According to Forbes, by 2026, the eCommerce market is expected to total over $8.1 trillion. For your customers, it could mean new stores and more choices, leading to increased indecisiveness. On the other hand, if you're an eCommerce owner, this means that by taking the right steps, you can increase opportunities and profits. Understanding how much customers are willing to pay for your products is crucial in such a competitive environment. That's why today's topic is Average Order Value.

Let's delve deeper into the definition, importance, strategies to increase average order value, and much more. ✨

What is the Average Order Value?

Average Order Value (AOV) is a metric used in business to measure the average amount of money customers spend on each transaction.

Businesses often use AOV to understand customer spending habits, track performance over time, and make decisions about pricing, promotions, and marketing strategies.

Many store owners forget that there is a metric called the average order value. This number tells you how much your customers typically spend per order, which can help you know where to center your marketing operations and what products to stock.

It's the difference between your product or service's value and cost. It is a transparent indication of how much consumers are prepared to pay for your products on your Shopify store. Let’s talk about why it is important in more detail to see if you really need to determine it.

Why is Average Order Value Important?

The Average Order Value (AOV) metric tells eCommerce owners how much money they're making off each customer and it's considered by many to be an important determinant in the industry itself - after all, there are more than two billion searches for products daily on Google alone!

Aside from the apparent purpose of increasing each customer's expenditure with you, why should you care about raising the average order value?

🛍️  Customer Loyalty

When customers spend more on each order, they're likely to become more loyal. This loyalty turns into repeat purchases, contributing to long-term revenue growth.

🗣️  Word of Mouth

Happy customers who spend generously may recommend your store to others, expanding your customer base through positive word of mouth.

💼  Long-Term Value

Increasing AOV is essential for enhancing Customer Lifetime Value (CLV). By encouraging customers to spend more over time, you maximize their value to your business.

💰  Perceived Value

AOV reflects customers' perception of your product's value. A higher AOV indicates that customers find your products worth the price, fostering trust and satisfaction.

📈  Focus of Efforts

Monitoring AOV helps in strategic decision-making. If AOV is increasing, it suggests that efforts should be directed towards increasing the average sale price of products, rather than solely focusing on increasing sales volume.

Now that we understand why average order value is crucial for businesses, let's explore how it's calculated.

How to Calculate Average Order Value?

Now that we've discussed the definition and importance of AOV, it's time to discuss how you can calculate your own. Before digging into the calculation and other details of AOV, let’s get started with simple definitions of related terms.

In order to calculate AOV, you may want to calculate your Total Revenue, aka, Gross Revenue first.

📌 Total Revenue is simply the quantity sold multiplied by the price. You can follow this easy formula to calculate your eCommerce store’s Total Revenue.

Imagine a Shopify store owner, selling clothes. She sells Christmas Sweaters for $20 per pair. She sold 10 pairs of these sweaters this month, so her total revenue is $200(20x10).

📌 The average order value, on the other hand, can be calculated by taking the total revenue and dividing it by the number of orders.

For example, your Shopify store has a monthly revenue of $5,200 for September, derived from 200 different purchases. This indicates that your AOV is $26(5,200/200).

Now that we've covered how to calculate average order value, let's shift our focus to practical strategies businesses can employ to increase this metric and drive higher revenue

How to Increase Average Order Value?

Here are some tips/methods you can use to increase average order value.

1️. Bundle Deals

Increase your average order value by creating product bundles or packages of products that can be purchased together at a discounted price. This encourages customers to spend more by providing added value.

2️. Cross-Selling and Upselling

Recommend complementary or higher-priced products to customers during the checkout process. Cross-selling suggests related items, while upselling promotes premium or upgraded versions of products.

• As a cross-selling marketing strategy, Apple offers related products as recommendations before check-out. For example, when you buy an iPad, it suggests related products that you can use with your iPad.

📌 It's important to note here that cross-selling can be largely dependent on the type of product you sell. For example, if you're selling clothes this may be as simple as recommending a sweater to go with that winter jacket, but for electronics, it may require more detailed knowledge of the products being sold.

• On the other hand, up-selling is also a marketing technique in which the brand offers better or more expensive versions of chosen products. For example, an up-sell could be a customer being offered a more expensive, deluxe camera lens to go with the camera they just purchased. Again, here, Apple offers upgraded and newer versions of the AirPods, when you are looking into the details of an older AirPod.

3️. Minimum Threshold for Free Shipping‍

You can set a minimum order value to qualify for free shipping. When customers see that they need to spend a certain amount to receive free shipping, they may choose to add more products to their cart to meet this threshold. As a result, the total value of their order increases, benefiting both the customer, who receives free shipping, and the business, which earns more revenue from the larger order size.

4️. Volume Discounts‍

You can offer discounts for purchasing multiple quantities of the same item. This incentivizes customers to buy more to take advantage of the savings.

5️. Limited-Time Offers

You can create urgency by promoting limited-time offers, such as "buy one, get one free" or "20% off orders over $100." These promotions encourage customers to spend more to capitalize on the deal.

6️. Loyalty Programs

You can implement a loyalty program where customers earn points or rewards based on their purchase value. You can also offer incentives for reaching certain spending tiers, motivating customers to increase their order value to earn rewards.

According to market research, published in Harvard Business Review, in order to maximize loyalty and profitability, a company must give its best value to its best customers. That is, customers who generate superior profits for a company should enjoy the benefits of that value creation. As a result, they will then become even more loyal and profitable”.

From this perspective, for your Shopify store, you can also use loyalty programs by providing desirable rewards to loyal customers who spend more than others.

7️. Product Recommendations

You can use personalized product recommendations based on customers' browsing and purchase history to suggest relevant items they may be interested in, increasing the likelihood of additional purchases. For example, if you know that your average customer is an avid golfer, you could promote golf-related products at checkout, in-store displays, or via email and social media. Also, you can increase the perceived value of your products by offering more options, such as multiple colors or sizes. By doing this, you’ll be giving customers a chance for customization.

8️. Promote High-Margin Products

Highlight high-margin products or featured items on your website and marketing channels to encourage customers to explore and purchase them.

9️.Post-Purchase Offers

After customers complete a purchase, present them with exclusive offers or discounts on related products as a thank-you gesture, prompting them to make additional purchases. You can also offer free shipping and expedited delivery to encourage customers to spend more on your site by helping them get what they need faster. This incentive is always a popular one with customers, and it can go a long way in increasing your AOV.

When you increase your store’s average order value, you can help your eCommerce business grow and reach new heights. Utilize the tips above to get started!

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