As a retailer, you’re always on the hunt for new ways to grow your business.
The good news is that boosting your average order value is one of the most effective (and easiest) ways to beef up your bottom line.
In this post, we’ll explain everything you need to know about average order value (including its drawbacks) and show you five simple ways to increase yours right now.
What is average order value?
Average order value (often abbreviated to AOV) is the average amount that a customer spends buying from your store.
You can calculate your average order value by dividing your store’s total revenue by the total number of orders.
For example, let’s say you generated $10,000 from 100 orders last month. That means your average order value is $100 (10,000 revenue /100 orders = $100 per order).
Why boosting average order value matters
Whether you’re blind dropshipping, or running multiple Shopify stores already, there are several reasons why boosting AOV matters:
- More revenue, bigger profits: Obviously, the biggest benefit that comes with a higher AOV is more money in your pocket. As your profit grows, you can reinvest more money back into your business to grow faster.
- Better return on marketing spend: The cost of ads is rising. It’s hard to make a profit if you’re spending $30 on Facebook ads to acquire a customer, and they’re only spending $50. But if you can entice them to spend $75, you’ll find it much easier to stay profitable.
- More money to spend on acquisition: When you’ve got more money to spend on customer acquisition, you can capture a larger share of the market and leave your competitors quaking in their boots.
How to get an accurate representation of your AOV
As you probably remember from school, statistics can sometimes be tricky. And your store’s AOV is no different.
Your AOV is a representation of the mean value of your customer spend.
But what happens if one customer spends $1,000 while four others spend $25?
Does an AOV of $200 give you an accurate picture of what’s going on here?
Not quite. A few large orders can skew your AOV upwards.
So, to get a better insight into your customer’s behavior, it’s wise to look at three statistical measures in your order data :
- The mean - what we traditionally call the AOV, the average value of all orders, divided by the number of orders.
- The median - The order value lying at the middle of all your orders
- The mode - The most frequently occurring order value
Using these three measures together will allow you to see how your customers are spending money on your store and tailor your approach better.
For example, you might find that your AOV is way higher than the most common order value. In this case, you’d achieve the best results by focusing on offers that increase your mode order value.
Alternatively, you might want to use incentives to entice big spenders to drop even more cash.
Whatever your goal, remember not to solely rely on your AOV without taking the median order value and mode order value into account to give you the complete picture of what’s going on.
5 proven ways to boost your average order value
Here are five proven ways to increase how much the average customers spend on your store:
1. Upsell or cross-sell complementary products
Remember the last time you went to McDonald’s, and when you placed your order, an employee asked, “Would you like fries with that?” That’s known as cross-selling - offering you a complementary product to go with your primary purchase.
Now recall when that employee asked, "Would you like to go supersize?”. That’s an upsell - nudging you towards a more premium version of your chosen product.
Upselling and cross-selling are some of the most commonly used methods for increasing average order value. And with good reason - both strategies work very well.
For your store, there are several places you can offer upsells and cross-sells, including:
- Upsell on the product page using pop-ups - when customers try to purchase a single stick of deodorant, Native offers a three pack with 17% off the purchase price.
- Cross-sell on the cart page: Quip offers customers a toiletry bag when they purchase a toothbrush on their checkout page.
- Cross-sell on your thank you page: When customers land on your thank you page, they’re in peak buying mode. It’s the perfect place to offer them a complementary product or discount offer and bump up your AOV.
2. Create a free shipping threshold
Most consumers hate paying for shipping and would rather spend more on products than on shipping.
That’s why arguably the easiest way to increase your average order value is by offering free shipping on orders over a certain price threshold.
For example, check out how Fresh Clean Threads uses a progress bar to entice customers to spend more:
Note how they also have an item number-based discount - adding two more tees to my order gets me $15 off the total cost. This makes it more likely that customers will add more products to their cart, thus boosting their AOV.
To calculate where your free shipping threshold should be, simply add 30% to your mode (or most common) order value.
For example, if your mode order value is $50, set your free shipping threshold to $65. This will entice the largest segment of customers to spend a little more and bump up your AOV.
3. Bundle products
Creating bundles of complementary products is a great way to encourage customers to spend more money and get a better deal.
For example, guitar manufacturer Fender bundles a selection of complementary products to bump the cart value from $749 (for the guitar alone) to $1,100 with all the add-ons.
Bundling products like this doesn’t only generate more revenue, but it also helps your customers be more successful by giving them the right mix of products to reach their goals.
To supercharge your bundling efforts, think about adding a discount that makes your bundle cheaper than the sum of its parts, like this offer from Canon:
For $100 extra, customers can add an additional lens that usually costs $140 to their camera order.
Overall, bundling products is a fantastic way to help your customers get a better deal while also providing a healthy boost to your bottom line.
4. Show one-click offers immediately after checkout
Perhaps the most effective AOV boosting technique on this list is the one-click upsell. You can serve one-click upsells to customers immediately after they’ve completed a transaction.
The beautiful thing with one-click upsells is that customers don’t need to re-enter their payment details - this means your offer carries minimum friction and super high conversion rates.
You can drive conversions even higher if you personalize offers. With many tools (like ReConvert) you can use triggers to show specific offers based on what the customer just purchased.
Based on data from ReConvert, we’ve seen some merchants achieve conversion rates of up to 20% on these offers. So, if you implement only one strategy from this post - make it the post-purchase one-click offer.
5. Add a subscription element to your store
Adding a subscription element to your store is not necessarily going to boost your AOV right away. In fact, if like most brands, you offer a discounted price on subscription vs one-time purchase, it may actually decrease your AOV.
So do we recommend it? Well, because a subscription element will likely increase purchase frequency. And when it comes down to it, a higher purchase frequency at the same AOV will generate you more revenue.
Think of subscriptions like a magic trick to increase customer lifetime value, as opposed to average order value.
In this example, you can see how nutrition company Huel offers customers a 10% discount if they subscribe to a delivery every 4 weeks:
Now, not every brand is suited to accommodating a subscription model. It works best for refillables such as cosmetics, coffee, foods, art supplies etc. But that said, there may be a way to add a subscription element to your brand.
For example, if you sell photography equipment, could you create a digital photography course that customers could access for a small monthly subscription? Or perhaps you could sell 12 months of product insurance to give shoppers peace of mind with their new kit? Or maybe you could create a quarterly box of camera accessories that would make a great gift for photographers.
Think outside the box for your brand, and see if you can create a subscription service or product that enhances your shopper’s experience. It may not always be viable - but it’s certainly something worth considering.
Start growing your average order value today
Understanding your average order value can help you know how well your store performs and provide insight into how you can encourage customers to spend more.
Using upsells, cross-sells, shipping thresholds, bundles, or a combination of several tactics will help your average order value grow over time.
And as your average order value rises, you’ll enjoy healthier profit margins and more money to spend on acquiring new customers.
So, ready to see a jump in sales?
Well, then get out there and start implementing these tactics!
This guest post is written by our partners at ReConvert.