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Ecommerce Insights: Key Strategies to Increase Average Order Value

Increasing Average Order Value is essential for boosting revenue and initiating long-term customer relationships. Learn how ecommerce merchants and brands can boost AOV.

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 four vacation homes. But you can be sure the merchants and brands experiencing this level of success know the importance of Average Order Value (AOV).

AOV shows how much money a customer spends in a single transaction. You can calculate AOV by dividing your revenue by number of orders. It is a critical metric to track because increasing AOV boosts profitability with less effort and resources compared to acquiring new customers.

Your AOV Could be Decreasing  

AOV has been on the decline for ecommerce retailers around the world. A study from Salesforce found ecommerce AOV dropped from $139 in Q4 2019 to $132 in Q1 2020 to $112 in Q2 2020. Moreover, economic uncertainty caused by the pandemic means consumers are less eager to part with their money. A study by Morning Consult, shows consumers plan on spending less during the 2020 holiday shopping season compared to previous years.

Persuading your customers to add an extra item to their cart or upgrade to a higher-priced product is even more challenging right now. Focus on these strategies to increase AOV and maximize profit for your business.

Key Ways to Increase Average Order Value

Quantity-based Discount Pricing

You see this pricing model in grocery stores all the time, and the strategy works for ecommerce too. Quantity-based pricing models like “3 for $50” or “buy 3 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.

Price-based Free Shipping

A study from Criteo found shipping costs will be the top factor influencing gift purchases during the 2020 holiday shopping season. 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 2-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.  

Product Bundles

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.

Bulk Orders

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 a3-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 and products that customers will need to replenish.

 AOV vs. Customer Lifetime Value

It is easy to get AOV and customer lifetime value confused. Both metrics are important to measure and gauge business health. AOV is a more short-term revenue goal, think of a sprint. Increasing Customer Lifetime Value is a long-term goal, like a marathon. You can calculate AOV by dividing revenue by number of orders, but there are several methods for calculating Customer Lifetime Value.

While they are different, 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.

The Bottom Line

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.

Learn more about how the sticky.io platform empowers merchants to increase AOV and other ecommerce goals. Request a demo today.