What is average order value? Why online sellers need to track AOV

If you are an online seller, then you know that tracking and understanding your average order value (AOV) is critical to your success. This number represents the average amount of money that each customer spends on your products. By keeping an eye on your AOV, you can determine whether or not you are making enough profit on each sale and adjust your pricing strategy accordingly. 

In this blog post, we will explain what average order value is and how to track it in detail. We will also share some tips on how to increase your AOV and boost your business profits. Thanks for reading!

What is Average Order Value?

Average order value (AOV) is an eCommerce index that calculates the average sum of all orders placed with a merchant during a specific time period. 

What is average order value? Why online sellers need to track AOV

AOV is a critical indicator for online retailers to understand since it influences important company choices such as advertising expenditure, store layout, and product price.

How to calculate AOV

AOV is calculated by dividing revenue by the number of orders:

Revenue

___________ = Average Order Value

Number of orders

AOV is calculated using sales per order rather than sales per client. Even though a single consumer might buy something more than once, each order would be taken into account independently for calculating AOV.

AOV provides information about how those numbers are calculated but does not reflect the gross profit or profit margins.

There is a significant chance to enhance positioning and marketing efforts for the more expensive items, provided they have larger margins. Online firms may improve their AOV and boost their ROI and ROAS across all marketing initiatives. The higher your AOV, the more you are making from each customer and, consequently, from each dollar spent acquiring them.

What is average order value? Why online sellers need to track AOV

More metrics when evaluating AOV

Along with this strategy, the following two indicators are crucial to take into account:

  • Lifetime revenue per visitor: This figure represents the whole worth of each customer and includes the typical order size over time. If it’s too low, clients won’t buy more than once, which results in a reduced return on all advertising expenditures.
  • Cost per conversion: To represent the actual profit per order, deduct this metric from the average order value. It shows how much it costs to convert each customer.
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How to improve average order value

Although it’s helpful to know what the average order value is, it’s not the only technique to compute an average. For instance, depending on their past purchases, a store can divide its consumers into various groups. 

Many businesses divide their customer base into thirds (Low, Medium, and High Spenders), but it’s also feasible to divide them into groups according to how frequently they place orders, the kinds of goods they buy, or any other criteria that makes sense for the business.

Customers can be segmented and then targeted with advertising that is specific to their group. Low spenders can be targeted with incentives and cross-sell in an effort to increase their value, while high spenders and frequent customers can be enrolled in a loyalty program that rewards them.

What is average order value? Why online sellers need to track AOV

Additional ways to increase average order value include:

  • Cross-selling, upselling, and bundling more goods and services
  • Setting a minimum for free shipment
  • Applying a fixed discount to orders with low minimums

In Conclusion,

Average order value is a key metric for online sellers to track because it can give you an idea of how much money customers are spending on your products. By understanding your average order value, you can begin to make changes and optimizations to your sales process that will increase the number of money customers are spending on your products. 

One tool that can help you with this is OrderBooster – a simple product recommendation app on BigCommerce that helps online sellers cross-sell and upsell their products. With OrderBooster, you can see what items are being recommended to customers and adjust your recommendations accordingly. Use OrderBooster today to increase your average order value and drive more sales!

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