AOV stands for average order value. It is the average dollar amount a customer spends on an order.
Attracting customers to your online store is a big part of growing your ecommerce business, but encouraging them to make a purchase is where the real magic happens.
Tracking the average amount of money a customer spends on an order offers brands insight into shopping behavior trends, product demand, and much more. So, why is this data important to measure and follow?
You might’ve seen the acronym AOV thrown around a few times. But, what does AOV stand for?
AOV stands for average order value. It is the average dollar amount a customer spends on an order. Average order value (AOV) drives numerous key business decisions: from marketing strategies to pricing options.
It’s also important to note that there might be a difference between the AOV for new vs. returning customers. This is where looking at your cohorts is helpful.
Overall, average order value (AOV) is an important number to keep an eye on because it impacts so many other aspects of your business—from inventory management to sales forecasting.
AOV = sales/ total orders
Data Sources: Shopify
Important note: At Tydo, we exclude test orders.
Here’s an example of AOV in action:
Let’s say Sarah, Kevin, and Katie all buy products from a kitchenware store this week. Sarah buys the cookware set for $395. Kevin buys the complete bakeware set for $395. And, Katie buys oven mitts for $35 and a linen apron for $55. The sum of those sales = $880. How many orders were placed? 3. So, the average order value for your store is $880 / 3 = $293.
Average order value is like a 100-level college course.
It sets the foundation for what’s to come. You have to know if you like the subject before you decide to major in it. You have to know if you like the professor before you decide to take another class with them. You have to know your AOV before you make future business decisions.
Average order value (AOV) gives you insight into the overall health of your business. Knowing your AOV helps you discover new growth opportunities and optimize your business.
Once you know your store’s average order value, you might be interested in learning more about what impacts the number.
First and foremost, let’s look at your product pricing. If you sell higher-priced products, you’ll have a higher AOV. Or, if your store sells bundles (more on that later), you can increase how much money customers spend per purchase, which will increase your store’s average order value.
However, this all depends on your product category. Your pricing should be consistent with the market rate for that category. Let’s say you run a store that sells homemade honey, and the market rate for honey is around $12 (hypothetically). You can’t charge $75 for a jar of honey. No one will buy it since the market rate is significantly less. You have to stay consistent with your category.
How can subscriptions impact your average order value?
Many brands offer subscriptions. It’s a great way to increase repeat purchases and increase brand loyalty. However, most brands offer discounts or lower prices for their subscription offerings vs. one-off purchases. For example, the cereal brand Magic Spoon offers subscriptions, where you can subscribe and save 25%. So, a subscriber ends up having a lower AOV than a new customer making a one-time purchase of the Magic Spoon variety pack.
While subscriptions might help customers save money, they might bring down your AOV.
What else impacts your AOV? Your marketing efforts.
If your creative and messaging resonates with your target audience, they’ll be more likely to buy from your store. In that case, more people coming to your site and more purchases means that you might see an increase in AOV, especially if these people are buying high-value items.
Depending on your strategy, promotions can either increase or decrease your AOV.
For example, let’s say you run a BFCM promotion where you offer your customers buy one get one half off. You’ll likely increase your AOV because you’ll get more customers in the door, and they’ll buy at least one additional item to redeem the offer.
Whereas, if you run a promotion that’s 40% off your entire store, you’ll likely decrease your AOV. You might get more customers in the door (woo!), but your customers might spend less across all your products. However, it’s not a guaranteed decrease in AOV. There are other factors at hand that are worth exploring, such as your product selection and customer behavior.
How you display, design, and group products on your site matters more than you think.
If it’s difficult for site visitors to discover what they’re looking for, your AOV might decrease. You want to create a site experience that’s well-organized and easy to navigate.
Let’s look at Chamberlain Coffee. They effectively group their products (i.e. coffee bags, single serve, matcha & more, accessories, etc), and it’s easy to find what you’re looking for by hovering over the navigation bar. On their homepage, they have a collection of their bestselling products for customers who are new to the brand. Easy discoverability facilitates a top-notch user experience, which increases AOV.
A great example of how this works IRL is the Sephora checkout line (iykyk).
As customers slowly wind through the checkout line, they discover dozens of products in sample or travel sizes. Aside from attractive price points (thanks to smaller sizes), customers are enticed to pick up more products while they’re waiting for their turn at the register. The more exposure they have to products, the more they’ll be inclined to add an item or two more to their purchase, increasing AOV.
Think about the last time you shopped with a brand. Perhaps you placed multiple small orders instead of one big order with a larger price tag. This is common! These small orders can bring down your AOV. So, it’s up to you to incentivize your customers.
Luckily, there are a few ways you can do this so that you can encourage higher spending while maintaining a high conversion rate and decreasing the number of abandoned carts. Let’s dive into some tactics.
Creating bundles, or gift sets, and highlighting them on landing pages is an effective strategy. Bundles introduce customers to more products while increasing your AOV. Landing pages also drive customers to checkout faster than if they had to add individual items to their cart.
Let’s look at the brand Youth to the People. Their superfood cleanser sells for $34. Or, they offer a glow up skin bundle for $190, which includes the superfood cleanser ($34), activated mist in two sizes, serum, future cream, and dream oil. The value of that bundle is $230. Here, they entice shoppers to get more bang for their buck while introducing them to new products and increasing their AOV.
You can incentivize your customers to spend more on your site by offering incentives! What might those incentives be?
Free shipping is one way to increase average order value (AOV). How many times have you added more to your cart to take advantage of free shipping thresholds?
Say your store’s average order value (AOV) is $67. You might want to offer free shipping for orders of $75 or more. This will encourage shoppers to add more items to their shopping cart to reach that free shipping threshold.
You can get creative with how you incentivize your customers. Ashvin Melwani, chief marketing officer at Obvi, increased his store’s AOV by incentivizing bundle purchases and playing around with free shipping thresholds.
The tactic that worked even better? A gamified cart.
Melwani explains that it started with this question: How can we incentivize customers to place large orders? The answer: By offering gifts. On Obvi’s checkout page, customers see an eye-catching assortment of goodies that they can snag for free when they reach certain spending thresholds.
Or, you could think about implementing tiered discounting. What’s tiered discounting? It’s a pricing strategy where levels of discounts are applied to checkout based on ranges of order values. This would encourage customers to spend more to qualify for a higher discount.
Cross-selling encourages your customer to buy even more products—that they’ll likely want and/or are related to their primary purchase.
For example, if your ecommerce store sells razors, you could sell complementing products that provide the customer with the ultimate shaving experience. Maybe, you try cross-selling a shaving cream or post-shave balm. If a customer adds these items to their cart in addition to their primary purchase (the razor), this would result in a higher AOV.
Your cart is under-appreciated real estate on your site! Here, there’s an opportunity to increase AOV by asking your customers to buy a more premium product. This is called cart upselling.
You can implement this tactic with the help of a few tech tools. One Shopify app we recommend is Carthook. Their technology enables you to build custom post-purchase flows based on what a customer buys. Another Shopify app recommendation: Rebuy. You can add upsells on a product PDP or at checkout, post-purchase offers, AI-based product recommendations, and more!
Looking for a more innovative solution? Think about the ‘try before you buy’ model. It allows customers to test out products before buying without financial commitment. It’s a low-risk tactic, and it can potentially increase your store’s AOV. It’s a win-win: they try the product they want and you increase your store’s AOV.
When was the last time you introduced a new product? Talk to your customers, understand their pain points, and see if there’s an opportunity to launch a new product. Have you considered expanding into a new market? It might be time to consider a market expansion strategy.
Or, you might be able to introduce a new product at a higher price point, which will increase your average order value (AOV).
Look at Jones Road Beauty. Their products cover a wide variety of price points. They sell their brow pencil for $22, their foundation for $44, and their light moisture cream for $38. Over time, they’ve launched new products to better serve their customer and to help grow their business. These higher-priced products help improve their AOV, assuming that customers like the products and keep coming back.
AOV gives you insight into the health of your business. It’s also a growth lever.
As it relates to your paid media, AOV is a reference point for your customer acquisition cost (CAC). If your AOV is $50 and your CAC is $55, then you’re spending more than you can afford. If your products are lower-priced and you have a low AOV, your media team might have a more challenging time (and less wiggle room) with their CAC. This might lead you to struggle with reaching profitability. In this case, you might want to focus your efforts on marketing strategies outside of paid channels.
It’s also helpful to note the difference between your AOV for new vs. returning customers. These numbers will differ. For returning customers, your AOV will be the average amount your returning customers spend per order. For new customers, your AOV will be the average amount your new customers spend per order. It’s important to see both numbers, which you can do in Tydo. These numbers will inform your overall business strategy as well as your focus—retention or acquisition.
Remember: What works for one ecommerce business might not always work for yours. So, you might have to try out a few new strategies. You’ll have to figure out how to effectively increase margins while keeping a finger on the pulse of marketing/customer trends.