Digital marketing is all the rage these days, and businesses are spending millions on marketing campaigns to attract new customers and increase their sales and revenue.
But did you know there are other less expensive ways to instantly boost your revenue, and that too without having to spend an arm and leg on marketing costs? 🤔
Well, one sure-shot way is to keep track of your average order value and implement ways to increase it!
But what is the average order value?
What is average order value?
Average order value (AOV) is the average amount of money spent by a customer on a single transaction with your business for a given time frame. It is an important metric that should be calculated and analyzed by all e-commerce businesses. Indeed, many marketers have faith in AOV!
"Increasing your average order value is one of the fastest ways to grow your eCommerce revenue," says Neil Patel, of Neil Patel Digital.
So why is the average order value that important?
Well calculating and improving your average order value has immense benefits for your business, as discussed below.
Importance of average order value
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1. Increase in sales and revenue
An increase in AOV results in a direct increase in the sales and revenue generated by your business. As the average amount per order increases, more inventory is sold, and more money comes into your business. Woohoo!💃
But thats not all…
2. Increase in profitability
An increase in AOV also allows businesses to get more value out of all their customers, both existing and new. This means that AOV optimization allows businesses to increase their revenue by increasing the average amount each customer pays, without having to increase marketing and advertising costs by the same ratio, ultimately increasing their profits! 🙌
Furthermore, by increasing the average order value, businesses are able to shorten their sales cycle and realize profits over a shorter period of time. This makes AOV a crucial metric to track!
3. Increase in return on investment (ROI)
ROI is another performance metric that measures the efficiency of your business by dividing the gain or loss by its cost. Since an increase in average order value increases company profits, it also boosts the ROI.
4. Assessing the performance of your business
Apart from improving profitability, AOV also helps in assessing overall company performance and success. Along with other metrics like ROI, Customer Lifetime Value (CLV) , conversion rates, it can be used to set goals and track progress towards those goals.
5. Evaluate the marketing and sales strategies
Calculating and comparing AOV is a quick way to evaluate the effectiveness of your pricing and marketing strategies. A rise in AOV after implementing a new marketing tactic is an indication of its effectiveness, and vice versa as well!
6. Understand customer behavior
As AOV provides information about the average amount of money customers spend on a single transaction, this information can be used to judge customer behavior and preferences. This information can further be used to make informed decisions about segmenting the customer base, adjusting pricing and marketing strategies, and overall improving the customer experience.
How to calculate AOV
It is pretty easy to calculate your business’ AOV. Simply divide the total revenue for a given time period by the total orders in that time period to arrive at the AOV, as shown below:
For example, Daffodil, an online store selling handbags, generated a total revenue of $9000 for the month of January and sold 250 bags in that month. Then its AOV for the month of January is $36. ($9000/250)
9 strategic ways to increase average order value
Now that we have an understanding of what the average order value is and how it can be calculated, let’s get down to the main point! Let us discuss 8 key ways to increase it in order to realize its benefits.
1. Upselling and cross-selling strategies
Perhaps one of the most effective and oldest strategies to improve your AOV is to upsell or cross-sell!
Upselling involves nudging the customer to buy a higher end or updated version of the product that they are already buying, just before they checkout. In the case of our hypothetical example of Daffodil, it would look something like:
“Would you like to customise your handbag with your initials for another $10, before you checkout?”
Cross selling, on the other hand, revolves around selling complementary products to the customer before they checkout. Like suggesting makeup brushes to a customer about to purchase an eyeshadow kit on your website, or batteries to go with the toys being purchased online, or in the case of Daffodil, some scarves to tie on the hangbags.
For example, a customer looking to buy a beauty blender at Sephora, is shown similar beauty blenders from different brands as well as foundations and concealers to use with the beauty blender.
However, it is important to note that cross-selling only works when suggesting related and complementary products. Suggesting unnecessary products would result in a stagnant AOV!
Hence, using personalization to take cross-selling to the next level by recommending complimentary products in line with the customer's past history is a sure-fire way to increase AOV!
2. Personalization strategies
Apart from personalizing cross-selling, you can also use personalized data to suggest other product recommendations or best selling products based on customer behaviour. Studies show that people are 40% more likely to spend more than planned when they identify the shopping experience as highly personalized!
Personalization can also be incorporated into your email flow to send personalized confirmation emails, using the customer name, and data from their recent purchase to recommend related upsells and cross-sells in the confirmation email. Both of these ways are sure to increase the average order value of your business!
3. Allow customers to shop the look
Shop-the-look experiences involve displaying a whole ensemble of different product combinations that the customers can view and, immediately click on the highlighted products to add them to their cart, thus, increasing their cart size and order value. Furniture brand, Jonathan Adler, uses this technique to convince its customers to purchase living room furniture and accessories by displaying them together in different settings, as shown below:
4. Increasing your free shipping threshold
Another way to instantly increase the cart size and average order value is by increasing the minimum free shipping threshold, because we all love free shipping, don't we? 😉 According to a survey, up to 47% of consumers said they will spend the bare minimum in order to receive free shipping! Thus, this strategy is a quick way to increase the AOV! You can take this a step further by enabling prompts that constantly remind the customer how much more they need to spend to qualify for free shipping!
5. Product bundling
Customers are more inclined to buy products in a bundle, especially when they can clearly see the savings that they will be making this way. Bath & Body Works uses this strategy effectively to convince its customers to buy different products in the form of gift sets instead of buying them separately.
6. Volume discounts
Just like product bundles, customers can also be convinced to buy more by offering discounts or offers on buying in bulk, improving the AOV. For example, Bath & Body Works offers its customers a free product upon buying any three products from their body, skin, and hair care line. This strategy convinces the customers to buy more products in order to avail the offer, thereby increasing their AOV!
7. Building trust and authority with social proof
Customers are more likely to shop more from brands they consider trustworthy and credible. This is particularly important due to saturated online markets. With an influx of brands to purchase from online, the trust and credibility YOU build from providing high quality products, great customer support and displaying verified customer testimonials and social proof, can be the deciding factor why customers choose to buy more from your business over others.
Makeup brand Rare Beauty uses this concept by displaying a ton of social proof in the form of customer ratings and reviews on their product pages, alongside badges that show different product awards, to convince its customers to buy from them.
8. Loyalty programs and gift cards
Using personalized data, you can offer loyalty programs to your regular customers. Not only will this increase customer satisfaction, but also convince the customer to purchase more to earn more points and avail discounts offered in the loyalty program.
Similarly using personalization, all new customers to your website can be offered gift coupons and discounts to convince them to purchase more, increasing your AOV.
For example, Jonathan Adler, offers all new visitors to its websites a flat 15% off on their first purchase.
9. Offer a flexible returns policy
Customers often tend to buy more when they know they will be able to return the products incase of any problem. This is because a flexible returns policy reduces their perceived risk of buying online, convincing them to buy more, thus increasing the average order value.
Personalize with Relevic
Now that you know how to increase your business’ average order value and the benefit it can have on your business, book a demo with Relevic today! Our marketing expert will provide you with a free consultation on how to implement these strategies as well as guide you on how to personalize your website using Relevic!
Relevic is a website personalization tool offering many free services to start your personalization journey today and increase your average order value and sales! Their beginner friendly drag and drop editor allows you to create personalized elements on your website without touching a single line of code!
Wrapping up…
In today’s over-saturated markets with cut-throat competition, the benefits of calculating and improving your business’ average order value are far too many to be ignored. So, hop onto the bandwagon, and with Relevic’s help, increase your AOV and revenue today!
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