What is the Average Order Value?

How is the Average Order Value calculated?

To calculate the AOV, you need to divide the total revenue generated during a certain interval by the total number of orders placed in that same period of time.

Formula: AOV = Total revenue generated/ Total number of orders (in a chosen time frame).

Example: If you have received 50 orders in December, which summed up to $3000 in total revenue, your average order value would be $60. (AOV = $3000/ 50).

AOV can indicate how much your customers are willing to pay on average for an order placed on your website, in a certain period of time and it is important because it impacts business decisions. The AOV assists you with setting up measurable goals and evaluating their effectiveness. Knowing your company’s AOV can support you in assessing your online marketing strategy and overall advertising efforts, along with the pricing strategy, by measuring the long-term value of every customer.

Such business decisions can be:

• Managing your advertising budgets. If you have generated a higher AOV on a monthly basis with the same advertising budget, you have successfully maximized your advertising budget. Therefore, AOV is a direct way to increase profit when customers are already engaged in a purchase on your e-shop.
• Staying connected with trends and buying patterns. Any change in the AOV can be highly influenced by the seasonality of your products. You need to be aware of the most favorable time of the year for your business, so you can adjust your campaigns accordingly to maximize the AOV.
• Monitoring conversion costs. You are losing revenue when your AOV is low but the conversion costs are getting higher, therefore, you should take action in order to generate an AOV at a maximum 30% cost of acquisition.

Here are some simple examples that you can implement to increase your AOV:

• Offer free shipping or other gifts if they place an order for a certain amount. This is not reinventing the wheel, it is a common strategy used by many online retailers and it usually generates results. Just be sure you inform your customers accordingly across your website of this benefit (on the homepage, product pages, on your shopping cart page, or in the checkout section).
• Create urgency with flash sales, only available for short periods of time. You can bet on FOMO (fear of missing out) because no one wants to miss out on great deals. Offer discount codes available only for 24h-48h or launch promotions to a selection of products that can increase your AOV even when discounted.
• Create loyalty among your existing customers. You can do that by inviting your customers to subscribe to a loyalty program. Why generate new traffic to bring new customers to your website which requires extra resources such as time and money? Why not focus on existing customers and make them come back every time for more? Loyal customers will remain faithful to your brand without being price sensitive because they are natural ambassadors, who usually promote your business through word of mouth to other trusted peers (friends, family, colleagues, etc.). A loyalty program can consist of different types of discounts generated if they increase their order value with every purchase on your e-shop; offering loyalty points which they can use on their next purchase by means of vouchers; or generating loyalty points for different actions they take concerning your business (recommendations to others, posting reviews).

There are other great ways to improve your AOV, just let your imagination run wild and make use of your business insights.