The problem is that most people undermine the importance of Average Order Value or are too stuck up on tracking conversions that they often sideline this.
If you want a more rational and accurate view of the profit scenario, average order value is the first you need to turn attention to.
What is Average Order Value and why is it important?
Average order value is an indicator of performance and profits. This would not directly tell you what the profit is, but it gives you an idea of what to expect from X number of traffic.
By definition, it’s the average amount of dollar spent on one order
Simply put, it is the total revenue divided by the number of checkouts.
Average Order Value = Total Revenue/No of orders taken or number of checkouts
Suppose you retail pens. In August, your total revenue from selling pens came to $20,000, and the number of orders taken was 4200.
So your Average Order Value is $20,000/200 = 100
But what if the order comes from the same customer? Note that to calculate AOV, we take per order into consideration irrespective of the source.
Another plus of tracking AOV is that you get an idea of the marketing tactics that’s working to rope in the high-value customers. Those who are paying higher bucks per order.
This is vital information to help you keep marketing strategies in the top order and to make more money.
Increasing Average Order Value is a quick way to increase cash flow. And that’s a huge plus. Any business – whether e-commerce or brick or mortar based – aim for increasing cash flow since it’s a sign of a healthy and progressive business.
Although increasing traffic and subsequently conversion rate is the proven way to get more profits and make a higher number of sales. But there’s always a cost attached to it. Increasing AOV – depending upon which tactic you use – might warrant little to no cost incurrence.
So how do I increase Average Order Value?
Here are a few time-tested direct and a few cheeky way to increase average order value.
Cross Selling and Upselling
The commonest way to increase the value of an order is by getting the buyer to buy more than one related item in one go.
So if your buyer is looking to shop for a camera, giving them options to choose complementary product would increase your chances of making a bigger sale per order.
Upselling, on the other hand, is a little tricky but when done right this would result in higher priced items being picked over the lower ones.
Upselling is when your prospect is viewing a camera priced at $155, but you also give them the option to choose a higher priced one.
See how Amazon lists 34X zoom and other USP of the higher priced ($179) camera in the description.
This isn’t a versatile option, though, don’t expect to upsell everything on your e-commerce website. You have to keep the product and the targeted customer in mind too.
Are your customers looking at the economical aspect or are they ready to pay more for higher quality/more specifications.
Bundle Selling and Volume Discounts
This is a win-win situation. When you offer bundle selling, you don’t just push the AOV higher but also make sure your customers get a discount.
Club up similar products with their individual value and the discounted value of the bundle pack both displayed to attract customers.
Volume discounts again are common practice for identical products. You’d often come across this in department stores too. Buy two bottles of shampoo to get a certain amount off.
According to an A/B test done by the company Paperstone they inched up their AOV by 18.94%. It’s true that volume discount offers could lead to a drastic increase in AOV, but they only work for certain types of products.
Free Shipping on checkout orders above a certain price.
This is such an important component in getting the AOV up.
No customer would like to pay for delivery. If they have to pay $2 for delivery, they’d prefer buying something worth $20 that’d be of some use to them.
Another strategy that works in conjunction with free shipping is to cross-sell or upsell in the checkout area itself. If you are buying a t-shirt worth $25, and the delivery requirement is $28, upselling would ensure that the buyer would go for the higher-priced t-shirt instead.
Gift offers
Have you seen cosmetic websites promise a free ‘gift’ of a samples cologne tester for a higher checkout amount? And it still works!
Gift gets people going crazy irrespective of age. Use this to nudge people for a higher checkout number. This is guaranteed to work.
If you really want to score higher AOV number with this, then forget the sample cologne and give them something actually of worth. Like for instance instead of some sample cologne if the website gave a lotion as a gift it would make the customer happy, and they’ll keep coming back.
Remember it’s not just about higher sales number but also customer satisfaction and loyalty.
Different discount rates
The term discount and sale has such a happy effect on the brain of shoppers.
Putting 15% off on orders above $100 and 20% off on orders above $150 would have people aim for the $150 expenditure mark because of the higher discount.
If you retail clothes accessories or a mix and match of things that are not likely to be sold together, this is a great tactic to apply because people are looking to spend that much amount of money, so they’re open to buying more things.
Put a deadline to it
Sales and discounts will mainly work if you make it time sensitive.
If they don’t buy $150 worth of goods within two days, they won’t get 20% off! Create a sense of urgency to encourage prospects to take action right now. This will deter them from delaying checking out.
These tips work wonders to increase your store’s Average Order Value but do not overdo it. Not every tip would work for you, and not every tip will work at once.
Keep strategizing, implementing, adapting and changing your strategy to find a sweet spot where your store’s profit and the AOV is at its recommended high.
