Updated: Oct 8
The value of AOV
Average Order Value or AOV is one of the most important metrics to measure the success of any brand. The AOV is the typical ticket size of every purchase that a customer makes from a brand.
A higher order value means every customer brings in more revenue per order placed. Therefore, it is necessary for brands to understand and implement strategies to increase their AOV to improve their revenues.
Apart from just increasing the total sales figures of a brand, a higher AOV also helps with the following:
When brands increase their AOV, they also increase their Return on Ad Spends (or ROAS). Since brands are able to make more sales to the same customers, the yield on every penny spent on customer acquisition is much higher, generating more revenue through less expenditure.
Higher AOV means more sales revenue, therefore, the fixed costs for making sales such as shipping, packaging, inventory management, and more, are divided across multiple items in the same order. This distributes the cost and improves profit margins per item sold by the brand.
A higher AOV typically involves the sale of multiple items in the same order, enabling brands to clear existing inventory faster, leaving less scope for items becoming dead stock.
How To Calculate AOV: Average Order Value Formula
Calculating the Average Order Value for your brand is fairly simple.
Divide the total revenue generated by your brand over a period of time by the total number of orders placed over the same period.
AOV = Total revenue/ Total number of orders
How To Increase The Average Order Value For Your Brand
Now that you know why AOV is critical to your business, here are some ways you can increase it.
1. Product Bundling
Bundling is one of the most popular strategies to increase order value and typically involves the grouping of different saleable items to create a single package. The products can be complementary to each other, and result in better conversions, such as diapers and baby formula, for example.
Bundles prompt customers to purchase more than one product in order to extract more value from the primary purchase, or get better pricing for their intended purchase. Bundles can be created and recommended to customers based on their preferences or similar purchases made by other customers in the past.
Graas pro tip: If your online store is built on Shopify, you can choose from a wide range of apps available on the platform to help you with discounting, selecting products, and making recommendations to customers.
2. Cross-selling And Upselling
One of the oldest strategies in the book, cross-selling and upselling have enabled businesses to sell supplementary or high-value products and services to customers along with their primary purchase.
Cross-selling involves making recommendations to customers to purchase a related or supplementary product along with their primary purchase to add more value or improve their experience.
Upselling involves prompting customers to purchase a premium or more expensive version of the intended product. The upsold products are generally more attractive in terms of value for money, utility, or aesthetics, and thus commands a higher price.
Hot tip: When cross-selling or upselling products, use data from past purchases of other users to understand what increases the perceived value of the intended purchase.
3. Discounts And Offers
One of the most straightforward approaches to increasing your Average Order Value is to extend discounts and offers to your customers. When a discount or an offer is availed by a customer, consumer psychology works in such a way that they feel a sense of achievement for getting a better deal.
Offering discounts increase the perceived value of the product or service and motivate customers to spend more. Since discounting reduces the price of high-value products, customers feel they are making a more budget-friendly choice, and tend to buy more than they intended.
Offers work similarly by providing discounted add-ons, freebies, or trials to products and services, motivating customers to make a purchase in order to get better value at a lower price point.
Graas tip: Do not place heavy discounts on your hero products since the discounts are more likely to dilute their perceived value. Further, offer modest discounts on different products throughout the year to reduce your dead stock levels.
4. Free Shipping
Shipping costs are one of the biggest pains of brands as well as customers. Therefore, one of the ways to reduce their impact on your brand is to divide the costs among multiple items or high-value orders.
Brands can offer free shipping to customers if they shop beyond a certain threshold. Since shipping costs seem unnecessary to most customers, they are more likely to increase their order value in order to avail of free shipping for their orders.
Graas Pro Tip: Use budget-friendly shipping options when offering free shipping such as surface transport. Provide the option to get orders delivered faster at a premium, and let free shipping plans take more time, while also being more economical for you.
The direct-to-consumer retail game is one of numbers. The greater the revenue numbers a brand can hit, the better its chances of surviving in a highly competitive retail environment. Increasing the AOV is one way of getting more out of a single customer or order, and improving your margins.