What is Average Order Value and how to calculate it
👶 E-commerce 101
The AOV (Average Order Value) is the average value spent on each purchase made in your store.
If your AOV is $70, this means that, on average, your customers spend $70 for each purchase made at your store.Â
How to calculate the AOV
The calculation of the Average Order Value is straightforward. Divide your revenue in a given time (that is, how much gross money has come into the store) by the number of purchases made.
AOV = Revenue / Number of orders completed
Let's say, for example, that you want to calculate your average order value in the year 2019.
Just divide your total revenue (say $300.000) by the number of orders placed and completed, that is, orders where everything went well and therefore there was actual payment (say 2 thousand orders, in our example).Â
In this case, the calculation would look like this: AOV = $300.000 / 2.000 = $150
The importance of monitoring the AOV
The calculation of the AOV - and its continuous monitoring by the e-commerce manager - helps the store to evaluate its effectiveness in getting customers to add products to the cart.
By continuously monitoring this metric, you can understand if, for example, only a specific price range of your products is receiving attention. Or if customers are reluctant to add more than one product to the cart.
AOV and benchmark
It's impossible to define a general reference number because the typical AOV is different for each market.
An online store that sells socks should always have an AOV inferior to the one of a luxury furniture e-commerce.Â
However, your store should have a sense of the typical AOV within its market. And you should work continuously to increase that number.Â
If you sell flowers, for example, try to investigate what is the typical Average Order Value in that market. And if you find yours is below the market standard, carefully analyze your strategies to understand the reasons.Â
Strategies for increasing the AOV
E-commerce managers usually wake up and go to sleep thinking of ways to increase traffic to the store.
This is a valid concern, but it must go hands in hands with others, among which is the critical concern of making customers who arrive at the store spend more on each order.
And here comes a difference that can be fundamental to the net result of your business: bringing new customers costs money, while the work of getting them to spend more on each purchase is usually associated with adjusting your strategy.
That is, there's not necessary extra cost associated with each purchase when we talk about increasing the AOV.
You can contribute to this by optimizing the experience on your website or using tactics such as recommendation, progressive discount, upselling, and cross-selling.
Let's see two examples:
When the customer arrives at the cart, you inform them that, if they spend another $25, the shipping will be free;
When the customer visits a product page, you show them options for additional products (batteries for the flashlight in which they're interested, for example).
This type of strategy increases the chances of customers adding new products to the cart, which makes the AOV grow.