What is Average Order Value (AOV)?
Average Order Value (AOV) is a metric that shows the average amount customers spend each time they order from your eCommerce store. Businesses monitor AOV as a key performance indicator (KPI) to understand the effectiveness of pricing and sales strategies. AOV can be calculated for any timeframe. It is common to track AOV for multiple periods to identify fluctuations and areas for improvement.
Why is AOV Important?
Tracking AOV provides insights into customer shopping behavior while also revealing potential areas to improve your sales strategies. Here’s why it is an essential eCommerce metric to monitor:
Shows Customer Buying Habits
AOV reveals how much customers spend per transaction. The metric can make it clear if the average customer buys low-ticket or high-end items. It can also provide a quick benchmark into whether your average order contains multiple items.
Supports Goal Setting and Strategy
AOV serves as a benchmark for assessing overall business performance. You can use the metric to guide pricing, merchandising, and promotional strategies. Additionally, comparing current AOV to past figures or industry standards can help businesses set realistic goals.
Boosts Revenue Potential
Higher order values mean higher revenue for your business. This makes AOV a valuable metric for driving business growth. If you focus on the factors that increase AOV and positively influence them over time, you can experience consistently higher revenue.
How to Calculate AOV
You can calculate AOV by dividing the total revenue during a specified period by the number of orders during that same period. A simple formula is as follows:
AOV = Total Revenue ÷ Total Number of Orders
Here is a quick example. Say your store generated $50,000 in revenue from 1,000 orders in the past month. In this case, the AOV for the month would be: $50,000 ÷ 1,000 = $50
Strategies to Increase Average Order Value
Naturally, increasing AOV requires getting customers to spend more per transaction. Here are some common tactics to achieve this:
1. Offer Free Shipping Thresholds
Free shipping remains one of the most effective ways to encourage higher spending. Setting a minimum order value for free shipping entices customers to add more items to their carts. This in turn can lead to higher order values on average.
2. Use Upselling Techniques
Upselling involves encouraging customers to purchase a higher-end product or upgrade. You can employ upselling tactics by adding comparison charts highlighting the benefits of premium options or recommending higher-priced alternatives when visitors add something to their cart. Additionally, you can use an AI sales assistant to intuitively present your audience with upsell opportunities.
3. Leverage Cross-Selling Opportunities
Cross-selling promotes complementary items that pair well with the customer’s current purchase. For example, a laptop purchase might include recommendations for cases, screen protectors, or charging accessories. Bundling items together is another effective way to use cross-selling for higher order values.
4. Implement AI Sales Assistants
An AI concierge like Rep AI can guide visitors through the shopping experience, similar to in-store sales staff. This includes answering questions, suggesting products, or even adding items to the cart and initiating checkout. The assistance provided by the AI sales agent can drive higher AOV by helping customers discover more relevant products to fill multi-item orders and by successfully selling your higher-priced items.
