What is Average Order Value?
Average order value (AOV) evaluates how much customers generally spend on each transaction and it is a common key performance metric for ecommerce. Tracking and analyzing AOV enables organizations to examine the drivers behind their clients’ purchases. These factors can be evaluated to create a better customer experience, which can lead to a higher customer lifetime value (LTV). Benchmarking and optimizing for AOV is a core element of a strong ecommerce personalization strategy, but AOV should not be confused with LTV.
Calculating Average Order Value
Average Order Value: (Sum of revenue generated) / (number of orders received)
For example: If you did $50,000 in sales and had 500 orders, the AOV would be $100. Please note that this calculation only factors in the sales per order and not the sales per customer. If a customer makes several purchases, they would be represented as separate orders.
The Importance of Average Order Value
Increasing your average order value can have business benefits even beyond increased profitability. By evaluating AOV, you can gain a better understanding of the customer journey (for example, if certain segments or visitors from a specific referral channel tend to purchase higher-end or less expensive items from your site). This can also help inform personalization strategies, including upselling and cross-selling techniques.
Improving Average Order Value
Retailers looking to increase average order value should consider taking the following steps:
Identify Your Most Valuable Customers
Your most valuable customers are your brand’s advocates. These customers may be posting about your brand on sales sites or recommending products to their friends. Not only does this help with your search presence and reputability, but this can also increase your average order value as a side effect.
Loyal customers are also overall more valuable to your organization. Their average order value is about 5% higher than a first-time buyer. They also engage with the site more (up to 85% more) than those who are new to the site. Catering to these individuals through some of the ideas below can help increase their customer lifetime value while increasing their average order value.
Add Personalized Product Recommendations
Personalized product recommendations are a great way to increase AOV. Not only do product recommendations have a positive benefit during the session itself, but Monetate research has also shown that return visits for recommended products have almost a 40% higher AOV than return sessions for non-recommended products. Additionally, engaging with product recommendations can increase purchase rates by 70% and improve average order rates by 33%.
Discounting your items should be done in conjunction with a long term strategy since it will only temporarily improve sales. However, if done correctly, you can gain new customers or reward current customers for their support. Consider offering discounts for the following: leaving product reviews, signing up for an email list, or referring friends. The added benefit of adding a discount is that you will likely increase average order values (For example: Save $10 for every $50 you spend).
Create Personalized Experiences
Personalization is an important tool when trying to raise average order value. Product recommendations (mentioned above) are only one tool in the personalization arsenal. Ideally, your company should be using a solution that personalizes the entire customer experience. This could include sending personalized emails when out of stock items become available or updating web pages or apps based on location and weather data.
Additionally, these personalized experiences compound over time. When consumers are exposed to three personalized elements, their conversion rates nearly doubled (compared to consumers being exposed to only two). This holds true across ecommerce metrics including add-to-cart rates and cart abandonment rates. While building individual personalized elements do deliver some results, it’s the combination of those interactions that deliver the most value for both the customer and your organization.
Free Shipping (And Other Perks)
By creating perks for customers who cross a minimum order value, you incentivize website visitors to add items to their cart. The trick here is to make the minimum only slightly above the current AOV for your website. John Lawson, an Atlanta based ecommerce consultant, advises making the minimum only 10 to 15 percent higher than your current AOV.
Benchmarks for Average Order Value
Monetate has analyzed billions of shopping sessions since Q1 2012, creating quarterly benchmarks for AOV. The following metrics pulled from our quarterly benchmarking report can help establish KPIs for your brands:
|Average Order Value by Category||Q4 2017||Q1 2018||Q2 2018||Q3 2018||Q4 2018|
|Q4 2017||Q1 2018||Q2 2018||Q3 2018||Q4 2018|
How to Apply These Metrics
These benchmarks serve as an overview to give ecommerce companies a better understanding of the overall industry. For example, smartphones tend to have a lower AOV as compared to desktop. When looking at benchmarks, it’s important to note that there could be several factors influencing your own results.
When considering these benchmarks, it is important to note that the average order value will be higher for certain industries than others.
Additionally, it’s important to note that average order values can be affected by device. Users on desktop may be looking to make a purchase while users on mobile may be looking to browse. Although orders on mobile currently represent half of ecommerce orders, they often have a lower AOV. By separating average order values out by desktop and mobile, you can get a better idea on how to optimize the user experience for specific devices.
Other Important Ecommerce Metrics
When prioritizing how to optimize your site, you should also investigate the following metrics to get a better understanding of the overall customer journey:
Add to Cart Rates
Add-to-cart rates measure the amount of users who add an item to their cart.
Conversion rates measure when a client takes a predetermined action on your website. Although not a direct impact on AOV, these users are the ones you will be optimizing for when seeking to tackle issues related to AOV.
Abandonment rates take a look at the rate at which users are abandoning their virtual shopping carts. This calculation can help you understand if something needs to be addressed in the checkout process.
Customer Lifetime Value
Customer lifetime value evaluates customer loyalty and their value over the course of their relationship with your organization. Loyal customers drive more revenue and have higher AOVs. Improving this rate can have a positive impact on your average order value.
Need a solution to help you raise your AOV? The Monetate Intelligent Personalization Engine™ allows you to connect all your data sources to create a better and more personalized customer experience. Improve conversions and AOV with our personalization platform.