This article explains what AOV means, how to calculate average order values, and most importantly how to increase average order values so your business on Shopify thrives.
A low average order value (AOV) adversely impacts your store’s profitability.
Even when your conversion rates are high, shoppers might only buy what they need and leave, resulting in a low AOV. Before you work on increasing your AOV, you should be mindful of the statistics at play.
Below we’ll explain how to calculate average order value, look at it more objectively as a revenue growth lever, and tips to increase your AOV.
How to calculate Average Order Value (AOV)?
Simply put, it’s the total revenue divided by the number of orders during a specific time frame. For example, if your Shopify store generated $50,000 in revenue from 500 orders over the last quarter, your AOV is $100.
You might be tempted to set a target AOV of $130 for the next quarter. But setting a target AOV based on the current AOV isn’t the best strategy. You should also look at the median and modal order values to set a more realistic target:
- Median order value: The middle value of the range of all order values.
- Modal order value: The most frequently occurring order value.
Say five of your 500 orders were worth $10,000. When you exclude those five orders, the AOV drops to roughly $80.8 from the original $100. And that’s why AOV can be misleading.
For the same period, say most of your customers ordered products worth $90 (modal order value). In this case, you might want to set a target AOV of $115. Aiming for $130 might drive away many customers who expected to spend $90.
Why Average Order Value is Important
AOV is important for the following reasons:
- Doesn’t come with additional CAC.
Customer acquisition can be expensive. According to Shopify, the average customer acquisition cost (CAC) for a small business with less than four employees is $58.64.
Strategies focusing on increasing the AOV help increase your revenue and profitability without the expense and effort required to acquire new customers.
- Indicates marketing and pricing strategy’s success.
Monitoring the AOV is also a great way to gauge your marketing and pricing strategy’s success.
For example, increasing the price by $5 may not necessarily increase the AOV because fewer customers might order the item after the price increase.
5 Tips to Improve Average Order Value
Increasing AOV isn’t as simple as increasing the product price. You need to test strategies to find what works best for your business.
Here are some strategies you might want to consider testing if you’re wondering how to increase average order value:
Create an Order Minimum for Free Shipping
Free or low-cost shipping is the third most important reason why consumers prefer shopping online, according to the Consumer Trends Report for Q2 2022. It also states that 74% of customers are influenced more by the shipping price than the product price.
You can use the customer’s expectation for free or low-cost shipping to nudge them towards a higher order value. Create an order minimum for a value above your current modal order value for free shipping.
For example, say your current modal order value is $90. You can offer free shipping on orders above $110 to increase your AOV.
Ordering more also makes sense for most of your customers. Instead of paying $15 for shipping, they’ll gladly order more goods worth $20.
Add a Free Gift Over a Certain Amount
The probability of selling to an existing customer is 60-70%, while selling to a new customer is only 5-20%. That’s why customer retention is key to your store’s long-term success.
Giving away free products is an excellent way to improve retention rates. Offering free products when customers spend over a certain threshold has two benefits: it boosts brand loyalty and increases the AOV.
The order minimum for offering a free product depends on your modal order value, profit margin, and the cost of the product you’re giving away.
For example, if your target AOV is $110 and your net profit margin is 30%, you might consider giving away a product that costs up to $5 to customers who spend $110.
Setting up free product offers is easy with MESA. It automatically adds a free product post checkout to the customer’s order for fulfillment. For instance, if you want to offer free products on orders above $120, MESA will check if an order’s value exceeds $120 and automatically add a free product to the order.
Upsell and Cross-Sell Like Products
Upselling can increase your revenues by up to 10-30% on average. You must put relevant products in front of your audience to successfully upsell and cross-sell. But don’t try too hard, or you risk alienating your customers.
Customer segmentation is key to successfully driving revenue through upselling and cross-selling. Make sure your upsell offers are relevant to the customer and use targeted messaging.
Add-ons can help you create upsell offers, but they come with a price tag. Do a cost-benefit for the add-on if you plan on using one.
You can also test post-purchase upsells at check-out with an app like AfterSell. Post-purchase upsells give you a better understanding of which products your customers typically buy together so you can create bundled products.
Implement a Customer Loyalty Program
Loyalty programs are a great way to improve retention and CLV (customer lifetime value) if you have a subscription model. Incentivizing customers to buy more through loyalty programs naturally increases the AOV by up to 319%.
Here are the top loyalty program apps that can make running a loyalty program easier:
- Yotpo Loyalty
MESA integrates with all popular loyalty program apps and automates parts of the loyalty program’s workflow.
For example, integrating MESA with Yotpo Loyalty allows you to capture customer birthdays for following up with personalized offers when it’s time to celebrate.
Make Sure the Customer Success Team is Set Up for Success
What do you do when support takes hours to respond to your question about a product? You buy from another store or forget about the product altogether.
Customers are more likely to complete a purchase or respond to an upsell offer when they get answers in real-time. Translation? Quick responses can help you increase your AOV.
Another reason why quick responses are essential is that they influence customer experience. Better customer experience helps improve retention and increase AOV. And that’s why live chat is a must-have for ecommerce stores.
Things can happen even when you set up live chat and a large support team to answer customers quickly. A team member might miss a notification, or your app might malfunction.
MESA ensures you never miss customer communication with automatic Slack and email notifications. Responding to a customer quickly after receiving a notification might just save a big sale.
Automate Your Way to Higher Order Values
Now that you know how to calculate your average order value, the fun of increasing it begins! You’ll need to use a combination of strategies discussed above and test them to increase AOV. Implementing multiple strategies can be overwhelming, but automating the process can help streamline implementation. MESA integrates with the most popular apps and helps automate workflows so you can focus on strategic tasks. If you ever need help, our team of automation experts will help you build the best workflows for your Shopify store.
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