In e-commerce, Average Order Value (AOV) can be used as a criterion to compare the efficiency of marketing campaigns such as search campaigns, display, targeted email, etc. Also, this key metric gives you a picture regarding the type of customers you have on websites. Investigating the AOV on different traffic sources will reveal how each segment is converting, and it will make it easier for you to design personalized strategies to optimize conversion rate.
In this article, I will sum up the main aspects of average order value that every online marketer and e-commerce business owner should know:
- average order value formula;
- average order value calculation;
- basic tactics on how to increase e-commerce average order value;
AOV = Revenue / Number of orders
How to calculate AOV for e-commerce websites
In order to get a good look on the AOV for your e-commerce business, investigate two types of average order value. Calculate the AOV for each traffic channel and the AOV per total.
How to calculate the AOV for each channel?
The first step in optimizing the conversion rate is to install a web analytics software that reports the numbers correctly. This is very important because driving up CRO campaign is useless without having a solid base. Also, as Steven MacDonald states in an interview for Omniconvert, “whether that’s goal tracking, e-commerce tracking or removing duplicate scripts, without the correct data, it’s impossible to measure any progress made”.
Get the average order value for each traffic channel from Google Analytics. Go to your Google Analytics account: Acquisition -> All Traffic. You will see two sections, Transactions and Revenue. Take those numbers and calculate the AOV using the formula above.
For example, for the organic traffic the revenue is 1052$ on 8 transactions. So, the AOV=1052/8 -> AOV = 131,5 $
If you are looking for a visual report, select the “percentage” option and choose to display transactions in contribution to total revenue:
Calculate the average order value per total by dividing the total Revenue (a) to total number of Transactions (b):
Studies have shown that in 2011, the AOV for tablet users was $123, compared to $102 for desktop and $80 for smartphones. However, having the highest average order value does not necessary mean that tablets also have the highest conversion rate. As you can see in the picture below, the same study concludes that the average conversion rate for desktop was 2,5%, compared to 2,3% for tablets and 0,6% for smartphones.
Things have changed in time and, according to recent studies, the average order value in the second quarter 2014 is:
- 180,94 $ for traditional devices
- 149,53 $ for tablet devices
- 116,48 $ for smartphone devices
Analyzing the average order value for the last two years, you can see the up and down variations:
Do the same for your online business: put down the numbers and analyze the variations of the average order value for the last couple years. Investigate the low and high numbers to find out the reasons for those values. Remember to rule out seasonality and do not neglect the special offers during holidays or any other important events that might influence the AOV.
Tactics to increase e-commerce AOV
Improving the average order value is a quick way to increase profits. Also, it might imply fewer efforts to increase the AOV than driving up plans to acquire new customers. Here’s a list of six ways to increase e-commerce average order value for any e-commerce website:
- Set free shipping
There’s no secret this tactic works. People might be willing to buy more products if they qualify as free shipping.
You might say that having free shipping will imply extra costs for you, given the fact that it’s on you to pay the delivery. There are alternatives to free shipping. If there’s no chance to provide free shipping, at least make customers special offers.
For example, you can assure customers that their items will be safely delivered. This technique is used by Home Essentials:
An alternative would be to offer free returns or give customers that chance to choose the type of delivery they want. Here’s an example from Net-A-Porter:
Letting customers select what type of delivery they want is a great option to have. Here’s an example from Next:
Also, you can offer free delivery for orders above X $.
- Use scarcity
Why? Because time pressure creates a sense of urgency, and it stimulates customers to buy more in one transaction.
- Use a recommendation system
Using up-selling and cross-selling on your website can improve the average conversion rate. The cross-selling system goes perfectly for any e-commerce store, while up-selling is used more for SaaS websites.
When you use cross-selling on your website, make sure to display only related products to the ones a visitor is looking at. Don’t make the mistake of showing a laptop when the visitor is searching for an evening dress.
- Create product bundles
Through product bundles, you are providing customers a bargain to buy more for less. Also, if you can, create special kits: buy items together and save x $.
If you own an online fashion store, you can sell a complete look: a dress (25$), a pair of shoes (55$) and a beautiful necklace (25$). Buying them separately, it will cost the customer 105 $, but if they buy the whole look, they’ll pay 90 $. You might think it’s a small discount, but it most cases it works.
- Show customers cost savings
Whenever you offer a discount, a voucher or start a promotion, make sure to display customers how much they are saving. Users will be thrilled to pay less for an item, and the bigger the discount is, the happier they will be.
For instance, if you buy one item it’s 10$, but if you buy three items, you will pay 25$.
- Use gamification
Gamification is a more recent technique to engage users and make them buy more. It works with meaningful reward systems and structures. Put together ideas to make an appealing system that matches your customer’s expectations.
For example, for e-commerce stores, you can set up a rewarding system based on points: “For every order, you get ten points. Get a 30% discount for 100 points!”. And from this idea, you can build up tons of games to create a relationship with customers.