The Average Order Value (AOV) is defined as the average dollar amount that a customer spends when placing an order, either via a conventional website or a mobile application. If the goal is to increase profitability, then one of the options you have available is to boost these values to higher levels. You want to work smarter, not harder.
Calculating your Average Order Value
Tracking your AOV should be a regular part of your website management processes Tweet. To calculate a monthly AOV, simply divide the total revenues by the number of orders. It’s that simple! For example, if your company completed 10,000 transactions for a total value of $400,000, then your AOV is $40 (or $400,000 divided by 10,000). Most retailers calculate the AOV on a monthly basis, but any timeframe will work. When you track a monthly AOV, it is interesting to watch out for seasonality, which obviously you’d be missing out on when you calculate a yearly average.
Benefits and advantages
Every business, whether brick-and-mortar or e-commerce retailer, spends a considerable amount of company resources marketing its products to a targeted demographic. Tracking the AOV will help to determine just how successful these marketing strategies truly are Tweet. You can also identify which products are selling and which ones are not. Then perhaps adjust your pricing strategies for those that are attracting fewer or lower value sales and put more money into those that are attracting higher value sales.
Too many online marketers focus the bulk of their energies on developing new ways to increase traffic to the company website. However, increased traffic also comes with its own share of new potential problems. To really make an impact on the company’s bottom line, focus on increasing the quality of the traffic and, as a second step, the Average Order Value by optimizing the ordering process. Since every individual order has an associated transaction cost for the company, filling less orders of higher average revenues may save more time, money, and manpower in the long-term.
By implementing some very basic strategies for boosting the AOV, even a company with a relatively small customer base can increase its revenue.
It is always easier and cheaper to keep an existing customer than to locate a new one. Repeat customers also tend to spend more with each new order because they already trust your products and services. According to RJ Metrics, repeat customers in the top ten percent spend more than three times the AOV of the bottom 90 percent of online consumers Tweet. And the very elite one percent of consumers spend more than five times the typical purchase. That’s a tremendous boost in AOV.
If you’re a software company, for best results, compare your AOV to the the global AOV of all transactions passing through the Avangate platform, which is $48 according to data compiled from Aug 2015 to July 2016.
Knowing that people are usually drawn to offers, you can increase your AOV by offering a discount for a minimum order amount. Set your minimum purchase at $50 or $200 or whatever figure makes more sense for your business and offer your visitors an incentive to spend that much.
These types of discounts can also be used in combination with follow-ups to abandoned carts or unfinished orders – all are a great way to re-attract those indecisive customers back into your sales funnel Tweet. Your e-commerce platform should be flexible enough so that you can edit and set your own follow-up rules, such as number and follow-up type, promotions included, time intervals, etc.
Companies of nearly every industry are using bundling these days. The software industry is no exception. Not only does it save the customer money, but it also makes the purchasing process easier and faster. And if you don’t have any products of your own to bundle together, then consider bundling with products from other vendors. Collaborate with these vendors on an affiliate model.
Where and how you offer bundles and packages is also important. You can offer them directly in the shopping cart (classic) or perhaps in the “Thank You” page. For the latter case, you run no risk of losing the customer by potentially annoying them with an additional, unwanted offer. Implement your bundling strategies smartly, and make it easy for your customers to buy the additional item, i.e. do not require them to enter payment details again. Endpoint security company Bitdefender increased AOV by 12% with these tactics alone.
SaaS companies face different challenges compared to more traditional software companies or even general e-commerce enterprises. KPIs are also different (we’re not going to talk about Customer Lifetime Value, Monthly Recurring Revenue, and other related data in this section), but one factor remains consistent. SaaS companies are also interested in increasing their AOV.
Anxious to gain a stronghold in the related industry, many SaaS startups often hurry to build a large customer base through free trials. When the free trial is over, several marketing tactics can be effective in transitioning those clients from “free” to “pay.” But not all “pay” is equal.
How can you increase the AOV of that purchase/upgrade to a paid plan? Sometimes it’s all about messaging and cart optimization. However, other times it can simply be a design issue and the clarity with which you present your offer.
SaaS provider 123ContactForm increased revenue with several optimization projects. First, they optimized the cart and segmented their customers based on … AOV. That’s right! For higher value services added to the cart, the cart behaved differently (simplified ordering process with 1 step instead of 2 steps). They also obtained a 63% increase in conversion rates for high value products, which translated to a 12% revenue uplift.
If you are selling on a global level, then you already know that AOV varies by country and by payment method. For example, Switzerland has the highest AOV at $63 compared to the global average of $48. Finland, Sweden and Germany are also among the top AOVs per country at $57. All of these nations have traditional, strong economies. If you are selling a high-value product, then target these types of countries.
At the opposite end of the spectrum are countries like Russia and Nigeria with a significantly smaller $30 AOV for software and SaaS purchases. With a strong base of ISVs and software enterprises, Russian consumers are not as interested in buying software products, not in comparison to their Western counterparts anyway.
Regarding payment methods, checks and bank transfers/eCheck/ACH have a high AOV. OK, that’s a no brainer. Next in line are Diners Club and American Express with an AOV of $55. Visa and MasterCard, employed for more than 70 percent of all online transactions , have an AOV of $49, which not surprisingly very close to the global average of $48. Alternative payment methods such as eWallets, Qiwi Wallet, WebMoney, Yahoo Wallet, and Ukash come with a low AOV. Consider adjusting your pricing strategy by country/ region, depending also on which payment methods you accept.
Increasing the AOV is an easy way to boost profits and maximize marketing dollars. By offering direct incentives, upselling, and cross-selling in such a way that the customer is motivated to spend more money, the enterprise can increase revenues rather quickly and with little additional effort.
Make the purchasing experience as easy as possible by offering multiple forms of payment options, including popular local ones. Create a checkout process that is streamlined and without the need for lots of useless personal information of the customer. Also, remember that optimizing your Average Order Value can take place across all steps of the sales funnel (including after purchase!), leading to both increased productivity and profitability.
Care to share some tactics you employed for boosting your average order value? Please comment below.