Average order value (AOV)
What is Average Order Value (AOV)?
Average Order Value (AOV) is a key performance indicator in ecommerce that measures the average amount a customer spends each time they place an order. It serves as a vital benchmark for evaluating business health and profitability, often used alongside metrics like customer lifetime value (CLV), customer acquisition cost (CAC), and churn rate. Generally, a higher AOV indicates that customers are spending more per transaction, which can directly contribute to increased revenue and improved margins.
How do you calculate AOV?
To calculate AOV, simply divide your total revenue by the number of orders within a given time frame:
AOV = Total Revenue ÷ Number of Orders
Tracking this metric regularly can reveal important trends in customer purchasing behaviour, helping businesses fine-tune strategies around pricing, product bundling, and marketing.
Strategies to increase Average Order Value
There are several tried-and-tested tactics to boost AOV:
- Cross-selling: Recommending complementary products to encourage larger baskets.
- Upselling: Suggesting higher-end or upgraded versions of a product.
- Threshold-based incentives: Offering discounts, free shipping, or gifts for orders over a certain value.
- Product bundles: Creating packages at a slight discount to drive up the overall spend.
- Personalised recommendations: Using data analytics or customer feedback to tailor product suggestions.
- Loyalty programmes: Rewarding repeat purchases with points, perks or exclusive offers.
Analysing AOV trends over time, and segmenting your customer base based on order value or behaviour, can further enhance the effectiveness of these strategies. Targeting high-value customer segments with bespoke offers and promotions can significantly improve both revenue and retention.
