Acquiring a new customer can cost five times more than retaining an existing customer, which means any ecommerce company can benefit from finding ways to market their products to their existing customer base.
One of the most effective ways to sell more products to your existing customers is by looking to boost your average order value (AOV).
The AOV, sometimes called average basket value (ABV), is the average amount that a customer spends when they buy from your online store. Let’s say you have a sales goal of $2,000. Would you rather have a hundred customers individually checking out with $20 worth of items or forty customers ordering $50 baskets? I’m sure most of us would choose the latter!
When you increase AOV, you get more value from your existing customers and those who are ready to purchase. As an added bonus, if you keep your order count consistent while increasing your AOV, the extra money you earn is just pure profit. You save on advertising spend, shipping materials, and most of all, your precious time.
Let’s talk about why average order value matters and the strategies you can implement today to increase your online store’s average order value.
What Is Average Order Value (AOV)?
Average order value or AOV is one of the most important metrics to track in ecommerce. Databox defines it as the average dollar amount for every order placed with your business within a specific period of time.
Your AOV is a good indicator of the effectiveness of your current marketing campaigns and your pricing strategy. It also reflects how much your customers are willing to spend at your store. Let’s say that a shoe retailer selling three sneakers priced at $30, $45, and $60 has an AOV of $40. This tells you two things about their customers’ behavior: they’re not buying multiple items and the lower-priced sneakers make up the majority of sales.
With this information, the business can now investigate why this is happening and from there, look for strategies to encourage customers to purchase more or buy higher-priced versions.
To calculate average order value, simply add up your total revenue and divide it by the total number of orders within a specific time period.
Average Order Value = Total Revenue / Total Number of Orders
For example, let’s say you own an apparel store. This month, you made a total of $2,500 in revenue for 50 orders. Your average order value is $50.
The higher your AOV, the more profit you earn from the same number of customers. Average order values vary across industries:
Why Should You Improve Your Average Order Value?
Increasing your online store’s average order value has the following benefits:
Increased Return on Investment (ROI)
If your business expenses remain relatively the same, any increase to your average order size will significantly impact your bottom line. You’ll be able to pay business debts and get your return on investment (ROI) back quicker.
Faster Inventory Movement
Selling more items per order keeps your stock from piling up, saving you storage space and associated costs. It also allows you to see which products sell well and those that don’t.
Better Operational Efficiency
You can earn more doing the same amount of work and from the same number of customers. Increasing AOV helps you optimize your efforts to achieve your goals in sustainable ways. You and your team are less likely to burn out from processing a huge number of orders that make a lesser profit.
Lower Costs Per Acquisition
The higher the AOV, the more you can afford to spend to acquire a new customer, which leads to better leads, increased conversion rate, and often lower costs per acquisition.
OutboundEngine.com compiled some interesting statistics about new customer spending versus customer retention spending. Take a look at some of these:
- “Acquiring a new customer can cost five times more than retaining an existing customer.
- Increasing customer retention by 5% can increase profits from 25-95%.
- The success rate of selling to a customer you already have is 60-70%, while the success rate of selling to a new customer is 5-20%.
- One customer experience agency found loyal customers are 5x as likely to repurchase, 5x as likely to forgive, 4x as likely to refer, and 7x as likely to try a new offering.
- U.S. companies lose $136.8 billion per year due to avoidable consumer switching.
- American Express found 33% of customers will consider switching companies after just one instance of poor customer service.”
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6 Ways to Increase Average Order Size
Here are some tips you can use to increase the average order size of your ecommerce store:
- Upsell and Cross-Sell Strategies
Upselling and cross-selling are all about encouraging customers to buy complementary products or an upgraded version of the product they want to purchase. Start by providing a great customer experience, and you’ll be able to successfully upsell and get your customer to spend a bit more on your ecommerce store. Here are some ways to successfully increase revenue with these strategies:
- Start with low-value upsells. If someone is already purchasing $100 of goods, convincing them to buy another $100 might be a long shot. A $20 complimentary product would have a better chance of being added to the cart and checked out.
- Sell like a friend. It’s easier to convince a customer to buy an extra item or to upgrade if they don’t feel like they’re being sold to. Instead of suggesting popular (but unrelated) items from your store, suggest products that go perfectly with the items in the customer’s basket.
- When you suggest higher quality versions of a product, make sure the differences between the regular and premium versions are clear. The customer should immediately see the value of the upgrade and how it benefits them.
- Add a post-purchase discounted upsell. Jonathan Aufray of Growth Hackers tells Databox, “Let’s say a client buys a product for $100 and is about to leave the website. Instead of directing them to a thank you page, direct them to an upsell page. Propose a product related to what they just bought, and note that if they purchase that extra product now, they get a 30% discount.”
- Upsell with a membership or subscription if you sell consumable products or goods that people buy on a regular basis. This can be for items like toiletries, groceries, pet food, or certain office supplies. Aside from increasing your average order value, you also get guaranteed sales in advance.
Some great Shopify apps that could help improve your upselling strategy are ReConvert Upsell & Cross Sell, AfterSell Post Purchase Upsell, Frequently Bought Together, Upsell -Pop Ups- Email Marketing, and In Cart Upsell & Cross Sell.
(Source: Dollar Shave Club)
- Product Bundling
Another way to make more money per order is to create product bundles that sell for a lower total cost than if all of the items were purchased individually. You should bundle products that go well together and are often purchased as a set.
Want to make it even more personalized? Allow customers to create their own bundles. Bundles, BYOB ‑ Build Your Own Bundles, and Bundle Builder are some of the top Shopify apps that allow customers to build customized bundles.
- Offer Free Shipping For a Minimum Amount
Nobody likes paying for shipping, so offering a free shipping threshold can be one way of incentivizing customers to go for a higher average order size. To make it work, don’t set a minimum purchase amount that’s too high above your current AOV. However, make sure you also don’t eat too much of the costs and end up losing money in the process.
Facebook ads strategist Aaron Zakowski recommends a 30% increase to your AOV as the sweet spot for a free shipping threshold. Zakowski says, “Our testing shows that the golden number in most cases across most verticals is usually around 30% of their original purchase price. So if on average they spent $108 you would offer something at $140.”
- Discounts Above a Minimum Spend
One variation of the free shipping threshold is to offer discounts for customers who go over a set amount. Businesses often offer two types of discounts: percentage-based discounts and dollar value discounts. For dollar value discounts, you can even offer volume discounts or discounts for different tiers. For example, a $10 discount for orders above $100, a $20 dollar discount for $150, and so on. The idea is to present to the customer in the best way possible the value they’re getting with your discount.
If you’re not sure which type to use, Jonah Berger, a marketing professor at the Wharton School, has some advice. He says to use The Rule of 100, which says that under $100, percentage discounts seem larger than dollar value discounts. Over $100, absolute discounts seem larger than percentage discounts. Of course, it’s up to you to decide which one will work best depending on your goals and your customer’s buying patterns. You can also test both types of discounts on your online store and see which results in the best conversion rates.
- Payment Plans for High Ticket Items
Buy now pay later (BNPL) or installment plans make it manageable for customers to purchase more expensive items or orders from your ecommerce store. In 2021, a survey by Go Cardless found that 87% of shoppers aged 18-40 would rather use no-interest installment payment providers like Klarna or Affirm over credit cards to pay for online purchases. Other ecommerce installment payment companies you can look into are Paypal Credit, Shopify Shop Pay Installments, After Pay, and Global Payments.
- Market to Heavy Users
Does your product have a “heavy user” market? If you want to be even more strategic in increasing your AOV, go after people who use products like yours regularly. You can increase your marketing efforts toward this specific segment, or if you’re not yet marketing to them, consider allocating more resources to this group.
Calloway Cook of Illuminate Labs tells Databox, “If you spend $1,000 to place an ad in front of 1,000 customers who are only interested in one product, you’ll have a lower AOV than if you spend $1,000 to place an ad in front of customers who are likely interested in all or most of your offerings.”
FAQs on Increasing Average Order Value:
Here are some frequently asked questions about increasing average order value in ecommerce:
What affects average order value?
A business’ average order value can be affected by buying seasons, trends, website alterations, or new sales and marketing campaigns.
How do you increase sales orders?
Ecommerce businesses can increase sales orders through upselling and cross-selling strategies, offering free shipping or discounts after a certain threshold, creating product bundles, personalizing offers to customers, and offering flexible payment options for expensive orders.
Why is my AOV down?
If your AOV is below the industry average, that could mean that the products you sell or a marketing campaign you launched isn’t clicking with your target audience. It could also be a sign that your items are underpriced.
The Next Steps: Increase Your Average Order Value
You can start improving your ecommerce store’s average order value right away with these steps:
Step One: Build Trust and Authority
You’re more likely to get repeat sales and higher value orders when customers like and trust your brand. Use social proof like reviews and user-generated content to show potential customers that your products and services are worth their money.
Step Two: Look at Your Customers’ Buying Patterns
Before implementing any strategy, segment your customers according to the amount they spend. For low-value spenders, try cross-selling and offering bundles first. For those who spend more, encourage them to join a loyalty program that lets them earn points on future purchases.
Step Three: Leverage Your Email List
Email marketing is one of the best channels to send personalized offers that increase average order value. Use it to send your subscribers exclusive discounts and relevant recommendations based on their website behavior.
Average order value is a lever that you should use for revenue growth and increased profits. The beauty of this approach is that you’re focusing on visitors who are already primed to buy instead of chasing after new customers. It’s also a win-win strategy for both parties because your customers are rewarded with a more personalized and seamless buying journey when you offer them great deals and relevant offers.
When using the techniques we talked about, don’t forget to regularly check the impact of your efforts and do A/B testing to see which of these tips works best for your online store.
Looking to increase your conversions and grow your ecommerce store quickly and efficiently? Reach out today for your FREE 20-minute consultation call, and let’s find some solutions that’ll help you to grow your business fast.
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