Average Order Value (AOV) is a metric computing the average dollar amount customers spend when they make a purchase from your eCommerce store.
Understanding Average Order Value can be helpful when you want to identify and segment high value and low value customers.
The data for this metric can be discovered in eCommerce platforms such as Shopify.
How to calculate Average Order Value:
The formula for calculating Average Order Value is revenue divided by number of orders. This number can filtered by a date range, customer segment, or other characteristics to give you a more targeted output.
Notes
- Remember to subtract expenses and Cost of Goods Sold (COGS) for a better representation of your current Average Order Value.
- In Yaguara Average Order Value can be tracked when creating a Key Result:
Why Average Order Value is Important:
An increase in your Average Order Value has a strong correlation to an increase in profit. The higher your Average Order Value, the more you are getting out of every customer — and as a result, out of every dollar spent to acquire those customers.
Knowing your company’s Average Order Value helps you decide on your overall eCommerce marketing efforts and pricing strategy by providing you a baseline metric correlated to the long-term value of individual customers. When there are any dips or peaks in this metric, every variable should be closely examined to understand what may have driven the positive or negative trend.
How to improve Average Order Value:
Loyalty both ways
Loyalty programs are an excellent strategy to implement moving forward. When there’s an incentive for your customers to earn points under a loyalty program, you can expect to see your Average Order Value increase significantly. Smile.io is one of our favorite tools making this easier for eCommerce teams.
Return policy for higher-priced items
The items with the higher price tags will always see the most abandonment, see ease the concerns and offer generous or free return policies to get those items into the shopping cart.
Set order minimums for a discount
You can also increase your average order value by incentivizing customers to spend a minimum amount such as offering free shipping or a 10% discount. Shopify's App Store offers a few tools to get you started:
