Maximizing Your Business Potential with Average Order Value (AOV)

Average Order Value (AOV) is an essential indicator for businesses in both retail and ecommerce. Why is it so important? Because it directly influences revenue and profitability. In the ever-evolving digital landscape of online retail, regularly tracking AOV helps businesses assess the effectiveness of their marketing strategies, stay competitive, adapt to emerging trends, and remain aligned with market demands and customer needs.

What is Average Order Value (AOV)? 

Monitoring and understanding your AOV can help refine pricing strategies, design effective promotions, and tailor product offerings to better meet customer needs. It also provides opportunities to increase customer spending through targeted upselling and cross-selling strategies. This important ecommerce metric not only provides insights into customers' buying patterns but also highlights opportunities to drive higher revenue.  

Like any other key metric, it can be tracked over time to analyze changes and growth. Some companies monitor it daily, weekly, or monthly to evaluate their return on investment (ROI) in advertising spend and to understand customer buying patterns.

How to Calculate AOV

Calculating AOV is easy. To do so, take the total revenue from a specific period (such as a day, week, or month) and divide it by the number of orders placed during the same period. 

Here’s the average order value formula:

Now, picture this:

You own a pizza shop, and today you sold: 

40 pizzas for $720 total.

15 side dishes for $150 total. 

10 desserts for $100 total. 

So, your total revenue is 720 + 150 + 100 = $970.

And the number of orders? Let’s say 25 people placed orders today. 

Plug it in:

AOV = Total Revenue ($970) / Number of Orders ($25) =$39 per order. 

Or let’s say, you have an online clothing store and the numbers are as follows:

Total revenue: $20,000 in a month. 

Number of orders: 400. 

The AOV calculation is as follows: 

AOV = Total revenue ($20,000)/ Number of orders (400) = $50 per order. 

This means that, on average, customers spend $50 per order on items like shirts, dresses, or sneakers in the store. 

By offering, for example, free shipping on orders over $60, you can encourage larger purchases and increase your average order value.

Strategies to Increase Average Order Value

Now that you understand this key metric and how to calculate it, let's dive into effective marketing strategies to boost it. Increasing your AOV not only enhances revenue per transaction but also maximizes the value of your existing customer base.

Cross-Selling and Upselling

Upselling is a sales strategy where customers are encouraged to choose a higher-priced or upgraded version of a product. Imagine Apple selling iPhones. When a customer selects an iPhone 16, the company suggests upgrading to the iPhone 16 Pro Max for its superior camera and performance features, at a slightly higher price.

Cross-selling involves a seller recommending products that complement what the customer is already purchasing, such as accessories or add-ons that enhance the main item. An online clothing store might suggest a matching belt or shoes when a customer adds a pair of jeans to their shopping cart.

Offering Discounts for Bulk Purchases

Offering discounts for bulk purchases can significantly boost the average order value. The more customers buy in a single transaction, the higher the AOV becomes. When shoppers realize they can save more money by purchasing in larger quantities, they are often motivated to spend more to take advantage of the offer. This not only boosts the total value of each order but also helps businesses move inventory more efficiently. Over time, these higher-value transactions contribute to increased overall revenue.

Here are some common examples of how businesses offer discounts for bulk purchases:

1. "Buy 2, get 1 free" on t-shirts.
2. Buy 3 or more books and get 10% off.
3. Order $500 or more in office supplies and unlock a 20% discount.
4. Free shipping on orders over $50.
5. Spend $100 and save 20% on your order.
6. Get a discount when you buy a complete set of related products.

Implementing Loyalty Programs 

By enticing customers to spend more to accrue rewards like points, discounts, or exclusive benefits, loyalty programs can improve your average order value. For example, if a program offers a reward for reaching a certain spending threshold, customers are motivated to add extra items to their shopping carts to qualify. Additionally, tiered loyalty programs often incentivize shoppers to spend more by offering better perks at higher levels, which encourages customers to aim for those tiers. These strategies tap into the desire for rewards, gamifying the experience and encouraging customers to purchase more or opt for higher-value products. What’s more, a study by Bain & Company found that a business’s top 10% of loyal customers spend three times more per order than the rest. 

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With Growave's help, SM Global Shop introduced over 15 ways for customers to earn points, keeping them engaged with the store.

The loyalty program encouraged repeat visits and boosted the average order value (AOV)

3.6x

Loyalty Member AOV

3.6x

Loyalty Member AOV

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Using the Growave loyalty app, SM Global's loyalty members achieved a 3.6x higher AOV. 

Free Shipping Thresholds 

Setting a free shipping threshold can increase your average order value from $35 to $50, or $85 to $100. This will enhance overall sales by raising the average spending per customer. 

How to set a free shipping threshold:

1. Calculate your AOV. 
2. Then add 30% to it. 

For example, if your AOV is $40, the new threshold will be $52. Customers who spend $52 or more will get free shipping.

Helpful tips

Add a progress bar at checkout showing how much more customers need to spend to unlock free shipping. This visual cue can motivate them to add more items, which in turn will increase AOV and reduce cart abandonment.

Factors affecting AOV

Your AOV can fluctuate daily, quarterly, or monthly. To understand if these changes are significant or just normal spikes, you need to consider all the factors that influence AOV.

What factors affect average order value? 

• Product Pricing and Discounts 

Higher-priced products naturally boost AOV, while discounts can have varying effects. Discounts often motivate shoppers to purchase more items or higher-value items to benefit from the deal. Too many or poorly structured discounts can hurt profit margins without boosting AOV much.

• Customer Purchase Behavior 

Understanding how people shop (e.g., impulsive buys, planned purchases) helps optimize AOV. Suggesting upsells (e.g., premium versions) or cross-sells (related products) at checkout can nudge customers towards higher-spending behaviors. 

• Product Mix and Bundling 

Bundling complementary products (e.g., shampoo + conditioner) or offering mix-and-match deals incentivize customers to buy more in a single transaction. Strategic bundling often makes the total purchase feel like a better value. 

• Seasonal Trends and Promotions

Seasonal campaigns and limited-time promotions often drive higher spending as customers tend to stock up or buy for gifting purposes. For example, Christmas promotions or back-to-school sales create urgency, encouraging customers to buy more.

• Shipping Costs and Free Shipping Strategies

When free shipping is offered over a specific threshold, shoppers are encouraged to add more goods to their cart to be eligible. Conversely, high shipping costs can deter bigger purchases, reducing AOV. Balancing this is key to maintaining profitability while boosting AOV.

Conclusion

Average Order Value (AOV) is a critical metric for understanding customer spending patterns and optimizing sales strategies. By calculating AOV, businesses can identify opportunities to boost revenue without relying solely on acquiring new customers. Marketing tactics such as bundling products, encouraging upsells and cross-sells, offering discounts on larger orders, or providing free shipping can effectively enhance this metric. Ultimately, improving AOV allows businesses to maximize the value of each customer transaction, fostering growth and profitability. Regularly monitoring AOV helps companies fine-tune their strategies, stay aligned with the latest customer loyalty trends, meet customer needs, and achieve sustainable, long-term success.