As an ecommerce store owner, your overarching goal is to be profitable. Although profit probably isn’t the only reason you’re in business, you can’t survive without it.
When you increase Average Order Value (AOV), you make on average more money each time a customer places an order on your site. The result is a more profitable store and more firepower to acquire new customers.
When the value of your customer goes up, you can spend more to find a new one. Seth Godin
In this article:
Before you start
- How to Calculate AOV?
- Why is Average Order Value so important for profitability?
- Why is Average Order Value so important for profitability?
7 sure fire ways to increase average order value
- Leverage your Free Shipping Threshold
- Offer Bundle Deals
- Offer Cross-Sell and Upsell Items
- Offer a Gift with Purchase
- Create a Spend & Save Offer
- Post Purchase Checkout Offer
- Buy Now Pay Later (BNPL)
How to calculate Average Order Value?
To calculate your store’s AOV, simply divide total revenue by the number of orders for a given period of time.
For example, if in any given month your revenue was €15,000 and you had 200 orders, your AOV is €15,000 divided by 200. So your AOV is €75.
It’s useful to look at how your AOV trends over time. Most ecommerce store owners like to monitor AOV on a monthly basis, but it’s also useful to look at the last 7 days or the last 14 days.
It’s also a good idea to look at how your AOV is influenced by your marketing campaigns. Keep track of the start and end dates of your campaigns and you’ll be able to make decisions later on about which initiatives delivered the highest AOV. Sometimes a marketing campaign designed to increase sales will actually drag your AOV down.
For example, offering a discount will increase conversion rate, but may result in a lower average order value. If you keep an eye on the numbers you’ll soon begin to understand where the sweet spot lies for your business.
Why is Average Order Value so important for profitability?
The maths is pretty simple – increase your AOV by €10 and from your next 1000 orders you’ll generate an extra €10,000.
This impacts your business in many positive ways.
It increases the net profit per order, reduces shipping costs as a % of the order and allows you (if you want) to spend more money on acquiring a customer in the first place.
AOV is a bottom line metric that if managed right will bring about long-term profitability.
At our agency Hang Ten Media we help our clients focus on business profitability and increasing the bottom line. AOV is a bottom line metric that if managed right will bring about long-term profitability.
Don’t forget about your conversion rate
Although focusing on your average order value can be a great way to increase your gross profit, you also need to keep an eye on your conversion rate.
Your store’s conversion rate is defined by the number of sales divided by the total number of visitors. You don’t want to increase your AOV only to find your conversion rate drops as a result.
If you create a great experience and desire for your products, you’ll naturally encourage your customers to want to spend more. Find that AOV sweet spot and you’ll be well on your way to a successful ecommerce store.
Here are some proven tactics to help you increase your Average Order Value:
1. Leverage your Free Shipping Threshold
Free shipping is one of the greatest marketing tools available to an online store.
In a survey by Walker Sands Communications, 90% of people said that having an order ship for free is the biggest incentive to add more to their cart.
So the idea is to leverage the free shipping threshold to push up your average order value. You’ll help your customers save on shipping but gain extra value from every sale as they add more to their cart.
How to define your free shipping threshold
Make your free shipping theshold 10 or 15% higher than your current AOV. Check your AOV for the last 30 days. If for example it’s 70 €, then offer free shipping over 80 €.
Make sure you have the products available to enable people to easily add an extra 10 or 15 € to their cart. If you’re a fashion store, t-shirts, accessories and one size fits all caps and beanies are great for this.
It’s a good idea to add site-wide messaging to advertise your free shipping offer. Some Shopify themes include a message bar at the top of the site. This is a great slot for a message like: Free Shipping On Orders Over €80.
Personalised upsells and cross-sells directly in the cart
If you’re on Shopify, Rebuy’s Smart Cart™ can encourage shoppers to buy more and unlock free shipping using personalised upsells and cross-sells directly in the cart. This combined with a visual prompt showing how close you are to free shipping provides a great shopping experience and drives up AOV. Here it is in action:
2. Offer bundle deals
Offering bundle deals is a sure fire way to increase your average order value – buy 3 t-shirts for the price of 2, buy 2 t-shirts get the 2nd 50% off, mix and match multi-buys, buy 3 get the cheapest free. If you need inspiration, just take a look at the offers available on your next food shop – supermarkets are the masters of the bundle deal.
In Shopify you can create bundle deals by selecting the Buy X Get Y discount type. The only limitation with the inherent Shopify discount functionality is that the customer has to add each product to their cart for the discount code to be valid. For a smarter, more user friendly solution, you can use an app like Free Gifts BOGO buy x get y.
Before you offer a bundle deal, make sure you do the maths. Although the offer will drive up your AOV it will also bring down your margin. You need to make sure your products are priced in a way that you can afford to cover the costs of the reduction while still making more profit from the bundle deal.
According to Inc., bundling will be the new ecommerce standard as customers demand more personalised choices and convenience. If you can group products together in a way that helps your customers make a decision, you’re actually improving the customer experience, and increasing average order value at the same time.
3. Offer cross-sell and upsell items
Another way to increase AOV and convert more new customers is with upselling and cross-selling promotions. These promotions are designed to improve the customer experience by offering visitors more of what they want. This naturally boosts AOV.
In Shopify, you can add a section below the main content of the product page to recommend relevant products. Or, you can go a step further and use an app like Rebuy to dynamically pull in recommended products using AI or your own customised ruleset.
What’s the difference between upsell and cross-sell promotions?
An upsell is an upgrade to the item they’ve selected, replacing the original product in the cart. When recommending upsells you want to make sure the prices are slightly higher than the current product being viewed.
A cross-sell is a complementary product to the item they’ve already selected, which is added to the cart alongside the original item. For example, if a customer has a surfboard in their cart, you could offer them a traction pad, a leash or a set of fins.
The trick is to make it an easy decision. Upselling and cross-selling are very much psychological. With upselling, you draw people in with a low-priced offer and then show them something better while you’ve got their attention.
Your customers aren’t stupid, they know the difference between low cost and good value. If the price increase is low in comparison to the additional benefits offered then it’s an easy decision for them to make.
4. Offer a free gift with purchase
Everybody loves something for nothing. By offering a free gift with purchases over a specified cart value, your customers are incentivised to add more to their cart in order to benefit from the gift. For example, Spend over €80 and get a free [your brand] cap.
It’s an opportunity to boost your AOV, delight your customers and rid yourself of any surplus stock. In the fashion industry, free gifts such as socks, baseball caps or sunglasses work well.
Or, if your margins allow, you can offer something of real value and really drive up your AOV. Here, UK jewellery retailer Pandora is offering a free bracelet worth £65 when you spend £99:
To set up a gift with purchase discount in Shopify, go to Discounts > Create Discount and select Buy X get Y. Then enter a minimum purchase amount and select the product you want to give away for free. Enter a name for your discount code, such as FREEBRACELET and hit save. The customer will have to add both items to the cart and enter the code.
If you’re on Shopify Plus, you can use the Rebuy app to achieve a better user experience. Use a Rebuy Gift with Purchase widget to auto add the free gift to the cart and configure a Shopify Script so the auto-added item is free.
5. Spend and Save
Spend and save offers are a favourite of multi-brand retailers with lots of products and are great for driving up average order value. But, depending on your catalogue, they can work well with smaller ecommerce stores too.
Sometimes called Spend and Get, the basic idea is that the more your customer spends, the bigger the discount they receive. Usually this is done as a fixed amount off the basket value. For example:
- €10 discount on orders over €80
- €20 discount on orders over €120
- €40 discount for orders over €180
In Shopify, you can either set these up as automatic discounts, in which case customers will get the discount automatically in their cart, or by using discount codes. You’ll need a separate discount code for each tier.
If your store is on Shopify Plus, you can use Shopify Scripts to set this up and have it run in the background. The geniuses over at GitHub have built a Shopify Script Creator to make this a whole lot easier. Just select the pre-built Tiered Discount campaign and configure it in-line with your offer.
6. Post-Purchase Offers in the Shopify Checkout
Purchase intent peaks when a customer completes an order. If you can make a compelling product offer to your new customers when they’re most excited about your brand, they’re much more likely to accept. This boosts order value, builds customer loyalty and provides an opportunity to introduce new products.
The trick is to make it as easy as possible for the customer to purchase the extra product and avoid them having to re-enter their payment details. To enable this functionality, Shopify requires the use of a third party app. Both CartHook and Rebuy allow one-click post-purchase offers.
To really drive home the conversion, you can make the offer time limited and even include a countdown timer, for example:
Limited time offer.
Add this favourite to your order.
Hurry – your special offer ends in: 5:00
So what should you include in your offer?
Keep your eye on the prize. Your goal here is to push your average order value up a little. So the best products to include fall squarely in the spontaneous purchase category. The purchase decision shouldn’t need a lot of thought. DTC brand Karmaloop offered a $12 t-shirt for $9 in a choice of two colours – grey or white. Keep it simple, take away the decision making and the increase in average order value will speak for itself.
7. Buy Now Pay Later (BNPL)
With Buy Now Pay Later you get paid upfront and in full, while your customers get the option to pay later or over time.
Shop now, pay later is becoming commonplace amongst DTC brands trying to boost sales and push up AOV. It allows customers to buy what they want today and spread the cost over time, interest free.
In Europe, Klarna is the biggest player with 15 million shoppers in the UK alone. It offers two options – split the cost into 3 interest-free monthly instalments, or pay in full up to 30 days later. Pay in 30 days is marketed to consumers as “try before you buy” as they can buy it and possibly return it before any funds are due.
It’s easy to see why BNPL should have a positive impact on your average order value as it makes shopping more convenient. If you’re on the fence about a purchase because money’s tight before pay day, the option to use Klarna may well be the deciding factor.
And many shoppers are looking for the pink Klarna logo in the checkout and are likely to jump ship if can’t see it. So including the option to BNPL should help your store’s conversion rate as well.
Up Next – Customer Lifetime Value
When you look at the numbers in your store’s analytics, it becomes clear that to achieve long-term business success you need to encourage your customers to come back and purchase again.
Here’s a few suggestions on how to improve your customer lifetime value and grow your bottom-line.