelists, loyal customers who repeatedly choose to shop on your website. Compared to individuals unfamiliar with your brand, repeat customers are more inclined to make larger purchases from your store.
By actively promoting repeat sales, you contribute to the expansion of a dedicated fan base that is likely to place orders with higher quantities. Moreover, marketing efforts aimed at these loyal customers, such as retargeting, social media campaigns, or email marketing, tend to be more cost-effective. Consequently, these evangelists play a significant role in elevating the Average Order Value.
#8 Provide time-limited special offers
Implementing time-limited special promotions is a straightforward solution for increasing your Average Order Value.
These promotions can encompass various initiatives, such as sales, giveaways, or the introduction of new products. Leveraging the psychological principle of FOMO (Fear of Missing Out), you can prompt potential customers to take immediate action by offering time-limited incentives.
The timing and presentation of your promotions are crucial. It’s important to promote your products at the right moment and in the most effective manner. Additionally, developing a marketing holiday calendar can be a valuable strategy. Consider organizing a giveaway during holidays such as Thanksgiving or Christmas, while a sale might be better suited towards the end of a season. Alternatively, a time-limited offer for free shipping until the end of the day could also be compelling.
Analyze your industry and determine the most effective approach for your business. By strategizing and planning ahead, you can expect to witness positive outcomes.
#9 Offer live chat support
Live chat support is an effective strategy for increasing AOV by providing real-time assistance to customers during their purchasing journey. By offering immediate support and guidance, businesses can address customer inquiries, provide product recommendations, and resolve any concerns or uncertainties promptly. This personalized and interactive approach not only enhances the overall customer experience but also encourages customers to make more informed and confident buying decisions.
Live chat agents can proactively engage with customers, suggesting relevant add-on products or upselling higher-priced options based on their needs and preferences. Moreover, live chat support enables businesses to address any potential barriers or objections that customers may have, helping to overcome hesitations and ultimately leading to increased AOV as customers feel more supported and confident in their purchase decisions.
#10 Leverage social proof
Utilizing social proof on your website can be a remarkably successful approach to enhance the Average Order Value. Trusting the opinions of our peers more than brand claims is a common tendency. While every makeup products company may assert the superiority of their product, hearing confirmation from a fellow shopper is likely to instill belief.
Here are a few methods to employ social proof effectively and increase AOV:
- Showcase customer reviews and testimonials of products
- Incorporate earned media features from well-known brands
- Highlight certifications and trust badges
The bottom line
Implementing strategies to increase the Average Order Value can have a significant impact on your business’s revenue and profitability. By focusing on enhancing the customer experience, providing incentives for higher spending, and leveraging various techniques, you can successfully drive customers to increase their order value.
Now you know how to increase Average Order Value with 10 easy tactics. Remember, increasing AOV is an ongoing process that requires continuous monitoring, experimentation, and adaptation to cater to changing customer preferences and market dynamics.