How much are your customers spending every time they make an order on your site? If you don’t know the answer to this, you need to find out. The Average Order Value (AOV) of your store indicates the average order amount of all transactions made in any given time period, and it directly correlates to how much revenue and profit you earn. By understanding your Average Order Value you can determine the financial health of your store and use that information to make better business decisions when it comes to ad spending, product pricing, user experience and more.
Optimizing an ecommerce store to increase Average Order Value is something that pretty much any merchant can do. There are two main elements that influence Average Order Values — the number of products purchased per order and the average selling price of each product — which are two aspects that you as the merchant have direct control over. Luckily, this makes Average Order Value optimization accessible to virtually all merchants whether you’re a new startup or an established store in your industry, so the tips in this article can be applied to your business no matter what stage you’re at.
If you haven’t got a clue what your store’s Average Order Value is or you’re just looking for ways to make more sales and earn more revenue, then this article is for you. Use the Table of Contents below to jump to the section that’s most applicable to you.
Table of Contents
What is Average Order Value
The Average Order Value of your store is your total revenue divided by your total number of orders. This simple equation gives you the average amount each customer spends every time they place an order on your website.
The Average Order Value is a Key Performance Indicator (KPI) and is typically measured in conjunction with other important performance indicators like the conversion rate of an ecommerce store as well as the customer lifetime value. While each of these metrics is important to monitor on an individual basis, collectively they create a big picture overview of a store’s performance overall.
Most ecommerce stores approach their Average Order Value with these two methodical steps:
- Step 1: Measure the Average Order Value
- Step 2: Improve it
Although these steps are somewhat simplified, they truly represent how ecommerce store owners handle their Average Order Values. The following content will explain how to execute each step in more detail.
How to Calculate Your Average Order Value
Average order value = your store’s revenue / your store’s orders.
For example, if you’ve earned $10,000 in revenue this year and you’ve had 200 orders, your average order value is $50. This means that, on average, every time a customer successfully checks out their shopping cart, you’ll earn $50 in revenue. Your store’s revenue information and order count should be easily accessible either directly on your ecommerce platform dashboard or in your Google Analytics, if you have it connected to your store.
The important thing to take into consideration when calculating your store’s Average Order Value is that it’s determined by the sales per order, not just by the sales per customer. If a customer purchases from your website twice, both of those orders factor into your Average Order Value calculation. It’s also important to note that the Average Order Value determines the average amount of revenue you make per order, not how much profit you make. This is an important distinction to make because expenses and costs will need to be subtracted from your Average Order Value to give you a complete overview of how much profit you earn per order, on average.
Calculating your Average Order Value can be done as regularly as you want and during any period of your store’s lifetime as you want. Generally, calculating your Average Order Value weekly or monthly is acceptable, however, some stores — especially high volume stores — find it beneficial to calculate their Average Order Value even daily.
By keeping so in tune with your Average Order Value you can intercept any possible changes that may have affected it in earlier stages than you would have otherwise if you were not monitoring your Average Order Value regularly. Any changes to your website like product pricing, shipping prices, shipping times, return policies, and store navigation can have an impact on your Average Order Value so staying on top of it can help you recognize when certain tactics are working or not.
You may also choose to calculate your Average Order Value yearly or in different seasons so you can track and compare your progress. Depending on the types of products you sell, you may also experience purchasing swings when your product goes in and out of season, so you may wish to calculate your Average Order Value in ways that make the most sense for your business, keeping that in mind.
Why Average Order Value is Important
Average Order Value is important because it helps indicate your store’s performance in terms of revenue and thus, profit: The higher your Average Order Value the higher your revenue and profits will be.
Average Order Value, however, is not to be confused as being the driver of your store’s performance. Average Order Value is simply the result of what happens when you optimize the two important elements that you have at your disposal, which we mentioned above: The number of products purchased per order and the average selling price of each product. When those are performing well together, your Average Order Value increases.
Increasing your Average Order Value is also important because it means that you don’t have to constantly be trying to acquire new visitors and customers all the time. By focusing on the customers you’re already getting and optimizing their experience on your store to encourage them to purchase as much as they possibly will, you can achieve the same outcome as you would by acquiring more visitors but with less effort. Customers are already making their way to your store so get the most out of them while you possibly can.
When you increase your Average Order Value, you can expect to see these improvements:
- You’ll make the most of the traffic that’s already landing on your online store
- You’ll increase sales, profit & cash flow
- You’ll increase revenue without having to increase the costs of acquiring more new customers
- You’ll sell more products, which is useful if you have physical inventory you need to move quickly
- You’ll stretch your advertising and marketing dollars further so you can reinvest them back into your business
Most importantly, optimizing your Average Order Value is a win-win situation for both you and your customers. You can push your customers to purchase more and more products but eventually, there will be a ceiling to how many they’re willing to purchase. You can also increase your product prices but eventually to, there will be a limit to how much your audience is willing to spend. Separately, these tactics can only do so much but by combining them together to encourage customers to buy more products and more expensive products means you can still provide an excellent customer experience your audience will be on board with while still earning more revenue and profits for your business.
How to Increase Average Order Value
The goal when it comes to optimizing your online store to increase the Average Order Value is to find a way to encourage your customers to either purchase more products or more expensive products. Depending on the types of customers that shop on your store — whether they’re low, medium, or high spenders — different tactics make work better to encourage them to take either of those two actions.
The following tips are suggestions to help you make either of those encouragements. We recommend that you try out a few of these different tactics on your own store and give each one a fair shot to see how it works. Don’t fully rule out any of these tactics before you try them though! You might be surprised by how your customers respond.
We also recommend that you don’t try each of these tactics at once. Applying them to your store one by one will help you determine which ones are successful or not and it will also give your customers the opportunity to fully embrace them one at a time.
If you sell more than one product on your online store, then this is is a tactic you can use to increase your Average Order Value. Pairing two or more products together at a price that is more expensive than just one product but less expensive than if the customer were to just purchase them separately increases the perceived value of the deal they’re receiving and will cause them to spend more than they may have otherwise.
To make use of this tactic for your online store, bundle products together that customers often purchase at the same time, or products that work in conjunction with one another. Alternatively, you can also provide your customers with the option to create their own bundles by allowing them to choose from a selection of add-ons that you provide to them.
This is possibly one of the most recommended tactics to implement when it comes to increasing Average Order Value because it just works. When a customer is ready to check out or if they’ve added a product to their shopping cart, suggest that they upgrade to a more expensive version of the product that boasts more features. For example, McDonald’s is famously known for its upselling tactic of asking customers if they would like to “supersize” their meal. Supersizing a meal will cost the customer more, however, they’ll also receive more food, which is where they can see the value in the upsell.
To implement this tactic on your own online store, make sure you first have products to upsell your customers to and second, that you suggest them to your customers! Often your website visitors may not check out your higher-value products but when you actually suggest one of them to your visitors, they’ll take them into consideration.
This is an incredibly useful psychological tactic to influence your visitors’ perception of price without actually trying to sell them on anything. With price anchoring, you surround your target price (which, in this case, would be something around the Average Order Value you’re trying to achieve) between one product that’s much lower priced and offering much lower value, and another product that’s much higher priced and offering not much more value. The goal here is to make the Average Order Value product seem reasonable and well-priced while making the other options not valuable enough or unattainable price-wise. This tactic will encourage most of your visitors to pick the Average Order Value product, which is what your goal is.
This tactic works especially well for digital products, however, it can work for physical products as well. It also works well when you bundle products together because you can use the bundle of products as value-adding leverage that help your customers justify the prices.
To implement this tactic on your online store, create a set of three types of products you’ll offer as your low-value, Average Order Value, and high-value products. Place these products (or bundles of products) side by side so your customers can visually see them together and then clearly explain the difference between each one, emphasizing the reasons why the Average Order Value product is the best option in terms of value.
This is another commonly recommended Average Order Value increasing tactic and one that, again, works well for most businesses. The goal with this tactic is to suggest complementary products to your customers before they check out their shopping cart so they purchase more products and increase their order value.
So while with upselling the goal is to sell a more expensive version of the same product (like supersizing a meal), the goal with cross-selling is to sell an additional product to the customer that complements the existing product they’re buying. Carrying on with the McDonald’s example, its famous cross-selling technique is to ask customers if they’d like fries with their meal.
To implement this on your own site, find products, or collections of products, that work well with one another and suggest them to your customers throughout the purchasing process. You may notice on most ecommerce store’s product pages that the retailer will suggest similar products to the one you’re looking at, or products that other customers have also bought — this is cross-selling.
Employ cross-selling tactics on product pages as well as throughout the checkout process so you don’t miss a chance to suggest similar products to your customers. Here are some ways you can position cross-sells to your audience:
- “Complete the Look”
- “Customers Also Bought”
- “You May Also Like”
- “Products Similar To…”
Cross-sells are the most effective when they’re relevant to what the customer was already shopping for, so try to make your cross-sell suggestions as targeted as you can.
Offering financing for high-ticket items can be another driving factor to increase Average Order Values on your website. This is an ideal tactic to use if you sell expensive items in your store like furniture, electronics or art and probably won’t work for stores selling lower-ticket items.
By offering financing, you take the pressure off of customers to pay the bill up front, and by breaking it down into smaller, more bite-sized chunks that customers can pay off over time spreads out the order value and makes it more attainable. This can make customers feel more comfortable racking up their order value and makes it more likely that they will.
Free Shipping Thresholds
This is another commonly used tactic to increase Average Order Values because it works really well for most businesses. As you’ll probably see, most online stores use this tactic because it not only works well to boost order values, but it also makes customers happy to have a free shipping option.
To implement this tactic for your own online store, first calculate your free shipping threshold, which we’ve discussed in detail in our How to Offer Free Shipping & Calculating Your Free Shipping Threshold article, and then make it clear to visitors what your free shipping threshold is.
Most ecommerce stores have a banner at the top of their website, either directly above or below the main menu, where they explain what the minimum spend is to receive free shipping, but another useful way to let customers know is right in the checkout basket. There, it’s useful to have a dynamic piece of copy that lets customers know how far away they are from free shipping which changes when they add or remove products from their cart. It’s small details like “You’re $13 away from receiving free shipping on your order!” that really helps customers put into perspective what threshold they have to meet to get their shipping for free.
The exact free shipping threshold you create is really important, so calculate it carefully. Make it a threshold your customers will have to purchase at least a couple or a few products in order to qualify — there’s little point to it if it’s an easy target. But, also keep in mind that if the free shipping threshold is too high and it’s not within easy enough reach then most customers won’t even try to reach it. It’s all about finding the balance between increasing the order value, compensating for your shipping costs, and making the customer happy.
As an additional tip, some businesses offer different shipping thresholds depending on whether the orders are being shipped domestically or internationally. For example, a free shipping threshold for domestic orders might be $85 while the free shipping threshold for international orders might be $150. This is useful for businesses where shipping costs are more expensive for international orders and a higher order value is necessary to cushion those costs.
While it may seem counterproductive, offering discounts on products purchased can still increase your revenue and your profits. By discounting your products you entice your customers to purchase more in order to spend what they were originally expecting to spend, which makes them feel like they got a deal and still earns you revenue and profits.
These are different types of discounts you can experiment with on your store to boost Average Order Values:
- Volume Discounts: The more your customers buy, the more they’ll save which is a huge encouragement to get them to increase their order value. Create a tier of savings customers can get depending on how much they buy — for example, if a customer spends $50 they get 10% off their order, if they spend $75 they get 15% off, and if they spend $100 they get 20% off. Tailor the tiers to match your customer’s expectations as well as the amount of discount you can absorb into your profit margins.
- Time-Sensitive Discounts: These types of discounts are ideal for creating a sense of urgency and scarcity which makes on-the-fence types of customers purchase faster than they might have otherwise. It can also influence customers who were just going to purchase one product, purchase a couple or a few products instead while the discount is available, thus increasing their order value.
- Discounts for First-Time Customers: This is a great way to encourage new customers to take the plunge and order from your store, without making discounts available to your entire audience. This can be a beneficial tactic for businesses that might not be able to give all of their customers a discount, or for businesses that want to increase trust in their new customers.
- Coupons: This is another type of discount to offer and one that you can advertise on your social channels, in transactional emails or in your email newsletters.
Donating a portion of the proceeds from your sales can encourage customers to spend more on your site. When customers can contribute to a cause they care about or a charity in general, they’re more likely to feel comfortable buying more.
Think about how you can incorporate this into your own business model and what type (or types) of charities are relevant to your niche. Give your customers the opportunity to contribute to their community or a cause that matters to them just by shopping at your store!
Flexible Return Policies
Having a flexible return policy that gives your customers the freedom to send back products that don’t work for them without having to pay additional shipping fees means that they’ll be more comfortable buying more without being penalized for it later.
Consumers prefer to shop this way, in fact, Generation Z is the most likely generation to report expecting to return more than 75% of the goods they buy online. Millennials expect to return 50%, with Generation X and Baby Boomers expected to return less than 50%. (Source) This is the way consumers shop now, and without a return policy that accommodates that, consumers may be deterred from shopping on your site at all.
Offer a gift card when meeting a minimum spend to get your customers to spend more on your store. The benefits of this tactic are numerous:
- First: Your customers will appreciate the bonus gift card
- Second: You’ll increase the average order value
- Third: Your customers are likely to return to your store again to purchase something with their gift card
Calculate a feasible gift card amount you’ll be able to provide your customers and the minimum spend they’ll have to meet to be able to earn the gift card. Set the minimum spend around the Average Order Value amount you’re aiming for so you can meet that target but also take into account what your customers will be willing to spend.
Use gamification tools to get your customers buying or spending more. Fun games like spin-to-win coupons or contests and sweepstakes can get your customers purchasing more products or spending more than they would have otherwise.
The longer a visitor is on your site, the more likely they are to add more to their cart. Keep them engaged by encouraging them to browse through your site easily and freely. This can be implemented by maintaining a clean and easy-to-navigate user interface, noticeable calls-to-action on your homepage and product pages, relevant product recommendations, and interlinking between pages so customers can go deeper into your site.
60% of users prefer on-page navigation over search so don’t make your customers have to search for what they’re looking for and, in addition to that, present them with suggestions and recommendations they weren’t even looking for so they don’t even have to search to discover new things.
How to Know if Your Average Order Value is Good
So, by now you know what Average Order Value is, how to calculate it, why it’s important, how to increase it, and the benefits of increasing it, but how do you know what a good Average Order Value is? What should you even be aiming for?
A good Average Order Value that you should be aiming for depends on three things:
- Your Own Data: Compare your Average Order Value from this year to last year or from this month to last month or this quarter to last quarter. This is one of the best ways to measure whether or not your Average Order Value is improving.
- Your Competitors’ Data: Since your competitors’ revenue and order volume aren’t likely going to be easily accessible to you, you’re going to have to make some educated guesses here. Take into consideration the price of their products, revenue information if it’s public knowledge, the size of their audience (which you can get a general insight into from social media or their email list numbers if they share it) and work with that.
- Relevant Market Data: Find industry benchmarks for Average Order Values and compare your Average Order Value to what’s normal for your market. This will indicate to you whether you’re on the right track or if there are improvements to be made.
By taking these three distinct measures into account you’ll be able to determine what your goal Average Order Value looks like. It’s important that you only source this data from relevant sources, though, because different industries can experience different Average Order Values, so you don’t want to be basing your goals off of data that doesn’t directly pertain to the kind of business that your is.
Keep in mind, however, that aiming for higher and higher Average Order Values should not be an ongoing goal. Yes, it’s important to increase your Average Order Value and get it to the best place possible, however, as we discussed above, the Average Order Value is just one piece of the puzzle when it comes to your store’s overall performance and success. Relying on Average Order Value optimization tactics alone won’t make for a profitable store, it’s just part of the process.
So, increase your Average Order Value to a point where it’s the maximum it can be for your business based on your own data and industry benchmarks, then let it work on its own while you continue to focus on other important areas of boosting sales and revenue like acquiring new customers and increasing the customer lifetime value of your store.
If you didn’t know what Average Order Value was when you first started this article, we hope you have a pretty good grasp on what it is now. As a store owner, keeping tabs on data like your Average Order Value can be the difference maker between making valuable business decisions and not, so now that you know exactly how to calculate your Average Order Value and implement optimization strategies to increase it, you’ll be able to make more data-lead decisions for your business that ideally will offer more positive outcomes.