This article covers what AOV (Average Order Value) means, how to calculate it, and most importantly, how to increase it so your Shopify business can thrive.
A low average order value can negatively impact your store’s profitability. Even with high conversion rates, shoppers may only purchase what they need and leave, resulting in a low AOV. Before focusing on increasing your AOV, it’s essential to understand the relevant statistics.
Below, we’ll explain how to calculate average order value, examine it as a lever for revenue growth, and provide tips for boosting your AOV.
How to calculate Average Order Value (AOV)?
Average order value (AOV) is a key metric that measures the average amount spent by customers per transaction. To calculate AOV, simply divide your total revenue by the number of orders over a specific period. For instance, if your Shopify store generated $50,000 from 500 orders in the last quarter, your AOV would be $100.
While you might consider setting a target AOV of $130 for the next quarter, this approach can be misleading. It's important to also analyze the median and modal order values for a more realistic target:
- Median order value: The middle value when all order amounts are arranged in order.
- Modal order value: The order value that occurs most frequently among your transactions.
For example, if five of your 500 orders were significantly high at $10,000 each, and you exclude those, the AOV would decrease to around $80.8 instead of the original $100. This illustrates how AOV can sometimes give a skewed perspective.
If, during the same period, the majority of your customers placed orders worth $90 (the modal order value), then setting a target AOV of $115 would be more appropriate. Aiming for $130 could potentially alienate customers who expect to spend closer to $90.
Why Average Order Value is Important
Average Order Value (AOV) is important for several reasons:
- No Additional Customer Acquisition Cost (CAC): Acquiring new customers can be costly. According to Shopify, the average customer acquisition cost (CAC) for small businesses with fewer than four employees is $58.64. Strategies that focus on increasing AOV can boost your revenue and profitability without incurring the costs and efforts associated with acquiring new customers.
- Indicates Success of Marketing and Pricing Strategies: Monitoring AOV is an effective way to assess the success of your marketing and pricing strategies. For instance, if you increase the price of a product by $5, it may not lead to a higher AOV if the price hike causes a decline in customer orders for that item.
5 Tips to Increase Average Order Value on Shopify
Increasing Average Order Value (AOV) isn't just about raising product prices. It's essential to test various strategies to discover what works best for your business.
Here are some strategies you might consider testing to boost your average order value:
Create an Order Minimum for Free Shipping
Free or low-cost shipping is a key factor in online shopping preferences. According to the Consumer Trends Report, it ranks as the third most important reason for choosing to shop online, with 74% of customers influenced more by shipping costs than by product prices.
You can leverage this expectation for free or low-cost shipping to encourage higher order values. Set an order minimum for free shipping that exceeds your current modal order value.
For example, if your current modal order value is $90, you might offer free shipping on orders over $110. This strategy encourages customers to spend a bit more to avoid shipping fees. Rather than paying $15 for shipping, customers are likely to purchase additional items worth $20 instead.
Add a Free Gift Over a Certain Amount
The probability of selling to an existing customer is between 60-70%, while the chances of selling to a new customer are only 5-20%. This demonstrates why customer retention is crucial for your store’s long-term success.
One effective way to enhance retention rates is by giving away free products. By offering complimentary items when customers spend over a certain threshold, you achieve two key benefits: it strengthens brand loyalty and increases the average order value (AOV).
The minimum order amount for offering a free product should take into account your modal order value, profit margin, and the cost of the item you’re giving away.
For example, if your target average order value (AOV) is $110 and your net profit margin is 30%, you might consider providing a free product that costs up to $5 for customers who spend at least $110.
Setting up free product offers is straightforward with Mavenbird. The platform automatically adds a free product to the customer’s order after checkout for fulfillment. For instance, if you want to offer free products on orders over $120, Mavenbird will verify if the order total exceeds $120 and automatically include the free product in the order.
Upsell and Cross-Sell Like Products
Upselling can boost your revenues by an average of 10-30%. To effectively upsell and cross-sell, it’s essential to present relevant products to your audience. However, be careful not to overdo it, as this can alienate your customers.
Customer segmentation plays a crucial role in successfully driving revenue through these strategies. Ensure that your upsell offers are tailored to the customer and utilize targeted messaging.
Add-ons can help you create upsell offers, but consider their costs and benefits before implementation. Additionally, testing post-purchase upsells at checkout with an app like AfterSell can provide insights into which products customers typically buy together, allowing you to create effective bundled products.
Implement a Customer Loyalty Program
Loyalty programs are an excellent strategy for enhancing retention and customer lifetime value (CLV), particularly if you operate a subscription model. By incentivizing customers to make more purchases, loyalty programs can naturally increase the average order value (AOV) by as much as 319%.
Here are some top loyalty program apps that can simplify the management of your loyalty initiatives:
- Yotpo Loyalty
- Stamped
- LoyaltyLion
- Delighted
Mavenbird integrates with all popular loyalty program apps, automating key aspects of your loyalty program’s workflow. For instance, by integrating Mavenbird with Yotpo Loyalty, you can capture customer birthdays and follow up with personalized offers to celebrate their special day.
Make Sure the Customer Success Team is Set Up for Success
What do you do when support takes hours to respond to your question about a product? You either buy from another store or forget about the product altogether.
Customers are more likely to complete a purchase or respond to an upsell offer when they receive answers in real-time. In other words, quick responses can significantly help increase your average order value (AOV).
Moreover, fast responses are crucial for enhancing the overall customer experience. A better customer experience not only improves retention but also contributes to a higher AOV. This is why implementing live chat is essential for eCommerce stores.
However, even with live chat set up and a large support team in place, things can go wrong. A team member might miss a notification, or your app could malfunction.
Mavenbird ensures you never miss any customer communication by sending automatic notifications via Slack and email. Responding to a customer quickly after receiving a notification could be the difference between losing a sale and securing it.
Automate Your Way to Higher Order Values
Now that you know how to calculate your average order value (AOV), the real fun of increasing it begins! You’ll want to use a combination of the strategies discussed above and test them out to effectively boost your AOV. Implementing multiple strategies can feel overwhelming, but automating the process can help streamline implementation.
Mavenbird integrates with the most popular apps and assists in automating workflows, allowing you to focus on strategic tasks. If you ever need help, our team of automation experts is here to assist you in building the best workflows for your Shopify store.
