e-commerce

Understanding Average Order Value

Overview:

Whether you are new to the world of marketing, or a seasoned veteran, there are a number of calculations that one comes across on a regular basis.  Calculations from Average Order Value (AOV), Purchase Frequency, Lifetime Value, Costs of Goods Sold, etc. Developing a keen understanding of these calculations and how they fit into your marketing analysis will be critical for the growth and performance of your organization.  In this blog article, we will explore the Average Order Value, how this simple calculation works, why you need it, and finally how it can fit into other larger calculations

Calculation:

In order to calculate your Average Order Value, one simply takes the Total Revenue for a period and divides it by the total number of orders for that period.  Total Revenue / Total # of Orders = Average Order Value.

What To Do Next:

At Smart eStrategy we like to think about your online store as having a number of different levers that can be pulled as one considers how to increase performance and drive revenue.  There are four main areas to consider: Total Traffic, Website Conversion Rate, Purchase Frequency, and finally Average Order Value. By tackling any one of these factors, a marketer can greatly increase the total revenue an organization generates.

Fortunately, within e-commerce, there are a variety of simple out-of-the-box plugins as well as techniques that one can implement into their store to help increase the average value of a customer order.  Here is our list of items that we believe you may want to consider.

  1. Offering Shipping Incentives - whether free shipping or flat rate shipping can help incentivize your customers to spend more as they will feel they are getting a deal on the shipping.

  2. Product Recommendations - a fantastic way to help increase the AOV is by providing customers with recommendations of other products they may appreciate.  This can help encourage customers to continue shopping as well as create a sensation that the shopping experience is being catered to their needs.

  3. Up-Sell & Cross-Sell Tools -  are great applications to install into your e-commerce store.  They can help provide suggestions of other products that may be different, yet complementary to what a customer has already added to their shopping cart.  For example, if shopping for bicycle helmets, a cross-sell app may recommend bicycle lights.

  4. Bundling & Discounts - this is a well-practiced technique that you have no doubt experienced yourself.  For example, Buy 3 Get 1 Free. This classic technique helps encourage customers to purchase in bulk and provides them with an incentive to do so.

Conclusion:

As one begins to explore new and different opportunities to increase revenue, at Smart eStrategy, we always recommend beginning with measuring. What gets measured, gets managed. By taking the time to calculate your Average Order Value you will quickly become aware of the opportunities that exist to make sure it is first and foremost consistent, and then finally to increase it over time.

- Henry Palmer