Ecommerce store owners, big and small, are constantly trying to improve their sales figures and run stores that have impressive profit margins. To do this, they focus their attention on the data. When you’re running ads you’ll be focusing on engagement and conversion rates, but beyond this – when you’ve actually got customers to your ecommerce store – you’ll be focusing on metrics like Average Order Value.
This post is going to explain what Average Order Value (AOV) is, how to calculate AOV, and what you can do to improve it.
What is Average Order Value?
Average Order Value (AOV) is how much, on average, a customer spends when they place an order on your store. This value can represent all of the orders that have been placed, orders that were placed in specific countries, or a single category of products.
But why is this metric important? Because it’s another indicator of your store’s performance. The higher your AOV, the more profit your store is generating.
Let’s say your customer AOV is $30 but you spend roughly $15 to acquire a customer. You can increase your AOV to $40, but that $15 doesn’t change – you’re investing the same whilst getting customers to spend more.
Think of it like this: you’re already spending that amount to get them to your store, why not put in the effort to convince them to spend more while they’re there?
How to Calculate AOV?
Average Order Value Calculation
To calculate the average order value, you’ll need your total revenue and number of orders. Divide revenue with the number of orders and you get your average order value.
Have those numbers ready? Let’s calculate your AOV with the calculator below. Input your revenue and number of orders and the calculator will work out the average order value.
Average Order Value Calculator
Calculating AOV with Shopify
If you have a relatively new Shopify store or don’t have a lot of orders, working out the AOV is as simple as adding up all the order totals and dividing that value by the number of orders. However, if you’ve had hundreds of orders, the method below is a much easier way to calculate AOV.
Step #1 – Start by signing into your Shopify dashboard and navigating to the Orders section.
Step #2 – Click the Export button and choose to export All orders, and make sure you choose to export as Plain CSV file.
Step #6 – Click the box at the top-left of the sheet to select all the data, and click Data > Create a filter. This will enable you to sort the data based on the different variables.
Step #7 – Create a new sheet by clicking the at the bottom-left of the page.
Step #8 – In any cell, enter the formula =average(Sheet1!L:L). In this case, the sheet with all of the Shopify data is called Sheet1 and the column containing the order totals is column L; edit the formula based on your own sheets.
Doing this will calculate the AOV for all of your store’s orders. If you want to calculate AOV for specific products or for orders within a specific date range, copy those orders into a separate spreadsheet and use the same AOV formula we used above.
How to Increase Your Average Order Value
So you’ve worked out your AOV, but what if the value you got was underwhelming? Most store owners are continuously working to increase average order value and here are some of the ways that you can do so.
1. Free Shipping Threshold
We usually recommend that all store owners offer free shipping anyway, but if you’re struggling to get a higher AOV then having a free shipping threshold can help. If your AOV is sitting at $35, set your free shipping threshold at $50. This will encourage customers to add to their orders so that they’re able to take advantage of this benefit.
What’s important here is that you do the math and make sure that this change remains profitable for your store. Since you’re going to be covering the shipping costs, your profit margin is going to shift and you need to determine how exactly free shipping will impact your profits.
2. Discounts Over Spend Threshold
Another threshold that can help increase AOV is to give customers a discount if they buy in a bulk or if their order total exceeds a set amount.
You can do the exact same thing as you would with the free shipping threshold: set the discount threshold a good amount more than your AOV and make sure that offering a discount doesn’t reduce your profits too much.
3. Bundle Deals
Bundle deals are perfect for improving customer AOV because it puts the notion in the customer’s mind that they could save some money by adding another product to their order. You don’t necessarily have to add a discount to bundle deals (simply advertising products in a bundle can be enough to make customers consider purchasing them), but this can entice more customers to purchase it.
4. Gift Cards
Gift cards are great for a couple of reasons. Not only does it encourage customers to place more expensive orders, but it gives them a reason to return to your store in the future (or if they give the gift card away, that brings you a new customer).
So if they place a $200 order, you could give them a $40 gift card. Getting the gift card amount right is important. If it’s too low then the customer won’t care as much, but if it’s too high you’ll lose money. Generally, around 20% of the threshold is a good amount for this strategy.
5. Cross Sells and Upsells
These are a bit different compared to the other ways but are nonetheless effective for boosting your average order value, and they are cross selling and upselling.
Cross selling is when you sell a product that is similar to the one the customer is viewing, but it’s more expensive. You can do this by showing the more expensive option in a related products box on the product page or the checkout page, giving customers the option to upgrade their order.
Upselling is when you sell a product in addition to the one the customer is viewing. If you’re selling printers, for example, then it would be useful to upsell ink cartridges alongside them.
6. Free Gifts
And the last thing you can try is to offer a free gift when a customer spends over a certain threshold. The fact is, people love getting things for free and this can be enough to persuade customers to pay a little extra to receive the free gift.
This doesn’t have to be something that’s crazy expensive, but it should be enough that it can act as an incentive and persuade customers to reach that order price threshold.
That sums up everything you need to know about average order values in e-commerce and what you can do to improve yours. The great thing about this metric is that you don’t have to increase your advertising budget to achieve better results. With the right strategy and with the help of the tips we’ve provided above, you can increase your store’s profits without overhauling your marketing campaigns.