Increasing the Average Order Value for your E-Commerce Store

Last updated: November 29th, 2018.

Intro to Average Order Value

Average Order Value is pretty simple. It's just the average dollar amount a customer spends at your store in one order.

You calculate average order value by dividing your total shop sales by the quantity of orders placed.

Average Order Value formula

Expending effort to increase your average order value can be more impactful than trying to acquire new customers, up to a point. If your business is set up to have a higher AOV, the value of any new visitors who come to your site will be increased.

Growing your AOV is one of the keys to increasing your shop's overall profit margin, especially when you can get your retail sales to grow at a faster rate than variable costs.

Of course with this being the Order Metrics Profit Guide, I want to stress the importance of also knowing your Average Order Profit.

Arguable more important than having a good AOV is having a good Average Order Profit. We will get into that in the guide and explore tactics relevant to both AOV and AOP.

Why Average Order Value is Important

Firstly, earning more money on every order is pretty good. The higher your AOV, the fewer customers you need to acquire and deal with.

Secondly, with a higher average order value, you have more cash to spend on acquiring customers & advertising. But a low average order value can be extremely limiting - you can't spend so much to acquire customers and so you can't afford to make mistakes.

At a minimum, for e-commerce, your Average Order Value needs to be less than your CAC (Customer Acquisition Cost). Having said that, I don't recommend using AOV as the main comparison to CAC - I recommend using your Customer Lifetime Value (LTV) for that. Read more about Customer Lifetime Value in our LTV guide.

But there are other reasons you will be hurt, beyond having limited acqusition spending, when your Average Order value is low. Other costs like credit card processing fees & shipping take a bigger chunk of your profits. Imagine you have a $12 AOV - the $0.30 transaction fee that you usually pay (alongside the 2.9%) to the credit card company is going to hurt more.

So with a higher AOV, you can spend more on ads, you will have more profit, and the work you do elsewhere to acquire customers will have a greater effect.

Sounds pretty good. So let's get into the tactics for how you can set the stage to grow AOV for your store.

Average Order Profit

Average Order Profit does not take into account the marketing & ad spend to acquire the customer. But it does take into account all the other costs you incur such as COGS, transaction fees, shipping & discounts applied.

For that reason it is a more intelligent metric to use when deciding where to allocate your spend on operational expenses & marketing costs.

Average Order Profit can be a little trickier to calculate - most analytics tools can't tell you this because they don't know all your costs.

Order Metrics shows you both of these numbers, as well as your Lifetime Value (LTV) on the main profit dashboard.

Order Metrics AOV screenshot

As you read through this guide, try to consider the impact on both AOV & AOP of applying our tactics.

How To Grow Your Average Order Value

Once a customer is close to making a purchase, you can try to subtly (and not-so-subtly) offer them upgrades & extras. There's a careful balance here, to avoid overwhelming your customers before they make their first purchase, but done correctly, you can nudge customers towards adding more items to their cart to improve your Average Order Value.

Try "Frequently Purchased Together" - showing your customer items that compliment the item in the cart. For instance if you sell posters, you could have frames or poster hangers shown in the cart. These work well if you can easily add them to the cart with one click for an impuluse additional purchase that boosts AOV.

Frequently bought together example

Order Metrics shows all your most common products purchased together, and you can sort them to show which combinations are the most profitable. Use this to help inform your decisions.

Shopify App Recommendation

On the Shopify App Store there is a great app called Frequently Bought Together, aptly named and well reviewed. It automatically figures out which products are purchased together, and shows them to customers.

Show Popular Products- An alternative to showing “items frequently bought together”, you could show instead the most popular store items on your cart page. The social proof that items are popular is often the extra encouragement customers need to add something to their cart.

Upgrades & Customization Options - some products lend themselves well to customization. Say if you sell bathrobes, you could have "add a monogram" option that costs an extra $7.

Or if you sell Telsa cars, you could have an upgrade option to get a longer range battery pack! Once someone is about to buy a product and realizes it could be improved for a small amount extra, they will often go for it. Vanmoof Customization Options

Bundles - If you have two or three items that go well together, you should make a new product that combines all the items in one.

For each bundle, set a price so that customers receive a small discount off the regular price for buying all 3 items. A bundle like this will encourage customers to spend more and grow your AOV because they are "saving money" by buying more items.

You could also theme your bundles, to keep them fresh.Primitive Skate, a hip skateboarding shop in LA, made this 2018 Holiday Bundle for $100 that includes 8 items - a great example of how to make a bundle feel like a special purchase.

Set A Free Shipping Threshold - Everyone loves free shipping, in fact there is research suggestion some customers will not check out without it. If you offer free shipping over a certain price, often customers are happy to add a second item to their cart just to “save on shipping”. I’ve gone for it myself.

Free Shipping Threshold Example

The trick when deciding how to set the free shipping threshhold is to start with your current Average Order Value and then increase that by 10-20%. So if your average order value is $35 - try to set free shipping for orders over $40 (assuming this would still be profitable!).

Set Up Loyalty Programs - Getting your best customers to come back more often can boost average order value (as well as Lifetime value). This is because customers who return are likely to spend more money the second time around than the first. You can nudge this to happen more frequently by sending customers a coupon after they complete an order, something like "you've earned $5 off your next order". This acts as a loyalty deal - if they come back, research shows they spend more, and this coupon can help ensure that.

Offer Free Returns -Offering free returns encourages people to buy more, because there’s less risk, if they don't like something they feel they can send it back. It might cost less than you think to add a return label in every box.

free returns example

Post Purchase Upsell - A more recent innovation in e-commerce is the post-purchase upsell. Once a customer has just placed an order, you show them a pop-up saying "For An Extra $XX - Add This To Your Order". There are various ways you can implement this on your site, and we have heard of people reporting up to 10% of customers will convert on a post-purchase upsell. This could be an especially good tactic to boost Average Order Profit because typically each additional item that you send in one package increases the overall order's profit margin.

App Recommendation

A tool called Carthook is proving to be quite popular and you can use it with Shopify stores (or other types of store too), and add post-purchase upsells to your site.

Final Thoughts

The best way to use any of these tactics is to find graceful ways to integrate them into your site. People can sense when you are desperate for an extra sale and will shy away from the purchase. Make sure recommendations of upsells appear naturally in their flow, and don't try to trick people into clicking things or overloading customers with options.

After you have a few of these things set up, you will be in a good place to attract customers to your store. That's because you have things set up to succeed, the customers you drive to your site now can be fully capitalized on.

The next step is to try and find ways to nuture repeat customers and grow the lifetime value of a customer. You can read all about that in our guide to Maximizing LTV.

About This Guide

The Order Metrics Profit & Growth guide is designed to help you unlock the most profit for your e-commerce business.

This is not intended to be nonsense content marketing like you find on other company blogs.

These are real, tested techniques could help you grow your business and put some cash back in your pocket so you can invest in things that matter to you.

Check out the other articles we have written back at our profit guide index.

Want to find even more ways to improve your bottom line?

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OrderMetrics - E-Commerce Profit Dashboard

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