The eCommerce industry is highly versatile. Yet, no matter where your business is located, we have to admit that eCommerce largely relies on three factors: high traffic, good conversion, and high Average Order Value. However, most store owners are left baffled with a similar question, what does AOV mean?

AOV, or Average Order Value, is often referred to as the third wall of eCommerce marketing. It shows the average amount spent each time a shopper places an order. If your eCommerce store has high traffic and conversions but a low AOV, it’s an indicator of a problem in the long run. 

 

Thus, AOV calculation has become one of the most crucial eCommerce metrics that retailers need to keep an eye on. It gives them a detailed insight into their customer base, taking things beyond customer acquisition. Sadly, most business owners are aliens to the term Average Order Value, let alone calculating AOV.

So in this guide, we’ll take a closer look at the basics of Average Order Value, how to calculate AOV, and why it’s essential. 

What Is Average Order Value?

Average Order Value (AOV) is a key performance indicator for eCommerce business owners. This order avg metric allows businesses to track the average of every dollar spent whenever a customer shops from their favorite eCommerce website or application. 

Why Is AOV Important?

While many businesses aim to improve their sales and traffic, they tend to overlook their customer’s purchasing habits. AOV is a key performance indicator as it helps store owners track customers’ purchase journeys and analyze their buying behavior. 

AOV calculations can also help businesses reduce customer acquisition costs by streamlining their approach toward existing customers and focusing more on winning new customers. With detailed insight into a customer’s purchase journey, AOV can help retail businesses improve their pricing and marketing strategies. 

So if you can increase your AOV sales, your revenue should also boom accordingly. However, most business owners continue to be foreign to the concept and have little to no idea of how to calculate AOV for their business. 

How To Calculate Average Order Value

The Average Order Value (AOV) for any online store can be calculated by dividing the revenue amount for a specific period by the total orders placed in that time frame. 

Mathematically, the average order value formula can be expressed as: 

Imagine you’re a store owner whose web store sales amounted to $41,000 from 1,000 orders in September, for example. By applying the AOV formula, or $41,000/1,000 orders, your September AOV would be $41.

Note: Similar to other metrics, AOV can be tracked within time frames. But for the sake of simplicity, most companies calculate AOV monthly. Or, if your business has a large turnover, you could also use an online AOV calculator to simplify the calculations.

Takeaway: Increasing Average Order Value

Now that you have an idea of AOV, you might want to improve your order values per customer. Remember, increasing your AOV is possible at every stage of the sales process. For example, encourage your consumers to add more items to their shopping carts, associated with what they already have. Include products that are simple to overlook but useful in everyday life, like batteries for electronic gadgets or light bulbs.

You may even advise them to consider a more expensive, best-selling option. You can get a customer to spend more money by giving them a wide range of tempting goods and flexible payment methods.

The good news is that the following strategies can help your business raise AOV over time:

1. Cross-selling: Consider different ways to incorporate your high-selling products with other complimentary products. For instance, how about pairing some socks with sneakers? 
2. Upselling: Incorporate creative ideas to upgrade to more expensive items. For instance, if a customer has a mobile phone in their cart, suggest a better upgrade for a minimal amount ($10, for example) more than their existing cart. 
3. Volume discounts: As the name suggests, incorporate discounts on products sold in high volumes. For example, if a customer purchases a hand towel at $10, give them additional discounts every time they purchase an extra towel. 
4. Free shipping: Provide free shipping for a higher minimum purchase. For instance, free shipping on orders above $49.
5. Return policy: Give them flexible return policies if they aren’t satisfied with their purchase. 

Don’t Overlook The Other Crucial eCommerce Metrics

Increasing your AOV metrics alone might be a wonderful strategy to boost your gross profit, but make sure you’re also monitoring a few other crucial indicators:

• Conversion Rate: Conversion rates are calculated by dividing the total number of visits by the number of conversions. Being an eCommerce retailer, you’d want your total conversion rates to stay consistent with increasing AOV.
• Revenue Per Visitor: RPV is a metric used to determine how much money is made each time a consumer sees your website.

In the end, the eCommerce sector is an exciting field, so always experiment with marketing tactics while regularly checking your metrics. In case you need some support to help you boost sales, consider partnering with a financial provider like Tarya.

Tarya is here to transform the sector and help more businesses tap into new financial opportunities. All at the click of a button!