What is ‘average order value’?

In retail – and particularly online retail – your average order value is the amount of income you bring in per transaction, averaged out across all the orders customers successfully complete at your store.

It’s easy to calculate your average order value using the formula ‘total revenue / number of transactions’. Knowing your average order value – and devising a plan to increase it – is a crucial part of any successful retail strategy for several key reasons, which we’ll outline briefly below.

Why is it important to increase average order value?

Simply put, if you can increase average order value across your store or online retail site, you’ll quickly start to notice various important benefits:

Revenue and profits both increase, as customers are spending more in a single transaction
Inventory turnover rates improve, meaning you can clear stock or bring in new items sooner
Marketing becomes more cost-effective, showing as increased ROI for your outreach spend

The latter is an especially important factor to bear in mind when developing strategies to increase average order value. In short, it’s typically much easier (and cheaper!) to retain existing customers while increasing their average spend than it is to attract brand new clients who aren’t already buying from you.

How to increase average order value for your store and customers

Offer finance options

Offering customer finance options is a great way to quickly increase average order value (AOV) for your store. Popular finance solutions and packages – such as 0% interest or finance-bearing options – are a proven way to eliminate many of the perceived hurdles that can deter customers from purchasing higher value items or bundles. Financing options are also highly effective at reducing rates of basket abandonment, whether at onlines point of sale or in a physical retail space.

Free shipping above [x] transaction value

We’ve all been in situations where we’ve been happy to spend a little more in order to benefit from free shipping, especially when it would’ve cost us almost the same either way. Most customers will happily add extra items to their basket in this scenario, as the perceived value of physical goods they receive is generally higher than that of intangibles like postage.

Create bundle deals

Another compelling way to increase AOV is to offer reductions on one or more products when bought together with another full-priced item. This is a particularly effective strategy if you’re able to bundle together items that have an obvious thematic link, or that ‘work together’ in some direct and practical way.

% off over a certain spend

A basic but fairly potent approach is to simply provide a money off coupon for spends above a certain threshold. In most cases, customers will be driven to add additional items to their order if their basket is already close to this threshold; again, it’s about perceived value, rather than just the raw transaction cost.

Cross-sell your stock

This tactic is extremely commonplace in online retail – it’s the little box or product ticker that shows up when browsing a particular item, often with a heading such as ‘other customers who bought this also liked…’ or similar. For customers already actively using your store, it’s a good way to encourage wider browsing.

Remind customers of previous interests

This one is very closely related to the above cross-selling technique – and again, it’s very widely seen in online retail. Be sure to keep your potential shoppers just a click or two away from the product pages for any items they’ve looked at previously.

Reward buyers with gift cards or vouchers

The gift card approach can be effective on two levels: by offering a voucher redeemable against future purchases, you’ll encourage customers to return and shop with you again. Moreover, by providing that voucher as a reward for spending above a certain amount in a single transaction, you’re directly incentivising a higher AOV.

First-time shopper discounts

This is a very common strategy for newer stores, where – by definition – a much higher percentage of your customers will be buying from you for the first time. It can have a considerable impact on early engagement figures, especially if you’re directly competing against similar retailers who also sell a specific product, brand or range.

Loyalty programmes

Similar to the basic concept with gift cards and vouchers – implementing some sort of transaction-based points system (as is often seen in supermarkets, for instance) is a great way to improve customer retention rates and keep buyers coming back in future.

Highlight total savings in baskets and trolleys

This one sounds like common sense, but a lot of retailers don’t leverage it as effectively as they might. By ensuring your customers’ basket shows a total savings amount for all the items in their trolley prior to purchase, you can dramatically reduce levels of guilt-related item abandonment when it comes to checkout time.