What Is AOV, and How Can You Increase It?
For eCommerce marketers, finding the right metrics to track can be challenging. Because all commerce happens through your website, you have an immense amount of data to leverage. However, knowing which pieces of information matter more than others is difficult. One of the metrics you’ll often see discussed is AOV, and for a good reason—but what is AOV?
Used the right way, it can be immensely helpful as you look to grow your sales and revenue, especially when it comes to evaluating your marketing spend. Let’s dig in, from answering the all-important question of what is AOV to a quick discussion of how to calculate it and tips on how to increase AOV.
What Is AOV in eCommerce?
AOV stands for average order value, which—as its name suggests—describes the average amount of money a customer spends every time they place an order through your online store.
AOV is a time-based metric, meaning it must always be anchored to a specific time frame. For example, your AOV will likely be different if you measure it from the time your online store first opened as compared to the last year or the last month. Tracking AOV over time allows you to see whether any efforts to get customers to spend more on average are working.
AOV can also help you understand the value and return on your advertising investment. For example, an average order value of $25 means more if you’ve spent $5 to acquire your average customer than it would if you spent $15 on the same conversion.
How Do You Calculate AOV?
Answering the question of what is AOV is only the first step. You also need to know how to calculate it. The basic formula is simple:
AOV = [total revenue over X amount of time] / [total number of customers over X amount of time]
Again, the time period has to be consistent between both numbers. If, for example, you earned $5,000 last month from 100 orders, your average order value is $50 ($5,000 / 100).
Some eCommerce platforms calculate your AOV dynamically. Shopify, for example, includes this metric by default in its delivered customer reports.
5 Ways to Increase Your AOV
You know the answer to what is AOV, along with how to calculate it. Now, it’s time to get to work. In this next section, we’ll cover how to increase AOV, focusing specifically on five common eCommerce techniques that can help you get started.
1. Offer Incentives for Orders Above Your Current AOV
Perhaps the most obvious way to improve your AOV is to take tangible action that gets your audience to spend more. This is why eCommerce merchants with an AOV of $23 offer free shipping for orders above $30 and why some brands like Sephora offer free promotional gifts and samples for orders that hit a specific threshold. Another variation is adding a discount coupon based on a specific volume discount.
The key, of course, is finding just what that threshold should be. One common guideline, suggested by Shopify and others, is to add about 30% to your current AOV as the discount threshold. It’s just the right balance between making a tangible difference and avoiding the alienation of current customers.
2. Bundle Your Products Into Natural Groupings for Customers
Especially if you offer multiple products in your online store, consider bundling natural groupings together for a reduced group price. That way, you increase your customers’ sense of getting good value for your money. You also encourage them to purchase more than they would if they bought all products individually.
For example, you might offer both fresh coffee and coffee accessories like a French press, coffee grinder, and more. A gift bundle might include a sampling of different coffee types along with these accessories for a price that is lower than all of them would cost together—but still significantly above your current AOV.
3. Segment Your Email List to Target by AOV
AOV can also be used as a way to segment your email list. With AOV-based segmentation, you can create more targeted campaigns specifically designed to increase it. For example, you can:
- Target customers with below-average AOV, promoting sales and deals like the above or upselling some of your other products.
- Target customers with above-average AOV, focusing on cross-selling other relevant products or providing early insights into new product releases.
Audience segmentation is helpful regardless of the segmentation variables used—as long as the groupings you get have enough in common for more targeted campaigns. Segmenting by AOV is especially relevant because of how targeted you can be in your messaging to improve this specific metric.
4. Use A/B Testing With AOV as a Target Metric
A/B testing is a must for modern eCommerce stores looking to stand out from the crowd and continue improving their messaging. Do it right, and you can go a long way toward increasing your revenue and growing your business.
AOV, it turns out, is a perfect metric for your A/B testing setup. Use it to test whether changing the messaging, visuals, or even cadence of your email campaigns can make a tangible impact on increasing your average order value. Keep iterating to build that AOV over time and improve your revenue flow.
5. Implement a Loyalty Program for New and Current Customers
We know from research and experience that the AOV for returning customers is significantly higher than that of new customers. That makes intuitive sense, as new customers are more likely to try your brand and products before fully diving in.
You can leverage that consumer behavior through a loyalty program and strategy. Provide tangible and intangible benefits for sticking with you. Then they’ll become more likely to return for second, third, and other future purchases—with their AOV increasing accordingly.
Improve Your Revenue Flow With a Strategic AOV Focus
There’s a reason the phrase what is AOV generates more than six million Google results. For eCommerce merchants, this is a crucial metric to track the success of your online store and measure the ROI of your marketing efforts.
But understanding the concept only matters if you also know what to do about it. That’s where Future Holidays comes in. Our eCommerce experience is a perfect match for any online store looking to grow its revenue. Contact us for a conversation that may start with AOV but will go far beyond it into tangible strategies that can help your business succeed.