Why is Average Order Value (AOV) important

If you're running an online business, you’ll know there’s a wide array of metrics that can help measure your success. One incredibly valuable, but often overlooked, metric is Average Order Value (AOV).

We explain what AOV is, why it matters, how to calculate AOV, and suggest some strategies to lift your ecommerce.

What is Average Order Value?

So, what is average order value? AOV tells you the average amount of money your customers spend per purchase. Calculating AOV is easy. Simply divide your total revenue by the number of orders over a specific period. For example, if you made R10,000 from 200 orders in a month, your AOV would be R50.

This snapshot gives you a clear picture of your customers’ buying behaviour, helping you make informed decisions about your marketing, products, and overall strategy.

For more strategic insights, read our how to create an e-commerce strategy and 10 ways to strengthen your ecommerce strategy.

Why is AOV important for businesses?

A strong AOV can bring your business a range of benefits, including:

Understanding customer behaviour

AOV can tell you a lot about your customers. A high AOV suggests people buy higher-priced items or in bulk. A low AOV could mean they’re choosing one or two items at a time. These insights help you tailor your business strategies to better meet your customers’ needs and preferences and grow sales.

Reduced acquisition costs

We all know it costs more to attract new customers than keep the ones we have. There’s advertising, social media campaigns, and other expenses involved. And that’s before even thinking about the everyday costs of running a business. However, the higher your average order value, the bigger your profit and budget to offset the costs.

Improved cash flow

A higher AOV equals more money per transaction. This is especially helpful for smaller businesses relying on a fluid cash flow to reinvest in stock, marketing, or other growth initiatives.

Strategies for boosting average order value

Let’s look at how to increase average order value in some more detail.

Upselling and cross-selling

Highlight the superior features and benefits of premium versions of items customers are browsing, and complementary products that add value. This could be anything from a case and screen protector for a new phone to printer cartridges and extra storage for a laptop.

Remember, the aim is to enhance your customer’s experience and encourage them to add to their basket without being pushy.

Pricing models

By getting more creative with your pricing, you can nudge customers to buy more without resorting to pressure tactics.

Bundle popular items together and offer them at a discounted price instead of buying them individually, giving customers extra value for money. Another option is tiered pricing, where the price per unit drops the more the customer buys. You can also offer tiered discounts that give your customers a higher percentage off or a gift above a specific spending threshold.

Volume discounts

By offering a discount for buying certain items in bulk, you can encourage people to spend more while helping to clear stock faster. This strategy can be particularly effective if your business has products with a long shelf life or expensive storage costs.

Free shipping

Free shipping can be a powerful motivator for customers. The key is to set a minimum order value that's achievable for most customers while making sure you keep a healthy profit margin for a win-win.

Minimum order

While this may only be suitable for some businesses, a minimum order requirement can help raise your average order value. However, it could put off potential customers looking for a single item, so always carefully consider your target audience and strike a balance between encouraging larger buys and staying attractive to budget-conscious customers.

How AOV impacts your business

Increasing the average amount spent per order can boost revenue without needing a massive influx of new customers, freeing up time and money for marketing or product development. Regularly monitoring your AOV also allows you to check the effectiveness of your marketing and sales strategies and identify areas for improving customer service and operational efficiency.

Understanding and maximising AOV isn't just about increasing profits, it's about unlocking a treasure trove of customer insights. Taken together, they can help your business thrive.

Want to know more about AOV? Chat with our helpful V-Hub Digital Advisers or 1-2-1 support.