Get more from your e-commerce website visitors with these four tips on increasing average order value (AOV).
Today’s digital world means that e-commerce one of the best ways to sell products or services. But as competition heats up, and acquisition gets more expensive, it’s worth taking a few lessons from the offline world when it comes to increasing your average order value (AOV).
Utilizing tried and tested marketing concepts such as cross-selling, upselling, loyalty programs or product bundling on your website is a powerful way to increase your average order value significantly.
In this blog we’ll cover the following on AOV:
1. What does AOV mean?
2. Why Is Average Order Value Important?
3. How To Increase Your Average Order Value
3.3 Loyalty Programs
3.4 Product Bundles
What is the meaning of AOV?
Before we jump into the tactics you can try to increase average order value, let’s take a quick look at how to define it.
What is Average Order Value (AOV)? Average Order Value is an e-commerce marketing metric that measures the average amount customers spend on your website per transaction. Also referred to as basket value, it is a clear indication of how much customers are willing to spend on your products or services.
How to calculate Average Order Value (AOV)? Average Order Value can be easily calculated using the following formula:
Total Revenue / Total Number of Orders = AOV
For example, your e-store has a total revenue of $2,100 for the month of September, placed via 100 different orders. This means your AOV of $21. If your store is looking to drive revenue growth, increasing Average Order vs simply increasing the number of orders is one way to go.
Why Average Order Value is important?
Apart from the obvious goal of increasing the amount each customer spends with you, why should you be focusing on increasing average order value? One big reason is customer loyalty, which is strongly linked with AOV:
- Your top 10% of customers order 3x more per order than the rest.
- Your top 1% of customers order 5x more than the rest.
- After 30 months of loyalty, customers spend 67% more than their first purchase.
So really, driving up your AOV is linked with the strategic goal of increasing customer lifetime value (CLV). Let’s take a look now at some tactics that can help you accelerate your customer base to start performing like this top 10%.
How do I go about increasing Average Order Value?
1. Offer choice with cross-selling
We’ve already mentioned cross-selling, upselling, bundling and more, but how are they different? In this first section we’ll seek to answer:
- What is cross-selling?
- Why cross-selling works?
- How cross-selling can be applied online?
Amazon is well known for its innovation in the product recommendations space, seeking to show visitors complementary items based on the product they are viewing. This tactic is a form of cross-selling, since Amazon is offering related items in an effort to increase their average order value. Here’s an example of the items it recommends when looking at a tent:
When done right, cross-selling is mutually beneficial for you and your visitors. You offer additional value by surfacing products they might need, and in turn, average order values increase.
Why does cross-selling work? It’s all about choice. Customers like having choices, but too many choices can actually be bad for sales. Providing visitors suggested products based on their shopping cart or what they’re currently looking at offers them more relevant choices, which may help them ultimately make the best decision on which product to buy.
Here’s another example from beauty brand Skyn ICELAND:
As part of its Customer Journey Optimization strategy, Skyn ICELAND incorporates recommended products into the customer journey to increase average order value.
A campaign targeting visitors purchasing Hydro Cool Firming Eye Gels, utilized Yieldify’s flexible targeting feature to recommended a complementary product. This resulted in a +23.1% uplift in conversion rate and boosted order value by 14.94%.
2. Customize or upgrade options through upselling
Customization is another way to help increase your AOV. One way to do this is through upselling. But, first things first…
What is upselling? Upselling occurs when you persuade a customer to increase the value of their purchase, typically through customization or upgrading. It’s similar to cross-selling, but different in that you’re trying to increase the money spent on an individual product or item rather than recommend additional ones.
For example, L.L.Bean has been upselling backpacks for years. For a small fee, you can personalize your backpack with your name or initials. As a buyer, you can opt for one of several choices in text, color and font — which makes your backpack 100% unique.
Another great example of upselling comes from the world of food delivery. Domino’s Pizza created a ‘stretch and save’ campaign to encourage returning visitors to increase the value of their order. In order to protect margin, this was tiered based on cart value.
3. Increasing AOV via customer loyalty programs
Loyalty programs are a great way to make repeat purchases easy and encourage customers to continue to buy from you: It not only helps you promote products but also helps you to foster ongoing customer relationships.
Often, loyalty programs include discounts. Discounts can often appear at odds with increasing profit margins when they clearly take away from the sale’s value. However, studies have proven that loyalty members spend roughly 120% more than new customers do every year. So offering a small discount can actually work out more beneficial in the long run, especially if you use a spend threshold.
You don’t always need to offer a discount either, many brands are turning toward recognition-based loyalty programs instead of a more traditional points-based approach.
One such example is Marks and Spencer Sparks scheme. As well as discounts to increase average order value the brand offers priority access to online sales, as well as other perks like in-store events and charity donations. While this is a more long term approach toward building customer relationships to increase average order values, it’s worth looking at alongside more short term tactics.
4. Complete solutions with product bundles
Customers enjoy feeling like they’ve made the best investment for their money. One way to give them this experience is through product bundling or bulk-buy packages.
Product bundles help provide your customers with a complete package solution. The implied value savings often encourage customers to make a single, larger purchase instead of lesser individual ones. This can save shoppers time since they don’t have to research each various item, even if they are all on your site somewhere.
The important thing is to flag bundling options at the relevant moment in the customer journey. Take this example from Australian menswear retailer M.J. Bale:
Multi-buys are a key product category for the brand, particularly shirts and suits bundles. To improve the customer experience the brand highlighted the most popular bundles to visitors browsing these categories, driving an increase in conversion and allowing the brand to also increase average order value.
These are just a few ways that you can increase average order values on your e-commerce site. In order to identify the most effective route to take, you should first ensure you have an in-depth understanding of your visitors so that you can apply these tactics at the most relevant point in the customer journey.
Average Order Value is an e-commerce marketing metric that measures the average amount customers spend on your website per transaction.
Average order value is a very important metric as it represents the average amount of money a customer spends with you when they make a purchase. A falling AOV could spell trouble, whereas if your AOV is increasing it’s normally a good sign!
Some easy ways you can increase your average order are:
3. Offering customization
4. Customer Loyalty programs
5. Offering product bundles
For more on increasing average order value check out this short guide: