As an e-commerce business, it’s important to focus on key metrics: traffic and conversion rate. Once you’ve nailed down these metrics it will work magically, now it’s time to work on how to increase average order value.
Your average order value is the average amount that each customer spends when they purchase on your website. To increase your average order value, you need to find ways to encourage your customers to add more items to their carts.
One way to do this is by offering discounts on bulk purchases or bundle deals. You can also create a sense of urgency by running time-sensitive sales or featuring “limited edition” items.
Read on to learn more about increasing your average order value and boosting your e-commerce business!
What is Average Order Value (AOV)?
AOV is a short form of Average Order Value. It’s a metric used to measure the average amount of money spent per transaction in your store.
AOV can be a helpful metric to track because it can give you insights into your customers’ spending habits and whether or not they’re buying more or less from your store over time.
There are a few different ways to calculate average order value, but the most common method is to take the total revenue from your store and divide it by the total number of orders. This will give you the average amount of money spent per order.
AOV can be a useful metric for assessing your business’s health and making marketing and pricing decisions. If you want to increase your AOV, you can focus on selling higher-priced items or increasing the average order size.
How to Calculate the Average Order Value?
When calculating average order value, you can use two main formulas: the simple and the weighted. This article will explore both of these formulas and how to apply them.
The Simple Formula for Average Order Value:
To calculate the average order value using the simple formula, you need your total revenue and number of orders. Simply divide your total revenue by the number of orders to get your AOV.
For example, if you have a total revenue of $1,000 from 10 orders, your AOV would be $100.
$1000 / 10 = $100
Weighted Formula for Average Order Value:
The weighted formula takes into account the size of each order. This formula can be more accurate than the simple formula, especially if you have a few large orders that skew the results.
To calculate weighted average order value, simply multiply the quantity of an item by its unit price then add up all of these amounts. Then divide this sum by the total quantity of items in the transaction.
This equation can be represented with the following equation:
AOV = (Quantity x Unit Price) / Quantity
For example, if you have a total revenue of $1,000 and 10 orders with varying quantities and unit prices, your AOV would be $50.
($100 x 5) / 10 = $50.
Why is Average Order Value Important?
Average Order Value is an important metric for e-commerce businesses because it can provide valuable insight into customer behavior and the overall health of the business.
A high Average Order Value means that customers are purchasing more goods per transaction, which leads to increased revenue for the business.
A low Average Order Value, on the other hand, can be a sign that customers are not finding enough value in the products they are buying, and it could indicate that the business needs to focus more on product innovation or marketing.
There are several reasons why it is important to increase average order value.
Some of the key reasons include the following:
1. Increased Profits:
When customers spend more money per purchase, it results in higher profits for your business. This is because you are not paying as much for shipping and handling fees, and you are making more sales overall.
2. Improved Customer Loyalty:
Higher average order values indicate that customers are happy with what they are buying from your store. This leads to increased customer loyalty and referrals to friends and family members.
3. More Effective Marketing:
A high average order value means that your marketing campaigns are effective at getting customers to buy more expensive items. This allows you to focus on promoting high-value items instead of lower-priced ones.
Importance of Understanding Your Customers:
If you want to increase the average order value for your e-commerce business, it’s important to understand your customers. Who are they? What do they need? What do they want?
Once you have a good understanding of your customers, you can start creating products or services that they love – and that will get them to spend more money with your business.
Of course, understanding your customers is not easy. It takes time and effort to really get to know them. But it’s worth it because once you understand them, you can give them what they want – and that will increase the average order value of your business.
How to Understand Your Customer?
To grow your business, it is essential to understand your customer. By understanding your customer, you can develop strategies to increase average order value and customer loyalty.
Here are a few ways to better understand your customer:
- Develop buyer persona
- Conduct customer surveys
- Analyze your customer data
Let’s take a deep analysis:
1. Develop Buyer Persona:
Creating buyer personas is a process through which you can better understand your target customer. It involves creating detailed profiles of your ideal customer based on factors such as demographics, interests, and behavior.
By developing buyer personas, you can get a better idea of who’s your target customer and what they’re looking for. This can help you create more targeted and effective marketing campaigns. This helps you to increase average order value.
If you’re not sure where to start, there are plenty of resources out there to help you create a buyer’s persona.
Once you know your buyer’s persona, you can start creating more targeted and effective marketing campaigns that will help you better reach and connect with your target customer.
2. Conduct Customer Surveys:
As a business owner, it’s critical to always be looking for ways to better understand your customer. After all, your customers are the lifeblood of your e-commerce business, and without them, you won’t be in business for long.
One of the best ways to gain insights into your customers and increase average order value is to conduct customer surveys.
Surveys can help you learn about your customers’ needs, wants, and what they are looking for. They can also help you understand what they think about your business, your products or services, and your competition.
Conducting customer surveys doesn’t have to be complicated or expensive. There are a number of survey tools available in the market.
If you are using Shopify for your e-commerce business then it’s very easy to create survey forms just you have to install a third-party contact form builder app for your Shopify store that will help you get feedback from your customers.
3. Analyze Your Customer Data:
Even if you think you know your customers well, there’s always more to learn. The best way to get to know your customers is to analyze your customer data.
Start by taking a look at your customer acquisition data. This will give you insights into how your customers found you and what made them decide to buy from you.
Next, take a look at your customer behavior data. This will give you insights into what your customers do after they buy from you. Are they satisfied with their purchase? Do they come back and buy again? Or do they never come back?
Finally, take a look at your customer demographic data. This will give you insights into who your customers are and what they’re like. What are their age, gender, and location?
How to Increase Average Order Value:
- Provide Product Recommendations:
- Provide Volume Discounts
- Control Pricing on Product
- Offer Post-purchase /AfterSell Discounts
- Implement Upselling and Cross-Selling Strategies
- Set Minimums Order Amounts for Discounts
- Provide BOGO Discounts
- Set up a Customer Loyalty Program
- Add Limited-time Offers
- Provide Free Shipping
- Bundle Products or Create Packages
Let’s take a deep analysis of how to increase the average order value
1. Provide Product Recommendations:
One way to increase average order value is to provide product recommendations to customers.
This could be done in several ways, such as displaying recommended products on your website or sending personalized recommendations via email.
Product recommendations can be generated using a variety of methods, such as collaborative filtering, content-based filtering, or demographic-based methods. Whatever method you choose, make sure that the recommendations are relevant to the customer and their needs.
If you’re not sure how to get started, there are a number of software platforms that can help you create and deliver personalized recommendations to your customers.
There are a few different ways to provide product recommendations.
One approach is to show customers similar products to what they’re already looking at.
For example: If a customer is viewing a product page for a pair of shoes, you could recommend other shoes that are similar in style, size, or price.
Another approach is to recommend products that complement the item the customer is already interested in.
For example: If a customer is looking at a dress, you could recommend a necklace or a pair of earrings that would go well with the dress.
This is also known as cross-selling. We will discuss this further later in the blog.
2. Provide Volume Discounts:
Discounts are one of the most effective strategies for increasing average order value. By offering discounts for larger orders, you can encourage customers to buy more products from your store.
This can be a great way to boost sales and increase average order value.
There are a few different ways you can offer volume discounts. The most common is to offer a discount for orders over a certain amount.
For example: You could offer a 10% discount for orders over $500.
You can also offer tiered discounts, where the more products a customer buys, the higher the discount they receive.
For example: You could offer a 10% discount for orders of 2 products, a 20% discount for orders of 4 products, and a 30% discount for orders of 6 products, and so on.
Volume discounts are a great way to incentivize customers to spend more per order. And when done correctly, they can increase average order value.
There are a few things to keep in mind when offering volume discounts.
- First, you need to make sure that your discounts are tiered so that customers have the incentive to purchase more items.
- Second, you must ensure that your discounts are applied automatically at checkout, so customers don’t have to remember to enter a promo code. If you are using Shopify for your e-commerce business then it’s very easy to create automatic discounts just you have to install a third-party called AIOD – All Automatic Discount app for your Shopify store that will help you to create automatic discounts in the Shopify store.
3. Control Pricing on Product:
The first and most obvious way to increase average order value is to increase the prices of the products. Yes, you hear right increasing your price on certain products will help to increase the average order value.
If you are planning to increase your prices, it’s important to do so in a way that doesn’t impact your existing customer base.
A small price increase of 2% – 5% is enough to increase the average order value without affecting your customers.
You can also use pricing strategies like dynamic pricing and versioning to increase average order value.
By using these techniques, you can increase the amount each customer spends without sacrificing too much in terms of margins.
Of course, pricing is just one part of the equation. You also need to make sure that your products or services are appealing to customers and that they’re easy to purchase.
But if you can get the pricing right, you’ll be able to increase average order value.
4. Offer Post-purchase /AfterSell Discounts:
Post-purchase Aftersell discounts are a type of incentive that retailers offer customers to encourage them to buy more products. These discounts are usually given as a percentage of the customer’s next purchase and can be used on any product in the store.
Here are some tips on how to do this:
- Make sure your discounts are relevant to your customers. For example, if they have just purchased from your women’s clothing section, offer them a discount on their next purchase from the men’s clothing section.
- Keep your discounts simple and easy to understand. The last thing you want is for customers to get confused about how much they need to spend to receive a discount.
- Use urgency as a motivator. Tell customers that the discounts are only available for a limited time and that they will miss out if they don’t take advantage of them immediately.
- Make sure the discounts are available for all products, not just select ones. Customers will be more likely to take advantage of them if they know they can use the discounts on any product they want.
5. Implement Upselling and Cross-Selling Strategies:
Think about it this way: if a customer is already interested in buying Product A from you, they’re likely to be interested in Products B and C.
By offering these products as an upsell or cross-sell, you’re increasing the chances that the customer will add them to their order and ultimately increasing in average order value.
So, what exactly are Upselling and Cross-selling? In business, upselling and cross-selling are terms used to describe selling more products or services to a customer.
Upselling involves convincing customers to purchase a more expensive version of an item they are considering buying.
On the other hand, cross-selling refers to recommending related items to customers who have already shown an interest in a particular product or service.
Upselling and cross-selling can be extremely effective methods of increasing business sales and profits.
However, it is important to remember that these techniques should only be used when customers are genuinely interested in your offer. Trying to force products on people who aren’t interested will only result in lost sales and disgruntled customers.
When it comes to cross-selling and upselling, there are a few rules you should always remember to succeed.
Here are some tips to help you get started:
- Make sure your products are related: When cross-selling or upselling, it is important to make sure they are related. This means that customers should be able to see a connection between the items and understand why they are being offered together.
- Don’t just promote your products: It can be tempting to push your products when cross-selling or upselling, but this is not always effective. Try recommending complementary items instead of identical ones.
- Use clear and compelling language: When describing your products, use clear and compelling language that will convince customers to buy them. Explain the benefits of buying each product and how they can improve the customer’s life.
- Offer discounts: If possible, offer discounts on the products you try to sell. This will make them more appealing to customers and increase their purchasing chances.
- Remember the importance of timing: Timing is key when cross-selling and upselling; make sure you offer these promotions at the right time, so customers are more likely to buy them.
Unfortunately, Shopify does not have an inbuilt upsell and cross-sell system, but you can easily get third-party apps like the AIOD – All Automatic Discount app for this purpose.
6. Set Minimums Order Amounts for Discounts:
Order minimums are a great way to increase average order value. Setting a minimum order amount encourages customers to buy more items to reach the discount threshold.
This can be especially effective if you offer a significant discount for orders that meet or exceed the minimum amount.
There are a few things to keep in mind when setting order minimums.
- First, you’ll want to ensure that the minimum is not so high that it deters customers from placing an order.
- You’ll also want to ensure that you’re still making a profit on orders that meet the minimum.
- Lastly, you’ll want to ensure that your shopping cart software can accommodate order minimums.
With these things in mind, you can increase average order value with order minimums.
7. Provide BOGO Discounts:
Buy one, get one (BOGO) discounts greatly increase average order value (AOV). By offering a discount on a second product when a customer buys the first, you can encourage customers to buy more.
This can be a great way to clear excess inventory or boost sales of slow-moving items.
BOGO discounts can be offered in a few different ways. The most common is to offer a certain percentage off the second item, such as 50% off. You can also offer a fixed amount, such as $10 off. Or you can offer a free second item for every purchase of the first.
8. Set up a Customer Loyalty Program:
A customer loyalty program is a system that rewards customers for making purchases from your company. Often, loyalty programs offer points or rewards that can be redeemed for discounts or free products.
These programs can take many different forms, but they all work to incentivize customers to spend more money with your business.
Customer loyalty programs greatly increase average order value because they encourage customers to make larger purchases to earn more points.
These programs help increase customer loyalty and retention, both of which are important factors in growing a successful business.
9. Add Limited-Time Offers:
A limited-time offer is a great way to increase average order value. By offering a discount or a free gift with a purchase, you can encourage customers to spend more money with your business.
This is a particularly effective strategy if you have a well-reviewed product but a bit on the pricey side.
Offering a limited-time discount can entice customers to take the plunge and buy your product. You can also use this strategy to increase seasonal or clearance item sales.
10. Provide Free Shipping:
Providing free shipping is one of the most effective ways to increase average order value. By requiring customers to spend a certain amount before they qualify for free shipping, you can encourage them to add more items to their cart and boost your sales.
There are a few things to remember when setting free shipping.
- First, you need to make sure that your shipping costs are covered. If your margins are too tight, you won’t be able to offer free shipping without losing money.
- Second, you need to set a threshold that makes sense for your customers. If your threshold is too high, customers may be discouraged from shopping with you. But if it’s too low, you won’t see an increase in average order value.
11. Bundle Products or Create Packages:
Lastly, if you want to increase average order value, one strategy is to bundle products or create packages. This involves grouping together products or services that complement each other and selling them at a discounted price.
For example: If you sell jewelry, you could create a package that includes a necklace, earrings, and a bracelet. Or, if you sell beauty products, you could create a bundle that includes shampoo, conditioner, and hair treatment.
If you want to increase average order value, bundling products or creating packages is a strategy you should consider.
Bundling products or services is a great way to increase average order value because it gives customers a deal on items they would likely buy anyway.
Plus, it makes it easy for customers to add additional products or services to their orders without searching for them separately.
E-commerce stores can use a few key strategies to increase average order value. These include upselling and cross-selling products, offering discounts and free shipping, and creating a sense of urgency.
Implementing even a few of these strategies can significantly increase average order value.
If you have any further questions, feel free to leave a comment.