In eCommerce, increasing your revenue is the name of the game.
Ask any eCommerce merchant and they’ll tell you: marketing efforts, loyalty programs, customer service, faster shipping … everything aims at making more money.
One effective way to boost revenue is to increase how much each customer spends in your store. In other words, by raising your Average Order Value (AOV).
The best businesses pay close attention to AOV because it helps them better understand customer motivations, the larger buyer’s journey, and identify revenue-generating opportunities like upsells and cross-sells.
Improving AOV also helps to:
- Increase customer lifetime value (CLV)
- Improve returns on advertising
- Promote conversion optimization
At Easyship, we help merchants simplify and save on the shipping and fulfillment process. This includes giving you actionable tips on how to maximize the success of your online store.
Use this article to learn about average order value, how to calculate it, and which levers to pull to boost the value in your store.
What is Average Order Value?
Average order value (AOV) is a marketing metric that indicates the average amount spent by a customer in your eCommerce store. The higher your AOV, the more you earn per sale. In other words, you need fewer customers to make the same amount of money.
Retailers monitor this metric because it reflects their ability to scale profits and revenue growth. By raising it, you can better offset the costs of customer acquisition and improve returns on advertising. This means AOV has a direct impact on your pricing plan, marketing strategy, and ad spend.
How to Calculate AOV (Formula)
Calculating AOV is simple. Just divide total revenue in a period by the total number of orders in that same period.
AOV = Revenue/number of orders
For example, say your store generated $2,500 last month in total revenue. You received 100 orders.
When we divide total revenue ($2,500) by order quantity (100), we find AOV: $25 per order.
Additional Metrics That Impact AOV
Like any eCommerce metric, AOV isn't a stand-alone number. It’s most relevant when considered alongside other metrics, including:
Lifetime Revenue Per Visitor (LRPV): This is the average amount a customer will spend during the entire business relationship. You can think of this as the total value of each customer who purchases from you.
To calculate LRPV, divide total lifetime revenue by your total number of customers.
Cost Per Conversion (CPC): The cost of getting a customer to make a purchase. This includes your marketing and ad spend in a given period. To stay profitable, CPC must be lower than AOV.
Calculate CPC by dividing your total marketing spend by the total number of sales conversions.
7 Ways to Increase AOV
AOV has a direct impact on revenue and the bottom line. Even a minor increase in AOV can translate to huge gains in growth. The challenge is getting customers to consistently spend more in your eCommerce store.
Here are 7 tactics to help you increase AOV:
1. Bundle Products
People will pay more to get more. This is why bundling products and offering them at a discount helps to raise AOV.
Say you run a cosmetics company. You can offer customers a 25% discount if they purchase a curated selection of skincare products. Or pair your best-selling products with some slow-movers to clear your shelves. Better yet, let customers choose which products to bundle from a limited-time only catalog.
As long as customers perceive the combined product value to be worth the higher ticket price, the “buy more, save more” approach works.
2. Entice With Loyalty Perks
Savvy brands capitalize on the loyalty of existing customers. This is because the success rate of selling to a new customer is 60-70%, while the success rate of selling to a new customer is just 5-20%, according to the book Marketing Metrics.
Design a loyalty program that rewards customers for spending higher dollar amounts. To this end, you can offer loyalty members:
- Free or priority shipping
- Discounts on large orders
- Early access to new products
Whatever perks you offer, use your loyalty program to invite larger purchases from your happiest customers.
3. Use Cross Selling & Upselling
Entice higher-value purchases from existing customers with strategic upsells and cross-sells.
Upselling is inviting buyers to purchase more expensive items, add-ons, or added products that complement existing products to increase order value. For example, a cosmetics brand might suggest a larger bottle of shampoo at checkout, or a conditioner product that complements the shampoo already in the cart.
Cross-selling is selling an additional product to an existing customer. If you’re selling computer monitors, for example, you can suggest computer screen wipes or a mousepad at checkout. Doing so presents buyers with unique items that enhance the value of their original purchase.
4. Offer Post Purchase Promotions
Marketing to existing customers boosts AOV because the customer journey continues after the initial purchase. In fact, your most valuable customers are your existing customers.
It’s important to send post-purchase emails to customers thanking them for the order. This helps to generate goodwill, but is also an opportunity to promote relevant discounts, cross-sells, and upsells. As an added benefit, this outreach will improve customer retention and customer lifetime value.
Post-purchase outreach hinges upon offering value in a genuine way. If messaging comes off as salesy or inauthentic, you undermine the customer loyalty you’ve worked so hard to create. With Easyship, you can take advantage of a full branded and optimized post-purchase experience, offering your customers a seamless brand experience.
5. Implement Tiered Discounts
This is another example of the “buy more, save more” incentive. Here, you offer discounts of varying amounts – but only if the customer spends a certain amount. This entices purchasing while providing multiple attractive options to maximize conversions.
For example, you can offer a 15% discount to buyers who spend over $150 in your store. Buyers who spend over $200 get 20% off, or even 25% off for spending $250 or more. These promotions can be very effective when attached to special events or seasonal promotions.
6. Limited Time Offers
Scarcity is a powerful motivator. By setting an end-date for promotions, you enhance their appeal and effectiveness with shoppers.
For example, you can offer shoppers a 10% discount for ordering in the next 24 hours. Or maybe it’s free shipping in honor of an upcoming holiday. Giving a reason for the limited discount period helps to improve trustworthiness, which, in turn, helps drive sales.
7. Free Shipping
People love free shipping. In fact, almost one in three (30%) consumers say they will increase their order value if it qualifies them for free shipping.
Experiment with ways to boost AOV with free shipping. Many businesses use the tiered approach, offering free shipping on orders over $100. This incentivizes higher purchase amounts while creating goodwill among price-conscious shoppers.
Make sure to adjust your product prices to include the cost of free shipping. Otherwise, your bottom line will suffer.
Offering Free Shipping for Better AOV
As we just discussed, free shipping is a proven way for brands to increase AOV.
By contrast, recent research found that 77% shoppers have abandoned a cart due to unsatisfactory shipping options. Confirming this, many people report avoiding retailers that do not offer free shipping.
All told, promoting free shipping is essential to increasing your eCommerce AOV. As the saying goes, the customer is always right. Offering the perks that people want is a key step in securing sales, but also retaining loyal customers.
Free shipping isn’t free to merchants, sadly.
To mitigate the added expense, build the cost of free shipping into your product prices. You can also negotiate with your shipping couriers to secure discount shipping rates, as decreasing your shipping costs is another way to raise AOV.
Easyship Saves On Shipping, Boosts AOV
It’s important for eCommerce retailers to focus on increasing AOV. Doing so drives more revenue per customer, optimizes conversions and ad returns, and ultimately lifts the bottom line.
If you’re ready to boost AOV by offering free shipping, or simply more appealing shipping options, Easyship can help.
We partner with a global network of fulfillment centers to help you reduce shipping times, lower shipping costs, and delight your customers. Easyship also gives you direct access to 250+ proven shipping solutions, many of whom offer savings of up to 70% off.
To save on shipping and generate more revenue per customer, sign up for a free Easyship account today!