Article Overview
As an ecommerce business owner, you likely spend a significant amount of time analysing your store’s metrics, such as conversion rate, bounce rate, and revenue. However, one metric that is often overlooked but holds significant importance is the average order value (AOV). In this guide, we will explain what AOV is, how to calculate it, and how to increase it to maximise your ecommerce revenue.
Understanding Average Order Value (AOV) and Why It Matters
AOV is the average amount of money a customer spends on your website per order. AOV is an essential metric for ecommerce businesses because it directly impacts the bottom line. By increasing the AOV, you can generate more revenue without necessarily increasing the number of orders or traffic to your website. This means you can maximize your revenue without incurring additional marketing or acquisition costs.
How to Calculate Your Store’s AOV
To calculate your store’s AOV, you need to divide the total revenue generated by the number of orders. You can find this information in your ecommerce platform’s analytics or by exporting a sales report. For example, if your store generated £20,000 in revenue from 200 orders, your AOV would be £100. It’s important to calculate your AOV regularly and track changes over time. This will help you identify trends and adjust your strategies accordingly.
How AOV Impacts Business Decisions
Raising your average order value (AOV) offers more benefits than just boosting your revenue. It can also enhance the efficiency of your entire business.
By gaining deeper insights into your customers and boosting your conversion rates, you can optimise your advertising budget and implement a more beneficial pricing strategy for both you and your clients. AOV serves as a critical indicator of overall business performance, and it can be a valuable tool to increase cash flow in other areas of the business, thereby boosting overall revenue.
Marketing Strategies
By knowing your AOV, you can determine how much you can afford to spend on customer acquisition. For example, if your AOV is £100, and you spend £50 on advertising to acquire a customer, you will need to generate two orders to break even.
Inventory Management
AOV can also help you manage your inventory. By analysing which products are frequently purchased together, you can bundle them and increase AOV.
Pricing strategy
It’s important to take your store’s AOV into account when making changes to your pricing strategy. If you see an increase in AOV and maintain or improve your return on investment (ROI) after adjusting your prices, then you’re on the right track. Although some brands are hesitant to raise prices out of fear that it will reduce conversion rates and turn off customers, the impact of price changes can vary depending on how your brand is perceived by consumers. Some brands are seen as luxury brands, while others are known for offering discounts. Finding the right balance can be challenging and may raise concerns about profit margins.
What Impacts Your Store’s AOV?
Several factors can impact your store’s AOV, including:
Product Selection
The selection of products you offer also impacts your AOV. If you only offer low-priced items, customers may not see the value in purchasing multiple products, resulting in a lower AOV. Offering higher-priced items or product bundles can encourage customers to spend more, resulting in a higher AOV. Additionally, offering a variety of products that appeal to different customer needs and preferences can increase the likelihood of customers purchasing more items.
Website Design
The design and layout of your website can also impact your store’s AOV. A poorly designed website can be confusing and frustrating for customers, leading to a lower AOV. A well-designed website that is easy to navigate, with clear product descriptions and images, can encourage customers to spend more time browsing and ultimately lead to a higher AOV. Additionally, offering personalised product recommendations and easy-to-use search and filter options can help customers find products they are interested in and increase the likelihood of purchasing more items.
Shipping Costs
The cost of shipping can also impact your store’s AOV. High shipping costs can discourage customers from purchasing multiple items, resulting in a lower AOV. Offering free shipping for orders above a certain threshold can encourage customers to purchase more items to reach that threshold, leading to a higher AOV. Additionally, offering fast and reliable shipping options can increase customer satisfaction and encourage repeat purchases, ultimately resulting in a higher AOV.
Customer Lifetime Value
If you offer products on a subscription basis and enjoy recurring revenue, along with a solid strategy for retaining repeat customers, you’re in a great position. This means that you can have a lower average order value (AOV) and allocate more resources towards customer acquisition than brands lacking these features.
The reason is simple: your customer lifetime value is higher than that of brands selling only one product or without a retention strategy. By forecasting that over half of your customers will make repeat purchases or subscribe to a recurring revenue-generating service, you can compute the average lifetime value, which determines the lifetime AOV.
For example, suppose you sell a £10 monthly subscription, and most subscribers stick around for 15 months. In that case, you have a lifetime value of £150, even if your AOV is just £10. This means you can spend more than £10 to acquire a customer, knowing that you can earn an average of £150 from that customer over their time with your brand.
Product Pricing
The price of your products has a direct impact on your store’s average order value (AOV). If your prices are too high, customers may not be willing to purchase as much, resulting in a lower AOV. On the other hand, if your prices are too low, customers may not feel the need to purchase additional items, leading to a lower AOV. Finding the right balance is crucial to increasing your AOV. Consider implementing product bundling or offering discounts for purchasing multiple items to encourage customers to spend more.
It may still be worth considering adjusting your pricing strategy to see if you can cover your cost per conversion.
For instance, increasing your subscription price from £10 to £12 may not significantly impact your conversion rate, but it can generate an additional £24 per customer per year, which could cover your acquisition costs.
It’s important to ensure that your return on ad spend (ROAS), which is the ratio of cost per conversion to customer lifetime value (CPC:LTV), remains net positive, and the higher the ROAS, the better. Improving your AOV can be an effective method to boost your ROAS because it relies on increasing the amount customers spend during checkout instead of attracting more customers, which can be costly.
6 Tips to Increase Your Store’s AOV
- Upselling and cross-selling techniques: Upselling and cross-selling techniques involve suggesting complementary or higher-priced items to customers. For example, if a customer is purchasing a camera, you could recommend a higher-end model or suggest additional lenses or accessories.
- Bundling products: Bundling products involves grouping complementary items together and offering them at a discounted price. This can encourage customers to purchase multiple items and increase AOV.
- Offering free shipping and other incentives: Offering free shipping or other incentives, such as a free gift with purchase, can encourage customers to purchase more items and increase AOV.
- Implement a minimum order value for free shipping: Offer free shipping for orders over a specific amount. This motivates customers to add more items to their cart to reach the free shipping threshold, thereby increasing the AOV.
- Limited-time offers: Limited-time offers, such as a discount on orders over a certain amount, can encourage customers to purchase more items to take advantage of the offer.
- Implement a minimum order value for free shipping: Offer free shipping for orders over a specific amount. This motivates customers to add more items to their cart to reach the free shipping threshold, thereby increasing the AOV.
Let’s look into some of these points in more detail..
Upselling and Cross-selling Techniques to Increase AOV
Upselling and cross-selling techniques can be highly effective in increasing AOV. Here are some tips to implement these techniques successfully:
- Use Personalisation: personalisation is essential in upselling and cross-selling. Use customer data to suggest products that are relevant to their interests and past purchases.
- Display recommendations on product pages: displaying recommendations on product pages can encourage customers to add additional items to their cart.
- Use product bundles: bundling products can encourage customers to purchase more items and increase AOV. For example, if a customer is purchasing a dress, you could suggest matching shoes and accessories.
- Offer discounts on bundles: offering a discount on bundles can make them more appealing to customers and increase AOV.
Bundling Products to Increase AOV
Bundling products involves grouping complementary items together and offering them at a discounted price. Here are some tips to bundle products successfully:
- Choose complementary products: choose products that are often purchased together or are relevant to each other.
- Use product images: use product images to showcase the bundled items and create a visually appealing bundle.
- Offer discounts: offering a discount on bundles can make them more appealing to customers and increase AOV.
- Use limited-time offers: limited-time offers, such as a discount on bundles for a specific period, can create a sense of urgency and encourage customers to purchase.
Offering Free Shipping and Other Incentives to Increase AOV
Offering free shipping and other incentives can encourage customers to purchase more items and increase AOV. Here are some tips to offer free shipping and other incentives successfully:
- Use minimum spend thresholds: use minimum spend thresholds to offer free shipping or other incentives. For example, offer free shipping on orders over £50.
- Use limited-time offers: limited-time offers, such as free shipping for a specific period, can encourage customers to purchase more items to take advantage of the offer.
- Use pop-ups and banners: use pop-ups and banners to promote free shipping or other incentives.
- Offer incentives for referrals: offer incentives, such as a discount on the next order, for customers who refer friends or family to your store.
How a 3PL (Third-Party Logistics) Provider Can Help Increase AOV
A 3PL provider can help increase AOV by offering additional services, such as:
Inventory Management
One of the primary ways a 3PL provider can help increase AOV is through effective inventory management. By utilising advanced inventory management tools, a 3PL provider can help ecommerce businesses reduce the risk of stockouts and overstocks, which can lead to lost sales and wasted resources. Additionally, by leveraging their expertise and technology, a 3PL provider can optimise inventory levels and ensure that popular products are always in stock, thus increasing the likelihood that customers will add additional items to their cart.
Shipping and Fulfilment
Another way a 3PL provider can increase AOV is by providing fast and reliable shipping and fulfilment services. Many consumers are willing to pay more for fast-tracked shipping or choose to add additional items to their cart to reach a free shipping threshold. By partnering with a 3PL provider that offers a range of shipping options and has the ability to quickly process and fulfil orders, ecommerce businesses can increase their AOV by encouraging customers to make larger purchases and feel more confident in their overall shopping experience.
Returns Management
Lastly, effective returns management is an often overlooked but critical component of increasing AOV. By working with a 3PL provider that offers streamlined returns processing, ecommerce businesses can provide customers with a hassle-free returns experience, which can increase customer loyalty and encourage repeat purchases. Additionally, a 3PL provider can help identify patterns and reasons for returns, which can inform inventory and product selection decisions, leading to better sales performance and ultimately, increased AOV.
The Importance of Maximizing Your Ecommerce Revenue Through AOV
In conclusion, AOV is an essential metric for ecommerce businesses. By increasing AOV, you can generate more revenue without necessarily increasing traffic or marketing costs. To increase AOV, implement upselling and cross-selling techniques, bundle products, offer free shipping and other incentives, and consider working with a 3PL provider. Regularly track your AOV and adjust your strategies to maximize your ecommerce revenue.
Increase your AOV with 3PL
3PL are a tech-enabled fulfilment partner, we equip brands with the necessary tools to enhance their average order value. By providing high-quality service in warehouse management, order management, and inventory management tools, retailers can gain access to real-time data and make informed decisions that can result in an increase in AOV.
Furthermore, 3PL’s next-day shipping with 9 pm late cuts off times enables retailers to benefit from quick delivery across the UK. With a broad network of fulfilment centres, retailers can enjoy complete coverage for next-day shipping within the country. This commitment to prompt delivery can enhance your AOV and profits.
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