When ecommerce business owners look for ways to increase revenue, they tend to focus on marketing campaigns designed to reach new customers, or promotions that entice existing customers to order more often. They often overlook the bird-in-the-hand option — that is, the customer who is shopping on their website right this minute. If you can convince this customer to spend just a little more before hitting the checkout button, you will have increased revenue without all the expense of bringing in new or repeat customers.
Order value is the amount your customers spend per order, so if everybody spends a little more, the average goes up. When you find a way to raise this amount that clicks with your customers and feels right for your brand, you’re golden. But how do you get your customers to add more to their carts? There are a number of ways actually! We’re going to give you nine examples for inspiration, but feel free to get creative. You’ll need to experiment to see which ones work best for your ecommerce business.
What is Average Order Value?
Average order value (AOV) is the average amount spent per order during any given time period, such as one month. It’s one of the simplest ecommerce performance metrics to calculate. Simply divide total revenue during the month, by the number of orders during that same month. For example, if your omnichannel ecommerce business processed 5,000 orders last month for a total of $300,000, the average order value for the month was $60.
9 Ways to Increase AOV
To increase AOV, you’ll have to convince your customers to either put more items in their carts, or select higher-value items. The good news is that many of these methods are relatively inexpensive to implement, and can easily be A/B tested to find the sweet spot that your customers love. To add urgency and increase conversion, make your offer time sensitive.
1.) Create bundles of similar items (such as t-shirts in three popular colors) or create kits for items frequently purchased together (such as razors and shaving cream). If you partner with an ecommerce fulfillment services company like ShipMonk, they offer kitting and assembly services for you, as well as “virtual bundles,” and will pack orders according to your specifications.
2.) Offer BOGOs or volume discounts. The ubiquitous buy-one-get-one promotion has been used by retailers to increase AOV since the beginning of time, but for online retailers and ecommerce brands a BOGO can be difficult to set up without a lot of complex coding. Fortunately, there are now apps and third-party plugins that you can add to your ecommerce store that make bundling and special pricing easy. These apps and plugins work with most of the major ecommerce platforms, such as Shopify and WooCommerce. Make this offer time-sensitive to give customers the nudge to not miss out!
3.) Cross-sell and up-sell by offering product suggestions based on what the customer is viewing or what is in their cart. Suggestions can be based on what other shoppers have purchased with that item, items that naturally go together, additional color options, upgrades, or other items the customer viewed while shopping on your site. Cross-selling and up-selling tactics typically occur on product pages and at checkout.
4.) Offer free shipping with a minimum purchase. Set this minimum threshold far enough above your average order value to ensure an increase, but low enough to feel attainable. The increase in order value should help offset the shipping cost. If your AOV is often skewed by a few very high or very low value orders, you can also use median order value (MOV) as a guide. MOV is calculated by ranking all orders by highest to lowest in value. The median order value is the one that falls right in the middle with an equal number of orders above and below it.
5.) Offer a free gift with a minimum purchase — even better with a “limited time” message! The gift should be something you can produce in bulk, but be of some value to the customer, such as a sustainably sourced (and beautifully branded) reusable shopping bag, a sample size of a signature product, or a donation to a non-profit.
6.) Add a welcome offer that new customers can use immediately. There’s nothing like a discount to make a customer want to spend more. If you already have one, try delivering it before your customer checks out, or they may decide it’s not worth the wait.
7.) Add a buy now/pay later option at checkout. If a customer sees that they can pay in installments, they may feel more comfortable about spending more. Integrate your shopping cart with this feature, offered by a variety of top solution providers like Klarna, Zip, and Affirm.
8.) Reduce fees. Since marketplace fees, storage, and fulfillment add to your cost of goods sold, lowering the fees you pay per order will increase your profits per order. For example, by switching from Fulfilled by Amazon (FBA) to Seller Fulfilled Prime (SFP) or Fulfilled by Merchant (FBM), and using an advanced 3PL to manage your fulfillment operations, you may be able to reduce your costs per order. While, technically, this might not count as an increase in AOV, it will increase your revenue per order.
9.) Reduce the impact of returns by adding a return authorization management (RMA) system like Loop Returns, Happy Returns, or Returnly that encourages exchanges over returns. Some RMA systems credit the customer’s account instantly and prompt them to spend it before leaving the website. Others offer product suggestions within the returns portal, so the customer can exchange their item for a new color, size, or something altogether different right there on the spot.
Why AOV is Important?
Knowing and tracking average order value gives ecommerce business owners important insights into customer behavior, which you can then use to optimize your merchandising, pricing, and marketing strategies. In other words, you can segment your customers into groups based on their lifetime value or order frequency and target your marketing efforts accordingly.
For example, you might incentivize high AOV shoppers with a loyalty program to increase their frequency, or target frequent shoppers who spend less per order with volume discounts or bundles. You can use A/B testing to determine which tactic works best with which type of customer.
Calculating average order value frequently also helps ensure that your ecommerce business is covering costs and protecting its profit margins. Since costs can fluctuate rapidly (see the post-Covid supply chain crisis of 2021), and fees and shipping surcharges can eat into your profits, you should be calculating AOV regularly and adjusting prices and/or shipping charges to make sure you’re not losing money on smaller orders. If your average order value is low compared to the average price of the items you sell, you should focus on doing things that will increase your overall ticket total like selling bundles and complimentary products to your top selling SKUs.
Advantages of Increasing AOV Over Other Methods for Increasing Revenue
When considering strategies for increasing revenue, increasing AOV should always be your first option. Why? Because other methods are usually more expensive.
1.) Your customer is already interested. They’re shopping on your site. Yes, it must have cost you something to get them there, but now every item they put in their carts increases your ROI.
2.) Since there is already a fixed cost associated with processing and shipping each order, adding a second or higher-value item increases revenue with little or no incremental cost.
3.) Tactics that increase traffic, such as promotions or marketing to new customers, usually involve a large marketing spend, while increasing AOV is usually more a matter of adding functionality or messaging to your web store. It’s a one-time, internal investment versus an ongoing ad spend.
4.) It’s not that hard. Apps and third-party plugins make bundling or special pricing easier than ever. And a 3PL like ShipMonk can help keep your shipping and fulfillment costs per order to a minimum, as well as help you with bundling and/or kitting services. Plus, our industry-leading software gives you instant access to the data you need to track AOV and other ecommerce performance metrics.
Don’t Settle for Average
Your growing ecommerce business should take advantage of every opportunity you have to minimize costs and maximize profits. A fulfillment company that shares your passion for growth can help you get there. We don’t mean to brag, but ShipMonk was recently named a Business Intelligence Group “Company of the Year” for the third year in a row. The Business Intelligence Group BIG award rewards entrepreneurs, products, and companies like ShipMonk that are leading their respective industries. So if you’re looking for more ways to scale your rapidly growing ecommerce business, contact ShipMonk today.