Average Order Value and its Importance for eCommerce
AOV: What is Average Order Value?
Average Order Value, or AOV, is the average amount a customer spends when purchasing from your website. It is a key performance indicator (KPI) that is especially relevant for eCommerce stores.
The AOV wholly depends on what you sell; for instance, increasing the average order from £5 to £10 is a 100% increase. A 100% increase in your AOV might look good when analysing data but it still might not be enough to make your business a success.
In this article, we will evaluate AOV, how you can improve it, and why it is such an important metric for eCommerce stores.
The Importance of Average Order Value
AOV is a major KPI for eCommerce stores. Increasing the average spend of every customer enables the business to grow and the cost of any extras a store provides – like free delivery – to decrease.
Furthermore, an increasing AOV on particular products provides you with more valuable customer data. For example, if multiple customers regularly purchase two products together, you can capitalise on this and improve your overall user experience by including an ‘Often Purchased With”/”You May Also Like…” pop-up or segment on the product page, or before the customer proceeds to the checkout.
How to Increase Your AOV?
Your online business can do two things in order to increase AOV:
- Increase the number of products a customer purchases
- Increase the value of the individual products a customer purchases
With both these strategies in mind, we will break down six methods you can implement to increase your average order value.
If you decide to use one – or all – of these methods, ensure that you keep track of the most successful strategies. One may work better at certain times of the year. Another may take a while to see significant results but provide long-term benefits. Once you understand which strategies work best for your brand, you can begin to refine them to achieve maximum results.
Here are six ways to increase your AOV:
- Upsell premium items
- Package deals
- Free shipping
- Loyalty schemes
Upsell Expensive Models
Upselling is the act of providing a similar but more expensive model to your customer. If you are providing an entry-level product, why not provide them with an image of the next model up from the same range?
Often people want the best value for their money. So there’s a good chance that if you have a product with better specifications or lifetime value, your customer will be willing to spend a little more. That is, as long as your product description is able to convincingly explain the product’s USPs and benefits.
By displaying the model you wish to upsell on the product page, you aren’t taking away the customer’s choice. Rather, you are just providing them with more options before making their final decision. The customer, for example, might click to work out why it is more expensive. Curiosity is your best friend when upselling!
Product Suggestions Through Cross-selling
You should already be selling products that complement each other, so take advantage of this by giving your customers suggestions on what will work well with the product they have selected. You can do this on the product page or whenever they add something to their basket.
Remember, it does not have to be a physical product, it could be insurance or a subscription. For example, if you sell mobile phones, offer to protect their new purchase with 2 years of insurance. The more relevant a suggestion is, the better your chance of getting sales via cross-selling is.
Example: Massimo Dutti
Cross-selling is particularly effective for fashion eCommerce stores. When you land on a product page on the Massimo Dutti website, you are greeted with a model wearing a variety of clothes. So, if you land on a product page for a jumper, the model will also be wearing the trousers and shoes.
Once you scroll beyond the main product images, you can “Complete the look” and purchase the trousers, shoes, coat and bag. If you complete the suggested look, your basket starts at £99.95, then rises to £986.90 through cross-selling.
Selling bundles or packages that decrease the individual price for each item is a perfect way to increase AOV. It could be that the product is single-use and purchasing in bulk will bring the overall price down. Alternatively, similar to cross-selling, bundling complementary products that customers may be looking to purchase encourages them to add to their cart due to the perceived saving.
Example: Love Hemp
Love Hemp does this well with their CBD Starter Kit. CBD is something that many people may not have tried before. Creating a starter kit is an excellent way to give customers the chance to sample a number of products, and then try to find their favourite at a reasonably cheap price. If the customer loves the CBD gummies, for instance, they are more likely to come back for more!
Free shipping is a classic way to boost AOV. If you are feeling generous, you can provide free delivery with any purchase. However, most companies that offer free delivery will set a price for how much a customer should pay before they are eligible. That’s what we did when we helped London Encaustic dramatically increase their revenue by offering free delivery.
As a general rule of thumb, we recommended to offer free shipping on orders that are 10-20% above your current AOV. Customers will make additional purchases to simply not pay for shipping, further improving your AOV.
Waterstones is one of the biggest online bookstores in the UK. The average cost of a book on their website is around £10-15, but in order to qualify for free shipping, you need to spend £25. This is the perfect way to entice bookworms into buying two or more books.
Customers also get the added benefit of loyalty points, where spending £100 gets you £10 back in vouchers. Waterstones have made their rewards of free delivery and loyalty very attractive to their customers.
Providing discounts may sound counterintuitive, but it can make the customer spend more as people are often willing to pay for a bargain. Then they are likely to spend more time hunting for further deals.
It will also create an urgency to buy, which can temporarily reduce shopping cart abandonment. Used in conjunction with cross-selling, discounts can significantly ramp up your AOV!
Example: Prime Day
Amazon has turned discounts into an annual event with Prime Day. Every year they push their customers to visit the behemoth eCommerce store and pick up discounted products.
Prime Day in 2022 was very successful for Amazon. Over 2-days, their customers were responsible for purchasing over 300 million items! Although little information is available on how many items are sold on average daily, we know that Prime Day in 2021 sold around 50 million less items.
A loyalty scheme allows customers to work towards a free or discounted purchase. Customers who enjoy your products will make multiple purchases for a future free gift or discounted purchase. There are various ways to build a loyalty scheme. Here are some popular examples:
A points-based loyalty scheme is popular with high-street retailers. Simply spend money, collect points, and redeem them at a time that suits the customer. An example of an effective points programme is Nectar points. Nectar points are effectively a cashback scheme that gives Sainsbury’s customers 0.5% cashback on any purchases from their store or partnered brands.
The best thing about this type of points programme is that the cashback still has to be used on the same business. A customer has to be spending on your platform and not on your competitors to get the biggest benefits.
With a tier programme, you give your consumers a period in which they can earn points. The more points they get, the better rewards they will receive. However, getting to these high tiers involves a significant amount of spending before the rewards are available. With an eCommerce brand, they can get new customers invested in them and incentivise larger transactions by making customers aware that the more they spend, the more they will be rewarded.
Virgin Atlantic has been using a tier programme for many years with their Flying Club. The rewards refresh every year which leads their customers to make larger transactions when the refresh is due, so they can get the best tier reward possible.
A paid programme won’t necessarily increase your AOV, but it will increase your revenue. A Prime membership allows Amazon to take £7.99 monthly from customers that want to be members. They give their members free next-day delivery on millions of products, as well as Prime Video, Prime Music, and other benefits.
The advantage of this type of scheme is that you can use it in tandem with other methods that will increase AOV. This could include a membership that gives customers more frequent discounts or better-packaged deals.
Should You Focus on Increasing AOV?
Yes, whenever you have a chance to increase your AOV, you should take it. By focusing on increasing your AOV, you can increase the revenue generated from each customer, without having to acquire more customers.
It’s a more efficient use of your resources to focus on driving high-value traffic and increasing your AOV than it is to simply focus on increasing traffic numbers.
Does Every eCommerce Store Need to Prioritise It?
Yes, AOV should be one of your priority KPIs. It will benefit you by decreasing the cost of acquisition, card processing fees, and shipping. If you spend your marketing budget on PPC or SEO services – and thus spending your time and profits on getting customers to your store – why not try to also focus on getting as much out of them as possible?
How Frequently Should You Look at Your AOV?
You should be checking your average order value every month and then also have a year-on-year comparison. There are many reasons why your AOV may increase or decrease. Checking it every month and comparing it to previous years will help you understand the causes behind these fluctuations. In turn, it will help you understand how to manage them.
Consult User Experience Experts
Trafiki Ecommerce has years of experience in utilising the techniques discussed in this blog to boost AOV for online stores. Book a free 30-minute discovery call today and speak to one of our UX experts to find out how your website can become better at capitalising on the traffic it generates.