Average Order Value (AOV)
What is the Average Order Value (AOV)?
It is the average amount spent by a customer per order.
This can be measured on either your overall performance or specific product categories and sources and even campaigns. However, this will only show the average spending per transaction, not per customer! To understand the spending per customer, you should better use a different metric available called “Revenue Per User” (RPU) or better the “Customer Lifetime Value” (CLV) which also takes into account the future value of a customer.
You are advised to use a “Customer Data Platform” (CDP) or a “Data Management Platform” (DMP) to measure RPU effectively. The reason is that these platforms include customer data in a single system and can build complete customer profiles. By connecting this kind of platforms with an attribution tool, such as Odyssey, you can get deeper insights about your customer journeys. The reason is that the more the data you have, the better the insights you receive.
Why is the AOV important?
AOV is a commonly used key performance indicator (KPI) for many reasons. For example, it helps online businesses to measure and, thus, understand their customers’ purchasing habits. Like most online metrics, AOV can be tracked for any time period, but most companies monitor the moving monthly average.
Knowing your company’s average order value, you can better evaluate your overall online marketing efforts and pricing strategy. As a benchmark of customer behavior, the average order value helps you set goals and strategies and assess how well those strategies are working.
If the AOV metric is combined with other important metrics, real insights will boil up. For example, when using the metrics AOV and RPU (Revenue per User) combined, marketers are able to gain interesting insights. For example, they understand if purchases are made by loyal customers, the so-called customer base or new customers, and by how much their gained value is different. When the AOV ecommerce metric is used in relation to channels, marketers can understand the customer profile per marketing channel.
Some marketers pay attention and influence business decisions to increase traffic to a website, while it would be more impactful and profitable for the ecommerce company to focus on increasing its AOV. The reason is that usually it costs money to increase a website’s traffic, whereas it does not to raise the AOV.
How to calculate AOV?
To calculate your company’s average order value, simply divide total revenue by the number of orders. The formula is the following:
Here it’s an example. We assume that during February, your webshop’s sales were $16,000 and you had a total of 1,100 orders. $16,000 divided by 1,100 = $14,55. As a result, February’s AOV was $15. You can also watch how to calculate AOV in Odyssey on our Youtube channel.
The formula is simple and can be measured for any time period, but most marketers monitor the moving average per month. In this way, they have the opportunity to measure and spot changes in their customers’ purchasing behaviors.
How to find the AOV in your Google Analytics (GA)?
Don’t want to calculate the Average Order Value each time by yourself? Don’t worry, Google Analytics automatically shows it to you under the “Conversions’’ tab. You can save time by following this path in GA: Conversions > E-commerce > Sales Performance > Average Order Value.
When using custom segments you will be able to specify the AOV even further, by comparing, for example, mobile against desktop AOV.
How to increase your AOV?
Customer spending can be increased by adding some specific features on your online store, such as the promotion of cross sells. By adjusting their website’s design and placing specific features on it, an online store can raise its AOV. More specifically, one goal of online stores is to make its customers buy more or more expensive products compared to their initial intentions and, so, achieve cross sells and upselling.
Some typical techniques that online stores use to achieve this and, thus, increase their AOV are:
- “Customers who bought this item also bought”,
- “Products related to this item” and
- “Free delivery if you spend 15 € euros more”.
In addition, the implementation of a strategy that promotes loyalty programs is crucial for the success of your online store. This can be achieved by targeting wisely your customers, according to their needs and their purchasing habits.
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