Ecommerce comes with a list of terms. AOV is one of the key metrics to know to evaluate your online retail performance and measure and strategize for improvement.
What Is AOV?
AOV stands for Average Order Value. Order value refers to the amount spent by a customer on each individual order. Looking at the average for the amount spent per purchase gives important insight vital to your business strategy.
You can calculate this metric by dividing the revenue by the number of orders for a certain period of time.
___________ = average order value
# of orders
A monthly revenue of $500,000 divided by 1,000 orders in that month = an AOV of $500. This means that for the month, each checkout totaled products worth $500.
Companies can monitor AOV across all time or in smaller increments. Once you calculate your AOV and track it over time, you can use it to help drive business decisions.
Why AOV Is Important
Knowing your average order value can be a key way to identify the success of your current strategy. You can identify order value trends, make adjustments to your strategy, and track changes to your AOV to evaluate if these measures are successful.
Your AOV is a key performance indicator that can give you insight to help:
- Understand consumer behavior
- Evaluate marketing strategy
- Examine product pricing
- Analyze advertising spend
- Change site layout
A high or increasing AOV is a good sign for your spending. It shows that you are maximizing the revenue on each purchase. A low or dropping AOV means your transaction revenue is lower than ideal. It is an indicator that you need to adjust your strategy to better offer additional options to customers making purchases.
There are costs associated with bringing in site traffic, acquiring new customers, and for completing each checkout transaction. Increasing AOV is a way that you can maximize profits on your current spending with your existing customers and transactions.
How to Use AOV to Drive Strategy
Understand what “good” means
Evaluating whether your AOV is a good rate depends on your industry, the price range of your products, and your sales channel. The best comparison to evaluate whether your AOV is good is to measure it against your own historical metrics. AOV is a metric to be used alongside others and tracked over time to see the rate of change. Look to see whether it has increased, decreased, or stayed the same over time.
Look at change over time
The best way to utilize this metric is to calculate and compare your AOV on a weekly or monthly basis.
Just as with any other ecommerce metric, AOV will fluctuate on a daily or seasonal basis. Big shopping holidays, sales or promotions, or seasonal needs can result in a big jump or decline from week to week.
These occasions will likely also affect customer behavior. Customers may be more likely to make multiple purchases in an order around certain times than others. It’s important to measure it monthly and compare it over many months rather than making conclusions and decisions based on a two month comparison.
Calculate it alongside other metrics
To get the most information out of your AOV analysis, you should use it in conjunction with other metrics. Some other metrics that help give you additional insight include:
- Conversion rate - the number of conversions per visitors to your website
- Cost per conversion - the dollar amount spent for each customer conversion on your site
- Revenue per visitor - the dollar amount generated from each customer site visit
- Lifetime revenue per customer - the average value of each customer over time
Maximize Your AOV With Product Protection
Once you have that information, you can test tactics to maximize your AOV. Extended warranties are a great way to take advantage of cross-selling and upselling tactics. There are two key ways that product protection can help you meet your AOV goals.
Customers add protection onto their order
Offering product protection options is a way to increase revenue from the current purchase. Customers who are already planning to buy an item can add a protection plan onto that order.
This is an opportunity for a relevant cross-sell where customers who want product protection can get it for their purchase. Partnering with an extended warranty company allows for customers to easily add protection onto their purchase when they add it to the cart or at checkout.
Customers purchase more items with protection options
Consumer study data on product protection found that 32% of customers won’t go through with a high-cost purchase if the brand doesn’t offer extended protection. Customers who see that there are extended protection options on high-end products are likely to feel comfortable purchasing more items and items in a greater price range than they might otherwise.
AOV is a key metric to follow and understand. It can help you gauge the success of your current strategy and evaluate where to improve. When you maximize your AOV, you take advantage of the existing sales to increase your revenue on each transaction.