If you are a Shopify merchant, you’d want to know how to increase your Average Order Value (AOV).
In this article, I am going to talk about Average Order Value and how you can increase yours in 2019.
Concepts, definitions, examples along with practical tips on how to improve your store’s performance — you will find it all here.
Let’s get started.
What is the Average Order Value (AOV)
The Average Order Value is one of the most important metrics for any online store or online business.
It is one of the key metrics for any eCommerce businesses along with other important metrics such as: Number of Orders, Customer Lifetime Value, Total Revenue, Purchase History, Average Order Value and Conversion Rate.
The AOV can help you understand how to improve your marketing efforts and how to increase sales in a seamless way.
It can also help you adjust your pricing strategy and improve other key performance indicators for your Shopify.
Should increasing your AOV be your main goal, your main target?
I’ll cover that later — for now, just keep that your Average Order Value affects your overall performance and should be monitored closely.
One of the main benefits of improving your AOV is that you get to know your customers better — you get a step closer to them, and, as the famous marketer and storyteller Bernadette Jiwa:
“Whoever gets closest to their customer wins.”
So, what is the Average Order Value?
According to BigCommerce:
“The AOV is an eCommerce metric that measures the average total of every order placed with a merchant over a defined period of time.”
Calculating the Average Order Value for a certain period of time is a great way to understand the true impact of your marketing and sales efforts.
But, how can you calculate the AOV for your Shopify, for a certain period of time?
This nice graph from smile.io shows us how to calculate the AOV:
All you have to do is divide the Total Revenue for a certain period of time by the Number of Orders taken for that same period.
It is essential that you monitor your AOV closely — that you run a monthly or at least a bi-monthly report to check if everything is as it should be.
Especially if you are running tests and experiments, you should be monitoring the impact of your experiments to your AOV.
I will cover this last part in detail in the following section, so, stay tuned.
Why Does it Matter?
As we discussed earlier, keeping a close eye to your Average Order Value is critical for an eCommerce store.
It is one of the most important eCommerce metrics, an essential Key Performance Indicator (KPI) that allows you to take business decisions for your online business.
Increased sales do not necessarily mean an increase in AOV.
The AOV affects (and is affected by) other important metrics, key metrics for any Shopify store.
This metric doesn’t show you if your customer base consists of people who spend much on your products.
It also shows you how loyal people are to your brand, how effective your pricing strategy is and if your marketing efforts are paying off.
As you show in the previous section, the AOV is calculated with the following formula:
Average Order Value = Total Revenue / Number of Orders
Let’s look at an example:
Total Revenue for Month A was $135,000 and you had 5,632 orders for that same month — then your AOV for Month A was $25.2.
And, let’s assume that you decided to run a special deal for Month B, offering a limited product bundle.
Total Revenue for Month B was $145,500 and you had 2,475 orders for that same month — leading to a $58.8 AOV.
This means that the special deal that you ran helped you to increase your AOV by 57% between Month A and Month B.
Pretty amazing, right?
Of course, this was just an example and sure, a product bundle can be an effective way to increase your AOV, but this wasn’t the point I wanted to make —
The point that I am trying to make is that you have to monitor your AOV, to understand the impact of our marketing efforts.
As you can see, even though our Total Revenue was increased by only 7.2%, our AOV increased by 57%, which is huge.
The fact that we doubled our AOV means that we managed to make more out of every customer and this is important for many reasons, some of which are:
- We spend less time on customer support
- We qualify our customers by seeing who are willing to spend more
- We spend less $ on shipping costs (if we cover the shipping costs)
- We identify the winning tactics and tests among all the ones that we run
I hope it is evident by now that increasing your AOV can give you an overview of your business and customer quality.
And, why is this important?
Because it will allow you to optimise your overall performance and get the most out of your customers.
Increasing your Number of Orders or the Total Revenue for a given period is not a guarantee that your Average Order Value is going to increase.
Average Order Value is, along with other key metrics one of the most important metrics for Shopify and eCommerce businesses.
When you increase the Average Amount that people spend on your products, then you are probably doing something right.
But, once again, this isn’t an absolute indicator that everything is as it should.
So, let’s see some other key metrics that are relevant to AOV and that you should keep an eye to:
- Total Revenue – the number of sales you made in a given time period
- Number of Orders – the total number of orders that you had at a given time frame
- Conversion Rate – divide the number of Conversions to your Shopify by Total Number of Visitors and multiply by 100%
- Conversion Optimisation – which according to MOZ is the number of visitors that take a desired action
- Purchase History – all the past purchases for each one of your customers
- Minimum Order Value – is the smallest amount that can be ordered in one single delivery, in one order
- Profit Margin – according to Shopify, Profit Margin indicates the profitability of a product, service or business — it is the amount by which revenue from sales exceeds costs
- Gross Profit (Margin) – it is calculated by subtracting the cost of sales from Total Revenue
It is of paramount importance to understand that keeping a close eye to these metrics gives you a nice overview of your business.
It also allows you to understand what is your current status and how you will achieve your future goals.
These are eCommerce metrics that are relevant to your AOV and thus are good to know and monitor.
In the next chapter, I am going to give you [x] practical tips for improving your AOV.
Tips for Improving your Average Order Value
In this section, I am going to show you how you can increase your Average Order Value, using four simple and yet powerful tactics.
1) Introduce a loyalty program
The first thing you’d want to do is to introduce a loyalty program to your customers.
I am not going to reinvent the wheel if I say that some customers of your eCommerce business are more loyal to your compared to others.
In addition, some of your customers obviously spend more on your products than others.
According to a study called Wantedness which was conducted by Wunderman, 79% of US customers are more loyal to brands who care about them.
It is without a doubt that the amount of money customers spend to a certain brand’s products is determined by the interest that the business has displayed for the customer’s needs and wants.
According to a study of 2,000 different reward programs by smile.io, the majority of brands witness a 13.71% increase in Order Values loyalty reward programs.
Simply put, people buy more when they participate in a loyalty program.
On top of that, you have to keep in mind that loyal customers spend more than new customers —
An analysis of 22 Million orders by Stitch Labs revealed that returning customers spend 120% more annually than new ones.
Thus, you understand that introducing a loyalty program for your Shopify customers can make people want to spend more and lead to repeat purchases.
2) Use product bundles
Another great way to increase your AOV is using product bundles.
So, what are product bundles?
According to BigCommerce:
“Product bundles are several individual goods or services that are sold to consumers are one combined package.”
Take a look at the following example by O2 Natural Recovery:
And, another one by Honor Things:
Product bundles are a great way to increase the perceived value of a customer’s purchase.
There are several different approaches as to how you can use product bundling.
One of the best ones is to create bundles that cover all of your customers’ potential needs.
What do I mean?
Well, let’s assume that you sell outdoor equipment — everything that someone might need in order to spend a few days outdoors.
Then, you could create and offer a solution that you know for fact cover some of your customers’ basic needs.
In the example below, BioLite does a great job offering a bundle to its customers, knowing that these are things they need and might have bought separately otherwise.
Product bundles are a great way to increase the AOV of your Shopify store and at the same time increase satisfaction for your customers, by offering grouped products that you know they need at a better price.
3) Use minimum order value to offer free shipping or discount
The third tip I have for you is to increase the minimum order value to offer free shipping or a discount.
As I mentioned earlier, minimum order value is the smallest amount that can be ordered in one single delivery.
What you can do is to increase that minimum order value in exchange for free shipping or discounts.
Put simply, if your free shipping threshold in the US for all orders above $75, you can increase that number to $95 —
I know what you are thinking, that the number of order you receive will be decreased.
Well, the number of orders you receive may be slightly decreased, but the quality of customers you get will be higher — this will give your AOV an extra boost.
The same applies to discounts.
If right now you offer a 15% for all orders above $250, you can change that number to 275%.
Yes, you are going to notice a slight decrease in the number of orders you receive, but the average order value will be higher and this will help you increase your total revenue.
Before setting any absolute numbers, you can experiment and find the right spot to adjust your minimum order value accordingly.
4) Use cross-selling and up-selling
The last tip I have for you is to leverage your cross-selling and up-selling efforts.
What does that mean exactly?
Take a look at the above example:
As you can see, cross-selling means that you offer something supplementary to a customer, while up-selling means that you offer more of the same thing, of the same product.
This way you can increase your AOV and satisfy your customers at the same time.
You see, cross-selling and up-selling should feel natural — you should make your customers feel like they have to earn from it.
In an essence, you have to add value.
This is a bright example of an effective cross-sell Colorado Crafted is using to generate cross-sells while in the checkout page:
There are many great Apps that can help you with your up-sell and cross-sell efforts.
Feel free to take a look at these 50 Apps and you’ll definitely find 1-2 that fit your needs.
I don’t want to repeat myself, but Average Order Value is one of the most important metrics for any eCommerce business.
It is of paramount importance to understand that all your marketing efforts should be focused on increasing your AOV.
If you run a Shopify store for a while now, then you most likely have some key metrics, some eCommerce metrics and other KPIs that you monitor on a constant basis.
The AOV should definitely be one of these metrics, and with the tips that we covered on this article, I am sure you have everything you need to start improving it.
Trust me when I say that: increasing your AOV will help you take your online business to a whole new level.
Get to work and results will come!