Average Order Value (AOV) is a very important metric in the e-commerce and retail environment, expressing the average amount of money a customer spends on any single order. It is a simple division of the total order revenue over a given time frame by the number of orders placed.
For example, if a given month made 500 orders to an online store and all the customers in that month spent $50,000 to purchase goods, then the AOV would be equal to $100 ($50,000 / 500 = $100).
AOV gives businesses an absolutely important business performance indicator (KPI) to help them understand customer purchase behavior and strategically make up their minds regarding prices, marketing, and offers on products. A higher AOV, hence, is indicative of customers spending more money at a time per transaction and hence accruing more revenue and profitability to the business.
Different approaches that businesses can adopt to boost their AOV are:
- Upsell and cross-sell: Recommend a higher-value product or recommend its complementary products to the customer while he or she is making a purchase.
- Bundling products: Offering discounts on product bundles or packages to push an order of more items per order for customers.
- Free shipping thresholds: Set up a minimum value in their orders through which they should reach free shipment values.
- Loyalty programs: Reward the customers for patronizing one's business and encourage them to spend more in doing so, through exclusive discounts, perks, or points.
- Personalized recommendations: This customization involves using customer data and browsing history to pitch products to them based on their interests and preference.
- Limited-time offers: Create a sense of urgency with these time-bound promotions or discounts for customers to make large purchases.
Monitoring AOV over time will help in analyzing the trends, strategies adopted in order to achieve their goal, and make informed decisions to optimize sales and marketing efforts.
Understanding the factors that influence AOV will help businesses develop targeted campaigns and initiatives that encourage the customer to spend more per order, ultimately driving growth and profitability. However, it should be noted that though AOV generally increases, businesses should consider customer acquisition cost, customer retention, and entire customer lifetime value to get a full view of their performance and make well-informed decisions.