Your website receives a lot of traffic. It has excellent conversion rates. You study the small print, though, and discover that the amount that consumers really purchase when checking out is always below what you order. Average Order Value.
Average Order Value (AOV) is a helpful, if ultimately flawed, measure to track as your business expands. It's frequently one of the first figures that business owners want to increase to increase sales or maximize the return on advertising investment. And it makes sense that you would earn more money if you could persuade them to spend more on each order.
Not so fast.
Like any single statistic, AOV is not without flaws. Below, we'll discuss how to approach your AOV and strategies for raising it that could result in greater profit as opposed to simply higher revenue.
What is average order value?
Let's examine a fictitious case: Your average order value is $20 if your store receives 100 orders for a total revenue of $2,000 each month. This indicates that each purchase a customer makes from your store costs them, on average, $20. If you're a Shopify customer, you can discover this number in your customer reports, along with many other reports.
Businesses that are aware of their AOV of $20 often concentrate on enticing clients to spend more than that amount, for example, by offering free delivery with a $25 purchase. And while it could increase your revenue stream, it might not provide you with the best profit margins.
A better way to think about average order value
Taylor Holiday, co-founder of the marketing firm Common Thread Collective, was eager to point out the drawbacks of AOV as a growth lever when we talked with him.
There is a statistician's adage about measures of central tendency (mean, median, and mode): “Using just one measure of central tendency is unquestionably the worst,” says Taylor.
According to Taylor, examining the “average” order value will merely provide you with a sketch of your customers' buying patterns. He counsels business owners to take into account all three measures of central tendency if they wish to increase the value of their orders:
- Mean: the average value of all orders (what we traditionally call AOV)
- Median: the middle value of all orders
- Mode: the most frequently occurring order value
With the help of our test store, Kinda Hot Sauce here is an actual illustration of how this may affect your strategies:
The order frequency histogram is shown above, along with the mean, median, and mode that was computed. You'll see that the mode, or most common dollar amount of orders, is $15, but the mean (or average), $24, is much higher. A few large orders cause the average to be skewed.
According to Taylor, the ideal strategy for store owners looking to create AOV-impacting strategies is to attempt to raise the modal orders rather than attempting to take $24 orders into account. The most common orders for Kinda Hot Sauce are for $15. ” Therefore, Taylor explains, “We start by analyzing these orders and what upsells would be suitable as we think about strategies to affect the total AOV.
Examine your modal, or, more commonly, order numbers, as a starting point for your efforts to increase total revenue.
All of this is meant to imply that although tracking AOV is crucial, it shouldn't be your primary indicator of a business's health. That would be just as deceptive as tracking calories to live a longer, healthier life. White sugar and avocado both include good calories, but your health should limit the harmful calories rather than the good ones.
As a starting point for your attempts to increase total revenue, take a look at your modal order values, or your most common orders. And with that in mind, let's move on to five strategies that business owners and advisors we consulted regularly cited:
Five ways to increase average order value
1. Create an order minimum for free shipping and other gifts
Free shipping is a tried-and-true yet still very powerful method of encouraging customers to make larger purchases. Additionally, Shopify makes setup simple.
Start with the modal order value or the most common order values to determine your threshold. For instance, you may offer free shipping on orders over $50 if the majority of your orders fall in the $35 to $50 bracket.
Setting your threshold at 30% more than your AOV is what Aaron Zakowski suggests (but again, consider using your modal order value here). The goal is to make free shipping seem approachable to as many customers as possible, boosting your total revenue. A high threshold increases the likelihood of abandoned carts.
If Kinda Hot Sauce had set its free shipping threshold at $35 based on its AOV of $24, the bulk of customers paying $15 would most likely leave their carts. This is a terrific idea if your objective is to eliminate lower-paying customers, but I'm assuming that's not your goal.
Offering a fixed discount for orders that exceed a particular amount is a variant of free shipping. You may, for instance, offer customers who place orders of $50 or more a $10 voucher. A 10% discount for orders over $50 is another option, although this increases the irrationality of profits.
Kopari Beauty advertises this via their in-cart message and gives gifts with a minimum purchase order:
💡 TIP: To make it obvious that you're offering a minimum order incentive, think about including a promotion bar on your website.
2. Bundle products or create packages
Create product bundles that are more affordable than buying the same items separately if you want customers to purchase more items.
You may raise the perceived value of a customer's purchase by bundling products. Offering a collection of products that together create the ideal experience is a terrific way to use product bundling.
For example, BioLite offers a stove and related bundles in a bundle, which are the requirements for preparing food while camping. This makes it simpler for customers to purchase all they want at once and also removes the need for additional investigation. Additionally, you sold numerous products as opposed to just one.
By providing customized products or packages that enable customers to choose whatever features or add-ons they want in their order, you can also empower your customers to create their own bundles.
Customers may create their own face masks at Contrado, a clothing store, and add premium fabrics, white labeling, and other special add-ons that may increase the order total.
Michelle Grant, the company's creator, was inspired by consumer behavior she saw in retail shops when she started Lively, a retailer of bras that used Shopify to create an omnichannel presence. She was aware from previous purchases that 90% of clients would purchase two or three bras at once after their personalized fitting. Therefore, Lively has made bundling accessible online: get a little discount by purchasing two or three bras at once.
“That became over 50% of our sales within two weeks of launching, and it has massively increased our average order value,” adds Grant.
A variety of free and paid bundling applications are available in the Shopify App Store if you're interested in adding product bundles or custom bundles to your store.
3. Upsell or cross-sell complementary products
At least as ancient as McDonald's catchphrase, “Would you like fries with that?” are upselling and cross-selling. Bundling, upselling, and cross-selling, like their cousins, are all about encouraging customers to buy supplemental or improved versions of the products they already plan to buy.
Like any method, its effectiveness might wane over time if used excessively. Based on his experience counseling hundreds of retailers, Preetam Nath of DelightChat offers these tips for improving your upselling strategy:
- Don't upsell too much, recommend as a friend would. Nobody enjoys the sensation of being sold. Your upsell must come across as genuine and helpful, just as a buddy may propose a product. Consider hand-picking products that go ideally with the item in the user's basket, such as accessories or add-ons, rather than just recommending other well-liked items from your store. For instance, a laptop mouse or remote control batteries
- Offer low-value upsells to increase the likelihood of purchase. It is difficult to convince someone who is out to purchase $50 to $100 in items to purchase another $100, but it is simple to convince them to add a $20 product that completes their purchase.
- Test with post-purchase upsells. Implementing post-purchase upsells is a low-risk way to test complimentary product bundles for brands concerned about how their conversion rates may be impacted, maybe using software like ReConvert. Data can then be used to inform you about the products that people frequently buy together. then create a pre-purchase bundle for the same.
Shopify apps for cross-selling and upselling your customers:
To find the right product recommendation app for your store, search the Shopify App Store. Here are a few that we suggest:
- Zipify One Click Upsell. Built for Plus customers, this app boosts Average Order Values with one-click upsell offers.
- Candy Rack. Build post-purchase upsell funnels with one-click purchases.
- CartHook Post Purchase Offers. Add native one-click promotions including upsells and free gifts to your Shopify store.
- Post Purchase Promotions. Boost revenue with native post-purchase upsells and more.
- Ultimate Special Offers. Create a one-click offer upsells directly in your store checkout.
4. Set up a customer loyalty program
Consider setting up a rewards or loyalty program if your store offers consumables, such as razors or shaving cream, that customers need to buy. A retention approach that helps you build connections with your customers and increase customer lifetime value is developing a customer loyalty program.
Make sure your loyalty program adapts to changing customer expectations. For instance, it would not make sense to give buyers extravagant presents just because they spent a lot of money during a worldwide epidemic and an impending economic crisis. An accessories retailer geared for adolescents and tweens called Claire's just introduced a loyalty program with cash-back rewards ($5 back for every 100 points). They are aware that every dollar matters to their younger clients.
You may anticipate a large increase in your average order value when there is an incentive for customers to accrue loyalty program points.
5. Provide fully staffed live chat support for quick questions
Typically, when people think about live chat, they picture support staff members triaging issues while wearing headsets. Today, according to Forrester, businesses using a live chat agent sell 10 to 15% more per cart.
According to Jaime Schmidt, founder of Schmidt's Naturals and author of Supermaker: Crafting Business on Your Own Terms, being accessible via live chat helps customers get their instant inquiries addressed, which increases the likelihood of a sale and decreases the number of abandoned items. Live chat is an “underutilized tool,” according to Schmidt, for raising AOV.
Another way to look at it is that live chat helps your best buyers make real purchases. You'll be conversing with site users who specifically want to explore or buy but may require answers to certain inquiries to feel confident enough to click “Buy.”
For expensive items like beds and furnishings that may need additional assistance getting to the checkout line, live chat is very helpful. As online merchants, we demand a lot from our businesses, asking them to find and pay for products they often haven't ever seen. Live chat has the power to seal the purchase when it matters the most, in addition to product evaluations, testimonials, and other forms of social proof.
Being accessible through live chat enables clients to get prompt responses to their inquiries, increasing the likelihood of a successful transaction and reducing abandoned carts.
Additionally, if you give your buyers a way to contact you right away, you're not just helping them make a single transaction; you're also starting a dialogue that can lead to recurring business.
Sell more to people who want to buy
The benefit of focusing on average order value is that you are focused on visitors who are ready to make a purchase. They may even have items in their carts since they came to your site with good intentions. Simply buy them by finding and purchasing other items that are pertinent to them.
There are fewer obstacles to overcome when you concentrate on involving and energizing individuals who are currently spending money with you. It's about producing a greater exchange of value—the customers who spend more receive more—rather than spinning your wheels on the customer acquisition treadmill.