The majority of businesses are obsessed with increasing traffic or conversions. However, what if you could increase your revenue without gaining any new clients?
That’s the power of Average Order Value (AOV). It is an underappreciated metric that multiplies revenue without increasing ad spend.
In this guide, we will dissect:
- The Reasons AOV Is a Secret Revenue Generator
- How brands like Amazon, McDonald’s and SaaS companies optimize AOV
- New and unconventional strategies that aren’t discussed by others
Let’s use the same clients to gain greater revenues!
What is Average Order Value (AOV)?
All right, let’s simplify this as much as possible. The acronym AOV stands for Average Order Value.
It is defined as, when a customer purchases from your store, it’s the average amount of money they spend on each order.
It’s one of the most critical Ecommerce Metrics for understanding consumer spending habits and optimizing revenue strategies.
Consider it this way: Your AOV is $50 if you own an online clothes store and each consumer spends $50 on average.
It’s a crucial indicator for comprehending consumer buying patterns and determining strategies to boost sales without continuously seeking out new clients.
Why Does AOV Matter?
More revenue without greater client acquisition costs is the result of a higher AOV. You can concentrate on encouraging current consumers to spend more per purchase rather than investing more in advertisements to draw in new ones.
Therefore, online retailers are employing techniques to increase AOV if you have ever seen them recommend “You may also like…” or “Buy one, get 50% off the second item.” And believe me, it’s effective!
Average Order Value Formula
The AOV formula is very simple to use:
AOV = [Total Revenue/Number of Orders]
Let’s imagine that 200 orders in a month brought in $10,000 for your store.Â
Now, AOV = [10000/200] = 50
This indicates that each consumer spends $50 on average for each order.
What is a Good AOV? [Industry Benchmarks]
Industries have different AOVs. The following are some approximate benchmarks for several industries:
| Industry | Average Order Value |
|---|---|
|
Fashion & Apparel |
$100 – $150 |
|
Electronics |
$200 – $400 |
|
Health & Beauty |
$50 – $120 |
|
SaaS (Subscriptions) |
$30 – $100 (monthly) |
|
B2B Services |
$500+ |
Setting attainable targets to raise AOV is made easier when you are aware of your industry benchmark.
How much impact from Marketing Spend on Average Order Value?
The amount you spend on marketing has a significant impact on your Average Order Value (AOV). However, how you allocate your budget will determine the effect.Â
Spending money on advertisements alone won’t always raise AOV. It all comes down to clever strategies that motivate clients to spend more money on each transaction.
For instance, you are more likely to observe a direct increase in AOV if you invest in customized upselling and cross-selling initiatives.Â
Consider Amazon’s “Frequently Bought Together” recommendations or limited-time bundle deals. Customers are encouraged to add more items to their cart by those marketing strategies.
In a similar vein, targeted email marketing and loyalty programs can motivate repeat customers to spend more. Customers might be persuaded to buy that extra item solely to be eligible if you provide an exclusive discount for orders over a specific threshold.
On the other hand, the effect on AOV will be minimal if your marketing budget is primarily concentrated on gaining new clients without optimizing for higher-value purchases.Â
Thus, a well-rounded strategy, where you focus on both attracting customers and increasing their spending is essential to optimizing your return on investment.
Therefore, even while marketing expenditures can increase AOV, the key is to use the appropriate strategies to promote larger purchases rather than merely more transactions.
How to increase Average Order Value?
So, you want your clients to spend more money on each order without feeling like you’re just squeezing more money out of them?Â
The good news is that there are subtle and smart ways to increase AOV without sacrificing the quality of the shopping experience.Â
Let’s dissect it.
1.Offer Product Bundles & Discounts on Bulk Purchases
Have you ever observed that fast food combos are less expensive than purchasing each item separately? Bundling is at work there!
For instance, instead of selling each skincare product separately, provide a “Glow-Up Kit” that includes a cleanser, moisturizer, and serum at a slightly reduced price. You raise AOV while giving them the impression that they’re getting a good price.
Take advantage of “Buy 2 Get 1 Free” offers—people adore freebies!
2.Upsell & Cross-Sell Like a Pro
Cross-selling and upselling are more than simply fancy marketing jargon. They are your go-to tool for increasing AOV.
- Upsell → Offer a more expensive version of the item they are purchasing.
- Cross-selling → When someone purchases a phone, suggest related products, such as a phone case.
For instance, Apple frequently does this. They recommend AppleCare, a case, and Air Pods when you purchase an iPhone.
Make use of in-cart suggestions or pop-ups like “Frequently Bought Together” or “Complete Your Look.”
3.Use Limited-Time Offers to Create Urgency
Action is motivated by urgency and scarcity. Customers are encouraged to purchase more quickly via time-sensitive offers.Â
For instance, “Get 10% off when you spend $75+ for the next 24 hours!”
To generate FOMO (Fear of Missing Out), include a countdown timer on your website.
4.Create a Loyalty Program with Spending Tiers
Rewarding customers for their spending will encourage them to spend more. Provide VIP discounts or points to clients who spend more than a specific amount.
One example is Sephora’s Beauty Insider Program, which incentivizes customers to buy more frequently by offering special benefits based on spending levels.
Gamify it! People enjoy unlocking prizes!Â
5.Set a Free Shipping Threshold
Free delivery is the best incentive for shoppers to add more items to their cart. For instance, set a free shipping threshold of $50 or $60 if your current AOV is $40.Â
Instead of paying for shipping, the majority of customers will add an additional item. Put “Spend $10 more to unlock FREE shipping!” in the cart progress bar. It functions flawlessly.
Conclusion
Selling more isn’t the only way to raise Average Order Value (AOV). Its goal is to assist clients in making wiser purchasing choices.
- Shift from “selling” to “guiding”
- Make spending seem effortless rather than compelled.
- Don’t just use discounts; use psychology and data.
Use an Ecommerce customer journey map to identify key touchpoints where you can influence purchase decisions and boost AOV.
What’s next? Begin by putting one new tactic into practice today – whether it’s post-purchase upsells, personalized recommendations or smarter pricing.
