Average Order Value (AOV): Definition, Importance, Calculation, and How to Increase it
Let’s start with a small warm-up question. Say you have two customers:
- Customer A buys the same four products from your business on a weekly basis
- Customer B buys a different set of four products and does so on a monthly basis
Which customer is more valuable to your business?
Alright, you probably didn’t fall for our trap. The answer is:
You need to know the cost of the items being purchased before you decide which customer is better for your business.
That’s where Average Order Value (AOV) comes into play.
In this guide, we’ll give you everything you need to know about Average Order Value (AOV), including its definition, impotence, calculation, and more.
Here’s what you’ll learn:
- What is Average Order Value (AOV)?
- The importance of Average Order Value
- How to calculate Average Order Value
- Average Order Value example
- What is a good Average Order Value?
- Average Order Value benchmarks
- How to increase your Average Order Value
- The bottom line
What is Average Order Value (AOV)?
Simply put, Average Order Value (AOV) refers to the average amount of money spent when a customer places an order on a website, mobile app, or in-store.
Average Order Value is considered one of the most important metrics for online stores to be aware of. It is a key performance indicator that companies measure to understand their customers’ purchasing habits. Like many other metrics, Average Order Value can be tracked for any time period, but most businesses monitor the moving monthly average.
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The importance of Average Order Value
Beyond an increase in revenue, understanding and increasing your AOV can efficiently impact your business.
Below are four ways that Average Order Value can impact your business decisions.
1. Buying patterns and trends
Average Order Value shows you the time of year you need to pay the most attention to. In other words, which season(s) most resonate with your highest value customers?
For instance, Valentine’s Day campaigns may work well for candle companies but may fall short for home goods companies. You can showcase free shipping thresholds, implement bundles, as well as have the best ad copies to attract your repetitive buyers and new ones to generate more sales.
However, if these don’t hit your set revenue, don’t consider them as a failure. Instead, look at your Average Order Value and ask yourself:
- Did your AOV increase in the campaign? Or did it decrease?
- What does that tell you?
A decrease in AOV can tell you a couple of things:
- You’ve probably underpriced your items
- Or maybe this campaign or trend is not something that your customers are highly attuned to
Another campaign or bundle would have worked better for you. Or you need to bundle your products with better and sought-after trending.
Not reaching your target numbers isn’t a failure in this case. Instead, it is directional as you begin to understand your audience better and optimize your campaigns for future success.
2. Conversion costs
If you have a high conversion cost but low AOV, you’re literally losing revenue. Say, if you pay $100 to acquire one customer, but earn $100 (or even less) in AOV, then you’re in the red.
Your Average Order Value should be at least 2X higher than your customer acquisition cost, or your conversion cost.
3. Ad spending
So, how much is your business spending on advertising, and is it translating or reflecting your AOV?
Similar to above, if you’re spending equal or more than your AOV to acquire a customer, you’re again in the red line. Even if you’re spending less to acquire a customer than your AOV, you still have to check your margins. Think through:
- Product costs
- Ad costs
- Shipping costs
- Warehousing costs
4. Pricing strategy
How well are your products priced?
Most brands are afraid of raising their prices, thinking that it will lower their conversion rate and turn customers off.
However, depending on how you position your business, whether it’s a luxury or an economic one, you can alter your pricing accordingly. If you are somewhere in the middle, it can turn out to be difficult and raise concerns with your margins.
=> From helping you better understand your customers and increase your conversion rate, to free up more budget for ad spending and implement a more effective pricing strategy - AOV is an essential metric of overall business health.
How to calculate Average Order Value?
To calculate your Average Order Value, simply divide total revenue by the number of orders.
Average Order Value (AOV) = Total Revenue / Number of Orders
Please keep in mind that the Average Order Value is determined with the help of sales per order and not sales per customer. Even when one customer makes multiple purchases at different periods, every order has to be divided as an AOV separately.
Also, AOV doesn’t factor into your gross profit or profit margins, but it’s still a vital metric for decision-making.
While figuring out your Average Order Value, there are a couple of things to keep in mind, including:
Lifetime Value per Customer. This metric refers to the overall value of every customer and signifies the average amount they will order from you over time. If this value is extremely low, chances are your customers are not making too many purchases, which in turn, can affect your return on marketing investments.
Cost per Conversion. Cost per Conversion notes the amount to acquire every customer to convert. It should be deducted from your AOV to show the actual profits per order.
Average Order Value example
Let’s assume that your business generated a revenue of $4,000 across 200 orders last month; your Average Order Value is:
Average Order Value (AOV) = $4,000 / 200 = $20
Once you’ve got a basic understanding of Average Order Value, let’s quickly address the notion of what a “good” AOV is.
What is a good Average Order Value?
As you can imagine, what’s considered a “good” Average Order Value will vary based on different factors, such as your specific industry, sales channel, and devices used by consumers.
So, when determining your own goals and KPIs, it’s work keeping the following points in mind:
Significant disparities between industries. According to IRP Commerce, a company that compiles all the E-commerce data in the UK market, the average AOV for online stores that sell “Health and Wellbeing” was 37.96 GBP in November 2018. Meanwhile, the data for “Baby and Child” was 189.35 GBP. That’s why it’s critical to account the differences between industries. We’ll display the full list of data across industries in the next section.
Specific AOVs based on devices. While formulating your own target numbers, it’s essential to set diverse goals across different devices. When it comes to AOV across devices, the figures can vary significantly. For example, the AOV made for purchases made via Windows desktops is well above double that for iPhones.
Pay attention to seasonality. AOV will be higher at certain times of the year (i.e., Christmas), and this is a vital point to be aware of.
While you certainly can - and should - use different benchmarks to gauge your own efforts, it is more productive to always focus on improving your AOV, regardless of where you stand against your competition.
Therefore, a “good” AOV is simply one that’s better than your previous one, whether calculated on a monthly or yearly basis.
Next, to help you see where you stand, we’ll show you Average Order Value benchmarks. Once again, this might not be a perfect science, but it will give you a reasonable range of results to accomplish.
Average Order Value benchmarks
Average Order Value by industry
Industry-specific benchmarks are one of the most useful reference-points for your own performance.
|Industry||Average Order Value (in GBP)|
|Baby and Child||189.35|
|Cars and Motorcycling||130.93|
|Fashion Clothing & Accessories||117.51|
|Food and Drink||113.92|
|Sports and Recreation||94.15|
|Home Accessories and Giftware||76.55|
|Arts & Crafts||76.49|
|Electrical and Commercial Equipment||60.36|
|Kitchen & Home Appliances||55.61|
|Health & Wellbeing||37.96|
Average Order Value by channel/ source
When retailers separate AOV by source, they can see which traffic avenues drive the highest revenue. This enables them to:
- Allocate further resources to the top-performing channels
- Formulate more accurate channel-specific KPIs, with particular goals tied to each individual source
|Channel/ Source||Average Order Value (in US dollars)|
Average Order Value by platform and device
When it comes to device-specific AOV, desktop still leads the way with Windows computers driving the highest of all.
|Platform||Average Order Value (in US dollars)|
The use of mobile phones to make online purchases is growing dramatically. Although mobile commerce sales account for nearly half of all E-commerce sales, the AOVs remain comparatively lower. There’s a significant opportunity for E-commerce retailers to boost metrics like AOVs and conversion rates on mobile devices to bring them closer to desktop levels.
|Device||Average Order Value (in US dollars)|
=> The key thing to remember about Average Order Value benchmarks is that they are only tools to help you form your own KPIs. It’s also necessary to focus on trustworthy studies close to your own specific circumstances in terms of country, verticals, and traffic sources.
Just always bear in mind: the best AOV is one that is higher than the previous one.
How to increase your Average Order Value?
It’s now evident that Average Order Value has a big impact on your results. However, there is a common question we still need to answer - how can you increase your AOV?
This is exactly what we’re going to tell you right now. Let’s explore our X following useful tips!
1. Bundling products or creating packages
If you want customers to purchase more from you, try creating product bundles/ packages that cost less than if the same items were individually purchased.
By bundling products, you are increasing the perceived value of a customer’s purchase. One excellent approach to product bundling is to offer a package of products that create an all-in-one solution for the desired experience.
For instance, Mageplaza is one of the top Magento extension providers. They have bundled their products in a way that shoppers can easily search for products and check out. Therefore, online stores are able to reduce their cart abandonment rate, while boosting their sales ultimately.
When buying in bundles, customers not only get a complete benefit in terms of money but also receive a good value. This makes it much more simple for customers to get everything they need in one shot while eliminating the need to conduct further research.
The best thing - you’ve sold multiple products instead of just one or two.
You can also empower your customers to build their own bundles by allowing for custom products or packages. This gives them the freedom to pick based on their taste and preferences, just like what Mageplaza does:
2. Utilizing free shipping thresholds
Free shipping is a common but still highly effective way to motivate customers to spend more.
In order to calculate your threshold, begin with modal order value or the most common order values. For example, if most of your orders are now in the $35 range, you might offer free shipping to orders above $50.
It is recommended that you set your threshold at 30% higher than your AOV (but don’t forget to consider using your modal order value here). The target is to make free shipping feel attainable to the greatest number of customers, hence increasing your overall revenues. Setting the threshold too high can risk abandoned carts.
Tip: Consider using a free shipping bar on your website to make it obvious that you are offering a minimum order incentive.
3. Offering discounts
Another excellent way to boost your AOV is to provide customers incentives like promotions and discounts whenever they add items to cart.
When offering discounts, make sure to add a minimum spend. For instance, get $10 off when you spend $65 or more.
Some businesses also offer volume discounts. This is when specific order value brackets result in a specific discount. For instance, get $10 off when you spend $65, get $20 off when you spend $100, and get $25 off when you spend $150 or more.
These kinds of price cuts encourage extra purchases as it feels wrong to miss a chance for a discount. Humans are loss-averse, they prefer to avoid loss. Researchers actually call it FOMO (Fear of Missing out)fomo-ecommerce-marketing.html), fear that you don’t use all available opportunities to the max.
4. Cross-selling and upselling
Cross-selling and upselling are tried-and-true behavioral marketing tactics that greatly help in improving your AOV. Like their cousin - bundling, cross-selling and upselling are all about nudging consumers to buy complementary or upgraded versions of the items they already intend to buy.
Cross-selling is the act of showcasing products that supplement the “main” product a customer is focusing on. For example, if your consumer is looking at a dress, you might recommend a pair of earnings that pair with it.
Upselling is the process of showcasing similar - but more valuable - products to customers considering a specific purchase. Take smartphone plans, for example, a customer might have chosen an entry-level smartphone with 32GB of storage, but an option with 64GB is placed on the same page and advertised as an upgrade for just a few dollars more.
5. Rewarding loyal customers
Incentivizing consumers to shop consistently at your store can help boost AOV over time. Creating a customer loyalty program can be a retention strategy that forges relationships with your customers and encourages them to return. For example, each time a customer orders, they can earn points or discounts just for being loyal customers.
Up to 40% of a store’s revenue comes from repeat customers, and 8% of all store visitors are repeat ones. Repeat customers are more likely to purchase more from your store than those unfamiliar with your brand.
By encouraging repeat sales, you can create a more massive fanbase that will likely order large quantities of products. They are also cheaper to advertise to via retargeting, email marketing, or social media. Therefore, this strategy can help increase your Average Order Value.
6. Building social proof
When it comes to onsite marketing, nothing can beat the power of social proof in the form of customer reviews and UGC (User-Generated Content).
Social proof is defined as the phenomenon when shoppers are heavily influenced by the thoughts and experiences of other shoppers. That’s why successful E-commerce businesses always provide a platform for customers to leave their reviews, star ratings, as well as user-generated photos and videos.
Social proof becomes all the more critical when up to 97% of consumers say online reviews impact their buying decisions, according to OptinMonster.
- Top 30+ Social Proof Examples
- 25 E-commerce Companies Use Social Proof Successfully
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7. Providing fully-staffed live chat support
Do you know that businesses that staff a live chat can sell more - about 10-15% per cart?
Well, being available through live chat can help customers get their immediate questions answered, meaning the greater potential for a sale and fewer abandoned items.
In other words, live chat helps your highest-intent shoppers to buy. You will be chatting with visitors who intentionally came to your website to browse or buy, but might need specific questions answered to gain the confidence to hit “Buy.”
Live chat is especially helpful for high-ticket items, which may require more handholding to reach the checkout line. Product reviews, testimonials, and other social proof can help, but live chat can close the deal when it counts the most.
Moreover, if you provide a way for your visitors to instantly connect with you, you are not only helping sell once, but fostering a conversation that can encourage repeat sales.
8. Improving the customer experience
The final area to focus on when looking to improve AOV is your customer experience.
Think about it:
The easier and more straightforward it is for your customers to navigate your website, the longer they stay. This means they’ll have more opportunities to be exposed to your various offers and products - potentially leading them to make additional purchases whenever they engage with your brand.
If navigating your site seems to be too frustrating, chances are your visitors will leave right away. While they might still put up with your website long enough to make a necessary purchase, they probably don’t make too many additional purchases throughout their lifespan with your brand.
Plus, personalized experiences have become a common demand and expectation. Many consumers won’t purchase from a brand that hasn’t tailored its sites to their individual interests.
The good news is: modern AI-powered tools provide not only personalized experiences for customers, but also give retailers the ability to quickly analyze data. These tools can personalize both the content and product recommendations for each shopper, improve their overall onsite experience, and draw them towards the checkout page.
The bottom line
The beauty of Average Order Value is that you are concentrating on visitors who already want to buy. They have come to your store with high intent; they may even have items in their shopping carts. All you need to do is help them discover and purchase other items relevant to them.
That’s it for our Average Order Value guide! If you have any questions, please contact us! We’re always here to help you!
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