The world of eCommerce is broad, with retailers selling everything from handmade soaps shaped like your favorite celebrity to trending toys. But, every eCommerce business is focused on the same outcome: profits. Understanding eCommerce AOV, or average order value, can be a key tool for growing revenue and profits.
eCommerce AOV is the average amount spent in a single order by customers purchasing from an eCommerce business. It’s important to note that this metric counts sales per order, not sales per customer. If the same customer shopped your store on three different occasions, each of these orders would factor into the equation separately. Monitoring this metric weekly or even daily can help you strategize ways to increase revenue, profits, and even return on ad spend.
To calculate AOV, you divide your total revenue by the total number of orders. For example, if your total revenue from 250 orders is $5,000, you’d divide 5,000 by 250 to get an AOV of 20, meaning the average amount spent by your customers in those transactions was $20. Clover’s Point of Sale Reporting makes it easier than ever to have these numbers at your fingertips.
eCommerce AOV can offer insight into buyer trends, which can help you identify opportunities for increasing revenue. This important metric can also drive key business decisions, such as ad spend and product pricing.
Consider this example: An online store specializing in golf accessories sells three different boxes of golf balls, each priced differently. The prices are $80, $60, and $30, and the AOV on sales of golf balls is $40. In this instance, the AOV tells the business owner that customers are likely to buy only one item at a time and that the majority of their golf ball sales are for their lowest price option.
Generally speaking, the higher the AOV, the more money your customers are spending with you. If you’re using advertising dollars to bring these customers in, it also means that you are getting more out of the money you are using to acquire customers.
It’s already clear why you’d want to increase AOV: if you can get your customers to spend more with each transaction, your revenue and profits will increase as a result. So, how exactly can you increase AOV? While your strategy will be specific to your products, customers, and goals, there are some basic places to start when you want to increase AOV. Keep in mind that you shouldn’t try all of these strategies at one time. Test each strategy independently and compare the results to find the most effective strategy for your business.
These days, free shipping is a fairly common eCommerce tool for increasing AOV–and for good reason. Consider this example: A customer has an order in their cart that will cost $10 to ship, but they are only $15 away from meeting the order minimum for free shipping. If they add another $15 worth of merchandise to their cart, they’ll be paying slightly more overall than they would have if they paid for shipping the one item they had in their cart, but they’re getting an extra item out of the deal–that can be incredibly motivating.
How do you determine the right order minimum for your business? Look at the most common order value for your customers, also known as the mode. This information should be easy to find if you’re using a reliable POS system.
When setting the minimum order value, make sure it’s something that would feel within reach to your customers, otherwise you risk abandoned carts. If your AOV trends around $65, it would be a stretch to expect your customers to meet an order minimum of $150. If your orders tend to be around $35, a minimum order value of $50 would be reasonable.
Another option for the minimum order strategy is to offer a free gift when customers meet the minimum. With this option, it’s important to make sure customers know about this when or before they start shopping, so you have the greatest chance of influencing their behavior. Consider advertising the offer on your homepage, as an announcement bar on your website, or via email or text marketing.
We’ve all seen those stickers on product sets that say something like “a $90 value! Now only $50!” Bundling products increases a customer’s perceived value of their purchase. This tactic can be especially effective when the bundle brings together products to create an all-in-one solution. Take, for example, a complete skincare set offering cleanser, toner, and moisturizer. If you give a customer an option to buy all three products together for slightly less than buying all three individually, they’re more likely to buy the bundle than to just put one of the three in their cart–and that can go a long way towards increasing AOV.
Another idea is designing an experience where a customer can bundle add-ons to a product. This approach is especially effective in custom products, like invitations or other stationery. Stationery businesses like minted.com curate an experience for shoppers that lets them choose upgrades such as paper stock, paper finish, envelope addressing, and more after they customize the design of their invite. Their tactic of showing customers a preview of their choices is especially persuasive, and each add-on helps to increase AOV.
If your first job was in retail, you’re likely familiar with upselling. Upselling is a way to entice customers to buy products that are higher-cost, upgraded versions of what they already intended to buy. Think of the classic fast-food line: “Would you like to make that a large?” Another version of upselling is by offering a complimentary or add-on product, like a shatter-proof case for the cell phone they have in their cart.
Being successful with this approach means, first, your upsell should be of genuine value to the customer. Recommending a different or unrelated item may not go as far as suggesting a product that compliments what’s already in their cart. You should also keep the cost of the upsell reasonable and below the price of the original purchase. It’s unlikely that a customer will add a $100 item to a $75 purchase.
Many customers are motivated to spend more with a business when it offers a customer loyalty program that rewards their spending. And, with Clover’s customer engagement suite, setting up a rewards program is really easy. You might also consider offering promotions that directly target increased AOV, like bonus rewards for orders that meet a certain minimum. Many retailers, like Starbucks, for example, tie dollars spent to rewards that can be redeemed for free merchandise.
While your customers could share certain behaviors, they could also be very different in others. Segmenting customers based on their purchase history, for instance, could help you offer more customized offers that suit that segment better.
There are many ways to segment customers, and with Clover reports, you’ll have the data you need at your fingertips to see who your customers are and what might resonate best with them.
Running an eCommerce business can mean hours of perfecting customer acquisition strategies and more than a few dollars in ad spend. When you focus on increasing AOV, you’re having a more direct effect on revenue, with less spend. And, using some of the strategies we’ve mentioned, you can market directly to clients that have already shown an intent to purchase products or services from you.
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