If you’re running a startup, you know that one of the most important things to focus on is increasing your average order value (AOV). By doing so, you’ll not only boost your sales but also lay the foundation for future growth. In this post, we’ll share tips on increasing your AOV and driving more revenue for your business. Read on to learn more!
What is The Average Order Value (AOV)?
Average Order Value (AOV) is a metric that measures the average dollar amount spent each time a customer places an order on a website or mobile app. AOV is a key metric for eCommerce businesses, as it provides insight into the average amount that customers are spending per transaction.
This number can be calculated by dividing the total revenue for a given period by the number of transactions. AOV is important because it provides insights into consumer behavior, spending patterns, and a business’s overall performance.
For example, a high AOV could indicate that customers purchase more expensive items or buy products in bulk. On the other hand, a low AOV could suggest that customers are only making small impulse purchases or experiencing barriers to larger purchases (such as shipping fees or lack of payment options).
Increasing AOV is often a key objective for e-commerce businesses, and strategies for doing so can include offering discounts on larger orders, upselling related products, and providing multiple payment options.
By continually monitoring and optimizing AOV, online retailers can increase their profitability and attract more high-value customers.
Why Is A High Average Order Value Important For Startups?
As a startup, keeping an eye on your average order value (AOV) is essential. A high AOV indicates that customers purchase products or services per transaction, indicating that your business is profitable and successful.
Additionally, tracking your AOV helps you forecast sales and better understand the buying habits of your customers.
To improve your AOV, consider upselling related products, offering bundle deals, or providing added incentives for larger purchases. Paying attention to your average order value can significantly impact your startup’s success and profitability.
How Can A Startup Calculate Their Average Order Value?
First, determine your total revenue over a specified period – the last month. Then, divide this number by the total number of orders during that period. The result is your AOV.
Let us give an example:
Suppose in October, your store sales were $31,000 with 1,000 orders. $31,000 divided by 1,000 = $31. Therefore, the average order value for October was $31.
It’s important to note that AOV can vary significantly by industry and even within different customer segments. You may want to calculate AOV for different product categories or demographics to gain a more comprehensive understanding of your business and make informed decisions moving forward.
What Is A Good Average Order Value?
What’s considered a “good” Average Order Value will vary based on different factors, such as your specific industry, sales channel, and consumer devices.
So, when determining your own goals and KPIs, it’s important to keep the following points in mind:
- Companies should consider significant disparities between industries when determining their own Average Order Value goals and KPIs.
- It is also essential to set diverse AOV goals across different devices, as the figures can vary significantly between them.
- AOV will be higher at certain times of the year due to seasonality, which companies should consider.
- The most productive way to gauge your company’s AOV is by focusing on improving it month-over-month or year-over-year.
However, if you’re a small business with low margins, you might be happy with an AOV of $50. But if you’re a high-end retailer with margins of 40%, then you might be aiming for an AOV of $200 or more.
Taylor Holiday, co-founder of marketing agency Common Thread Collective explains on Shopify that looking at “average” order value will provide a partial picture of customer’s purchase behavior. If you want to increase the value of orders, consider all three measures of central tendency:
- Mean: the average value of all orders (Average Order Value)
- Median: the middle value of all orders
- Mode: the most frequently occurring order value
In this example here you can see that the mean is higher at $24 rather than $15.
Dashithis says that the beauty industry has an AOV of $70, the health and fitness industry of $76, the fashion industry of $97, the general eCommerce of $97, and the home and garden of $353. So anything more than $76 is a good average value.
Ultimately, it’s up to you to decide what is a good AOV for your business. But once you have a goal, you can start working on strategies to increase your average order value.
What Are The Ways That Average Order Value Impacts Revenue For An E-Commerce Company?
Average order value impacts revenue in a few ways. First, if you can increase your average order value, you’ll increase your total revenue. Additionally, a higher average order value means you’ll need fewer orders to reach your revenue goals. This is because the total revenue generated by each order decreases as the average order value increases. Finally, increasing your average order value can help you attract more high-value customers, who are more likely to return and spend more money over time.
A high AOV means customers buy more, potentially due to a strong product offering or effective sales strategy. On the other hand, a low AOV could indicate the need for changes in your pricing structure or promotional tactics.
Monitoring and improving your average order value can play a crucial role in growing your startup’s sales and success in the long run. Additionally, analyzing the AOV of different markets or customer segments can provide valuable insights for targeting and marketing efforts. Paying attention to AOV can have a powerful effect on your startup’s bottom line.
Mistakes Startups Make When It Comes To Their Average Order Value
Startups often need to remember that their Average Order Value (AOV) needs to be increased along with their traffic growth. Without a solid plan, they can quickly find themselves in trouble. Here are four common mistakes startups make when it comes to their AOV:
1. Not Tracking Average Order Value
One of the biggest mistakes startups make when it comes to average order value is not tracking it at all. Without this data, you can’t identify trends or ways to improve your average order value. Make sure you track AOV on a regular basis so you can make informed decisions about your business.
2. Focusing Too Much on Increasing Average Order Value
While it’s important to focus on increasing your average order value, you don’t want to focus on it so much that you neglect other areas of your business. Don’t forget that there are many ways to increase revenue, and average order value should only be one part of your overall strategy.
3. Ignoring Customers Who Spend Less
Just because a customer spends less than the average doesn’t mean they’re not valuable. In fact, these customers may be more likely to return and spend more money over time. Don’t ignore them in favor of customers who spend more. Instead, find ways to encourage them to spend more without alienating them.
4. Offering Incentives That Encourage Higher Spending
Offering incentives that encourage higher spending can backfire if customers feel like they’re being forced to spend more than they want to. Rather than offering incentives, find ways to encourage customers to spend more without resorting to gimmicks. This will make them feel like they’re getting a good deal, rather than being pressured into spending more than they intended.
5. Not Understanding Average Order Value Trends
It’s important to understand the trends associated with average order value so you can make informed decisions about how to improve it. For example, if you notice that your AOV is slowly declining, you’ll need to take action in order to reverse that trend. Tracking average order value is the first step in understanding these trends and taking corrective action.
5 Ways To Increase Your Average Order Value
Are you looking to increase your average order value (AOV)? Here are five strategies that can help boost your AOV and grow your business.
Offer discounts for larger orders
Discounts are a great way to encourage customers to spend more money on a single order. You can offer a fixed discount for orders over a certain amount, or discounts based on the total value of the order. This will help you to boost your average order value.
Run promotions and special offers
Another way to increase your average order value is by running promotions and special offers. This could include discounts, free shipping, or other incentives. Promotions are a great way to get customers to buy more items at once, which will help to increase your AOV.
Set up a loyalty program
Loyalty programs are a great way to keep customers coming back for more. They offer customers rewards for spending money on your website or app. This could be in the form of points that can be redeemed for products or services, or discounts on future purchases. Loyalty programs can help to increase your average order value by encouraging customers to buy more items each time they shop.
Improve your checkout process
The checkout process is the last hurdle that customers have to clear before they make a purchase. If it’s not easy or convenient for them to check out, they may decide not to buy anything after all. You can improve your checkout process by making it simple and fast, and by providing plenty of payment options. This will make it easier for customers to make a purchase, which will boost your AOV.
Increase product variety
If you want customers to spend more money on each order, you need to offer them a wide range of products to choose from. If they can find everything they need in one place, they’re more likely to make a purchase. You can increase your product variety by adding new products regularly, and by expanding into new categories.
Final Takeaway
Try implementing these tips and see how they affect your Average Order Value. Remember that to increase sales, you have to focus on quality and quantity – don’t sacrifice one for the other. Creating happy customers is key to a successful startup, so do what you can to ensure they leave your store with a smile.