Motivating customers to spend more money while online shopping is no easy task. If it were, every ecommerce merchant would have sky-high profit margins and impactful revenue growth. Merchants and brands experiencing this level of success are aware of the online business strategies required to build recurring revenue. Average order value is important for ecommerce stores as it can directly impact revenue growth and projections.
AOV shows how much money a customer spends during a single transaction. Key data insights, like AOV, can provide merchants with a better understanding of customer behavior and overall business performance. Average order value formula is calculated with the following AOV formula: your revenue divided by the number of orders. It is a critical metric to track for online stores for several reasons. More influentially, merchants who are strategic in boosting AOV will spend less marketing dollars and other resources that are usually put forth to acquire new customers. In the end, it costs less to increase how much existing customers are spending at checkout rather than paying high acquisition costs.
How much are shoppers spending on your ecommerce site? Average order values can provide key performance measures to help merchants understand how customers are interacting with products, as well as evaluate effective channels for increasing revenue growth. A declining AOV could be an indication that adjusting your offer strategy may help customers select additional items or options at checkout.
With high traffic to a site and solid conversion rates, merchants should take the opportunity to identify methods for increasing average order value. Testing this methodology will be critical in examining how customers respond to upsell, cross-sell or discount offers. Additionally, strategic efforts for increasing your bottom line should also incorporate an assessment of how frequently shoppers are ordering or product bundling.
Early studies during the pandemic showed a steady decline in average order values for most ecommerce retailers worldwide. However, despite ongoing supply chain issues and growing inflation rates, newer studies indicate that consumer spending is strong in Q2 2022. A study by Klaviyo reports that average order values increased 19% in Q2. What’s driving spending? There are numerous factors, but the same study alludes to using strategic alerts like “back in stock” as these are providing significant incentives for shoppers to increase order value.
Subscription commerce provides a better method for merchants to scale online business quickly. By designing a recurring revenue strategy, ecommerce business owners can focus efforts on nurturing existing customers and developing methods to increase customer lifetime value. Along with this, by monitoring customer behavior, better decisions can be made on how to incentivize customers to spend more during checkout.
Why is average order value important for subscription commerce? For one, it provides an efficient way to increase revenue without additional marketing dollars. It also helps to cut costs for businesses for each individual customer transaction. By increasing AOV, merchants can lower transaction fees, optimize customer acquisition costs (CAC) and reduce shipping overhead.
Merchants should consider the types of products offered. Key ecommerce metrics can give merchants insights to understand buying behavior. Data points may include:
Persuading your customers to add an extra item to their cart or upgrade to a higher-priced product is a challenge in today’s ecommerce economy. Focus on these strategies to increase AOV and maximize profit for your business.
An average order value formula suggests there are various options when approaching how to influence buying behavior for existing or future subscribers. Merchants must take steps to help influence buyers to increase the size of their checkout carts. For subscription commerce, this means focusing on core features that are appealing and offer subscribers a great shopping experience or value with their purchase. Top digital shopping features valued by consumers include free shipping (85%), product details (77%) and coupons (74%), according to our November 2022 Subscription Commerce Conversion Index.
You see this pricing model in grocery stores all the time, and the strategy works for ecommerce too. Quantity-based pricing models like “three for $50” or “buy three get one free” are easy for customers to understand. Use this strategy for non-perishable products that consumers will eventually need to replenish such as paper towels, toothpaste or razors. This type of discounting is particularly effective when implementing pop-ups or cart messaging. Plus, quantity-based discount pricing can come to the rescue if you have a surplus of products you need to unload fast.
Goli Nutrition utilized this type of discounting in their holiday sale promotion. The nutrition company made it clear customers were getting a deal by crossing out the standard price of $95 for five gummy bottles and displaying the new total of $76. They also broke down the total price per bottle to show the savings.
With supply chain issues and other ecommerce roadblocks that surround the delivery of products, merchants are gaining clarity on circumventing increased costs. Some are experimenting with pack sizes to reduce shipping weight. Strategically developing plans to increase average order values means optimizing current business procedures and processes. Do not let a sale slip through your fingers because of shipping. Instead, leverage shipping to increase your AOV. Create a threshold where any transaction over a certain amount earns the customer free shipping. The threshold amount can vary by your business model.
Take this example below from beauty and wellness brand Eirtree. Not only does the brand promote free shipping for orders over $75 at the top of their homepage, they make it easy for customers to understand exactly how much more money they need to spend to earn free shipping on their order. No math needed. Plus, the two-day free shipping promotion is an added value.
It might make more sense for your brand to offer quantity-based free shipping. Tasting Room, for example, offers free shipping when customers purchase a certain number of bottles from the wine retailer, as seen below.
Whether your brand offers free shipping based on quantity of purchased items or amount spent in one transaction, ensure your shipping policies and frequently asked questions are easy to find on your website.
Bundling happens when brands or merchants group different products or services together for a set price. Product bundling serves as the perfect strategy for introducing new or unknown products, as well as increasing AOV. Simply bundle a less popular product with a high-demand one to pique customer interest.
Customers love product bundles when they can quickly recognize the savings. Take athlete icon Tom Brady’s brand, TB12, as an example. The offer below shows customers how much money they save by buying the vitamin bundle instead of individual bottles. In this case, the ad copy explains how the products in the bundle combine for overall wellbeing. To really boost your AOV, let customers know the benefits of buying a collection of products, beyond just the savings aspect.
Another great tactic for increasing AOV is with bulk orders. Brick-and-mortar giants like Sam’s Club and Costco enable customers to stock up on the products they know they will need. But with more consumers moving online to shop and taking advantage of direct-to-consumer channels, merchants need to be ready with a selection of bulk offerings.
Online CBD store Pure Kana offers their vegan gummies in bulk, as seen below. Their offer below shows buying a three-pack of the same product saves customers 15%. They also show the reduced price to make the deal even more enticing. Like quantity-based discount pricing, offering bulk deals is ideal for CPG brands because they offer products that customers will need to replenish.
AOV and customer lifetime value metrics are both critical to subscription commerce and scaling business. They can help drive strategic business direction and product curation for merchants who want to focus on reducing customer acquisition costs while driving valuable experience for existing customers. Both AOV and CLTV can help ecommerce shops measure and gauge overall business health. On one hand, AOV is considered a more short-term revenue goal, while customer lifetime value is a long-term goal. Each can help improve business revenue and increase your bottom line. You can calculate AOV by dividing revenue by number of orders, but there are several methods for calculating customer lifetime value.
Additionally, AOV can have a big impact on customer lifetime value because it is the beginning of forming a lasting relationship with customers. Adopt strategies to increase your AOV and set a foundation for future success.
Increasing average order value is essential for boosting revenue and initiating a long-term relationship with your customers. Use strategies like quantity-based discount pricing, free shipping, product bundles and bulk orders to boost your AOV. Merchants and brands should leverage a flexible ecommerce platform to maximize AOV, streamline order management and easily track results.