AOV Beginner's Guide: What Does It Mean For Your E-commerce Business?
Updated May 4, 2023.
For an e-commerce business, conversion rates and average order value (AOV) go hand in hand. While these can differ between industries and market sizes, recent statistics show that the average conversion rate for e-commerce businesses is around 1.72%, while the average AOV sits at around $116.72.
So, consistent conversions can help increase AOV because it means more people are completing purchases while maximized AOV can improve revenue and profit margins.
» Want to know more? Learn the best conversion rate metrics for e-commerce startups
What is Average Order Value?
AOV calculates the average amount of money spent by a customer per order over a certain period. This metric directly impacts profits because if an e-commerce business doesn't make enough sales or only makes low-value sales, it may turn a low profit or no profit after expenses are paid.
How to Calculate it?
AOV ($) = Total Revenue / Number of Orders Received
Let's look at an example. An online clothing store received 200 orders and made $10,000 in a month.
AOV ($) = Total Revenue / Number of Orders Received
= $10,000 / 200
= $50
A lower AOV, like this, may imply that customers are spending less per order, which can hamper profitability.
But a high AOV indicates that customers are willing to spend more money on the business. So, let's say the same online store made $20,000 and received 200 orders in a month.
AOV ($) = Total Revenue / Number of Orders Received
= $20,000 / 200
= $100
This higher AOV can enhance profitability and highlights positive customer engagement with the store.
Why Should You Calculate it?
Calculating and monitoring AOV can help businesses understand their sales strengths and weaknesses and their customers' buying habits. Some ways include:
- Tracking revenue and sales metrics to identify areas where they can cut costs.
- Businesses can make data-driven decisions to improve sales and revenue.
- Analyzing AOV can help identify techniques that need improvement to increase customer loyalty and drive sales.
Seamlessly Monitor Your Sales Data
Make sales data and revenue metrics easy to digest with an intuitive one-stop platform.
- Use cutting-edge analysis for insights into marketing performance.
- Access the app using desktop or mobile devices.
- Create and export custom data reports to assess revenue and profits.
BeProfit offers a user-friendly platform to make conversion, profit, and sales data easy to monitor and comprehend.
Understanding Average Order Value's Impact
Customer retention can lead to a high AOV because when customers are loyal to a brand, they tend to make repeat purchases. The trust and loyalty the business has built with its customers can increase the likelihood of higher-value purchases.
Poor customer retention can negatively impact revenues and profits and can indicate a business is not appealing to customer needs.
For example, this happened when I first started in e-commerce and spent a significant amount on marketing but failed to convert those leads into conversions.
The AOV and profits increased through employing effective sales techniques, like web personalization, because costs were optimized.
» Find out ways to boost product profitability for your e-commerce store
How to Improve Average Order Value
Finding the best techniques to improve conversion and increase AOV is essential to improve a business's bottom line. Here are a few to help your business achieve this:
- Upselling and cross-selling: By suggesting related or complementary products to customers based on their browsing preferences or past purchases, businesses can encourage them to add more items to their cart.
- Customer support: Various channels such as live chats, phone calls, and personalized emails can enhance customer satisfaction, leading to repeat purchases.
- Digital marketing: Using various digital marketing techniques such as email marketing, social commerce, and other targeted advertising can attract more customers and encourage them to spend more.
- Product bundling: Offering products in bundles based on customer interests can encourage customers to buy more as it offers them more value for their money, resulting in a higher AOV.
- Loyalty programs: Rewarding customers for their repeat business through loyalty programs such as points, discounts, and exclusive offers can incentivize them to spend more.
» Discover the best Shopify apps to increase your AOV
Track Average Order Value To Help Your Business
Tracking AOV can help businesses identify opportunities to reallocate funds or cut unnecessary marketing costs, plus assist them in making informed decisions about pricing, advertising strategies, and promotions.
With BeProfit, you can track your revenue-based metrics, retention rates, and profitability in an integrated platform. This way, you can identify your sales trends and make data-driven decisions about your marketing strategies to help increase AOV.
