Mastering how to increase average order value (AOV) is one of the most impactful ways to achieve business growth. Increasing AOV directly boosts revenue, making it a key focus for ecommerce brands aiming for enhanced profitability and success.
In this article, we'll walk you through how to calculate it, why it's important, who is responsible for increasing average order value, and 21 strategies that your ecommerce store can use to make it happen.
AOV stands for average order value, a critical metric that measures the average dollar amount spent each time a customer places an order on a website or mobile app. Average order value is an essential indicator for ecommerce businesses, as it provides insights into customer purchasing patterns and helps in strategizing marketing and pricing to boost sales and total revenue. Understanding and optimizing AOV is key to enhancing the profitability and success of an online store.
Your average order value is more than just a number; it's a reflection of a brand's health and potential for growth. An increase in AOV typically signifies enhanced customer trust and preference, which not only suggests a larger share of the customer's wallet but also fosters improved customer retention. This uptick in spending per order positively influences other important metrics like customer lifetime value (LTV), reflecting both heightened customer loyalty and long-term engagement with your brand.
Key Reasons Why AOV is Important:
Calculating average order value is straightforward. The formula is:
Average Order Value = Total Revenue ÷ Number of Orders
To put this into action, let's consider an example. Suppose your online store generated $50,000 in revenue from 1,000 orders last month. Using the AOV formula, your average order value would be $50,000 ÷ 1,000, equating to $50. This means, on average, each customer order was worth $50.
This calculation offers a window into your customers' spending habits. By consistently monitoring AOV and comparing it within the same time period across different months or quarters, you can effectively gauge the impact of your pricing, marketing campaigns, and product strategies. An increase in AOV after introducing a new marketing campaign or product bundle suggests a positive customer response.
Maintaining consistency in tracking AOV is key. This consistent analysis, especially when comparing it across similar time periods, helps in uncovering trends and patterns, guiding informed decisions to foster revenue growth and adapt to changing market dynamics.
The responsibility of increasing average order value at a company is a collaborative effort, involving multiple departments and roles. While it primarily falls under the purview of the marketing and sales teams, the reality is that almost every aspect of the business can influence AOV. From product design to customer service, each department plays a role in enhancing the customer's purchasing experience and, consequently, the average value of their orders.
Key Roles Influencing AOV:
Each of these roles contributes to a cohesive strategy aimed at increasing average order value, demonstrating that it's a company-wide objective rather than the responsibility of a single department.
Increasing the average order value is a strategic way to boost revenue in an ecommerce business without necessarily increasing the number of customers. Here are 21 effective methods to elevate your AOV:
A customer loyalty program creates compelling incentives for customers to spend more. By rewarding repeat purchases with points, discounts, or exclusive offers, these programs encourage customers to increase their order size to maximize their rewards.
The psychology behind loyalty programs is simple: the more a customer spends, the more they gain, fostering a sense of exclusivity and belonging. And by offering rewards for engaging with your brand, you also create loyal customers.
See how Saalt skyrocketed repeat purchase rate to 41% with Friendbuy's innovative loyalty program software:
Here are a few ways a customer loyalty program can increase the average amount spent per order:
Loyalty programs effectively turn occasional buyers into repeat customers and encourage them to spend even more money on each visit.
Referral programs encourage customers to introduce new customers to your brand. This method is effective because referred customers, who often trust the recommendations of people they know, are more likely to make larger initial purchases. Referral programs incentivize and reward both the referrer and the referred customer. This dual benefit not only drives new customer acquisition but also encourages existing customers to engage more deeply with the brand, often leading to repeat purchases and higher average order value.
Here are a few ways to use referral programs to increase average order value:
By implementing a well-structured referral program, ecommerce brands can effectively increase average order value, benefiting from the compounded effect of new customer acquisition and enhanced loyalty among existing customers.
Upselling involves recommending premium or more feature-rich versions of a product that a customer is already interested in. This technique effectively increases the average order value by guiding customers towards higher-priced items that offer more value or better features.
Here are a few ways to upsell to your customers:
Cross-selling involves suggesting additional, complementary products to customers during their purchase journey. This method works well because it taps into the customer's existing purchase intent. By presenting items that enhance or are related to the primary product, customers are more likely to add these to their cart, seeing the added value in real-time.
Here are a few examples of how to cross sell:
Volume discounts encourage customers to purchase more items by offering a reduced price per unit for larger quantities. When customers realize they can save money by buying more, they are often motivated to increase their order size.
Here are a few examples of offering volume discounts:
Bundling multiple products involves offering a set of complementary products or services together at a discounted rate compared to purchasing them individually. This method effectively increases AOV by enticing customers to spend more to get a better deal.
Here are a few examples of bundling products:
Implementing a free shipping threshold is a proven tactic to increase average order value in ecommerce. By setting a minimum purchase amount required for free shipping, customers are often motivated to add additional items to their cart to reach that free shipping threshold. This strategy plays into the customer's desire to get the best value for their money, making the prospect of 'free shipping' a compelling reason to spend more.
Here are a few ways to offer free shipping to increase revenue and your AOV:
Time-limited offers create a sense of urgency that encourages customers to act fast. By limiting the availability of special deals, customers are motivated to not only make a decision quickly but often to purchase more than they originally intended. This urgency taps into the fear of missing out (FOMO), leading customers to capitalize on the deals while they last. Whether it's through flash sales, countdown timers, or weekend-only promotions, these time-sensitive offers can significantly boost the perceived value of a purchase, encouraging higher spending in a shorter time frame.
Here are a few examples of time-limited promotions:
Exclusive deals targeted at specific customer segments are a powerful way to increase average order value. By tailoring offers to meet the unique preferences and behaviors of different customer groups, brands can create a sense of exclusivity and value. Customers are more likely to increase their order size when they feel they are getting a special deal that is not available to everyone.
Here are a few examples of how to offer exclusive deals:
Personalized recommendations use customer data, such as past purchases, browsing history, and preferences, to curate product suggestions that resonate with individual customers. This tailored approach not only improves the shopping experience but also encourages customers to discover products they are more likely to purchase, often at higher values. Personalized recommendations can lead to impulse buys or add-ons that the customer might not have considered otherwise, effectively increasing the overall order size.
Here are a few ways to offer personalized recommendations:
When customers know that reaching a certain order value will earn them a complimentary item, they are often motivated to add more to their cart. This tactic not only enhances the perceived value of the purchase but also creates a sense of exclusivity and reward. It taps into the psychological principle of reciprocity – customers feel valued and are likely to respond positively by increasing their spending.
Here are a few examples of how to offer a free gift with purchase:
Tiered pricing cleverly incentivizes customers to purchase more by offering a lower price per unit with higher quantities. This pricing strategy plays on the psychological principle of perceived savings – customers are more likely to buy in bulk if they believe they are getting a better deal. By structuring prices to decrease as order size increases, businesses can encourage customers to spend more in a single transaction. This not only boosts the AOV but also helps in inventory management and reduces shipping and handling costs per unit.
Here are a few ways to offer tiered pricing:
Flash sales are limited-time offers that typically feature significant discounts or exclusive deals. The key to their effectiveness lies in the sense of urgency they create. Customers, enticed by the fear of missing out on a great deal, are often motivated to make quicker and larger purchases than they normally would. This urgency can lead to an increase in impulse buying, where customers add more items to their cart to take advantage of the sale.
Here are a few examples of offering flash sales:
Subscription models shift the customer's purchasing behavior from one-time transactions to ongoing engagement. This model offers convenience and often savings to customers, encouraging them to commit to regular purchases. For online businesses, it translates into a consistent revenue stream and the ability to predict future income more accurately. Over time, as customers become accustomed to regular deliveries or services, their trust in the brand grows, often leading to increased spending and loyalty. This sustained customer relationship not only stabilizes revenue but also typically results in a higher average order value, as subscribers are more likely to make additional purchases or upgrade their subscriptions.
Here are a few ways ecommerce brands can incorporate subscription models in their business:
When customers are given the opportunity to pre-order new releases, they often perceive these items as more valuable or desirable. This perception can lead to increased willingness to spend more, especially if pre-orders are bundled with special offers or exclusive bonuses. Pre-orders also create a sense of anticipation and excitement, which can further amplify the perceived value of the products, encouraging customers to commit to higher-value purchases before the items are even available.
Here are a few examples of how to offer pre-ordering for new releases:
Positive reviews and feedback act as social proof, significantly enhancing trust in your brand and products. When potential customers see that others have had positive experiences, particularly with higher-value items, it reduces their perceived risk and encourages them to make similar purchases. Moreover, showcasing customer reviews can highlight the value and quality of your products, persuading customers to opt for more premium options.
Ilia Beauty includes customer reviews right on its product pages along with customer images so that shoppers can see how the products work in real life:
Here are a few ways to incorporate customer reviews in your customer journey:
Offering flexible payment options, such as installment plans, is a strategic approach to making higher-priced items more accessible, thereby increasing the average order value. This method works effectively because it reduces the immediate financial burden on the customer, making it easier for them to commit to larger purchases. By breaking down the total cost into smaller, manageable payments, customers are more likely to add higher-value items to their cart.
Here are a few examples of offering flexible payment options:
Holidays and seasonal changes often bring about a shift in consumer behavior, with customers more open to purchasing due to the festive mood, seasonal needs, or the desire to take advantage of limited-time offers. By aligning promotions with these periods, brands can create a sense of urgency and exclusivity, encouraging customers to make more significant purchases or buy in larger quantities.
Ilia Beauty offers holiday gifts sets and free holiday shipping in the weeks leading up with Christmas:
Here are a few ways to offer seasonal promotions:
By offering premium memberships that come with special benefits or discounts on larger purchases, brands can effectively encourage members to spend more. Members often perceive the benefits as a return on their investment in the membership, leading them to make more frequent and higher-value purchases. Not only that, but the exclusivity of these memberships can also enhance customer loyalty, as members feel more connected and valued by the brand. This loyalty not only drives up AOV but also fosters long-term customer relationships.
MZ Wallace uses Friendbuy's loyalty program software to create a tiered membership with exclusive benefits:
Here are a few examples of exclusive memberships that your ecommerce brand can offer:
Interactive product demos and virtual try-ons engage customers more deeply with the product, allowing them to visualize and understand it better. When customers can interact with a product virtually, they gain a clearer sense of its value and relevance to their needs. This heightened engagement often translates into customers feeling more confident and satisfied with their purchase decisions, leading them to opt for higher-value items or additional products.
Here are a few ways to offer interactive product demos:
Retargeting campaigns re-engage customers who have already shown interest in your products. By targeting individuals who have already visited your site, added items to their cart, or previously made a purchase, you're reaching an audience that's already familiar with your brand. This familiarity often leads to higher conversion rates and increased order values, as these customers are more likely to be influenced by personalized offers and reminders. Retargeting creates multiple touchpoints with potential buyers, keeping your brand top-of-mind and encouraging them to not only complete their purchases but also to consider adding more items or opting for higher-value products.
Here are a few examples of retargeting campaigns:
Videos showcasing the product in use or offering a closer look at its features can captivate the audience, making the product more appealing. Similarly, crisp, detailed images help in painting a clearer picture of what the customer is investing in. Compelling visuals often leads to customers feeling more confident and satisfied with their purchase decisions, encouraging them to opt for higher-value items or additional products.
Olive & June uses beautiful imagery and product demos to showcase its products, achieving an 18.5% conversion rate with a referral program powered by Friendbuy:
Here are a few ways you can include enticing imagery and videos:
Average order value is a good indicator of online business health. There are many ways to increase average order value for ecommerce stores, many of which can be automated by your existing marketing tech stack. Whether you cross sell high value products, allow customers to earn points toward their next purchase, bundle complementary products, or offer a free gift, online stores can effectively increase average order value and online sales this very quarter.
Contact Friendbuy to see how we can help your brand achieve more sales and a higher average order value with a customer loyalty program and referral program.