10 Ways to Increase Average Order Value
Thursday August 13th, 2020
Improving sales performance should be a primary concern for any retail business owner. It’s one that demands – and deserves – continual close monitoring and careful management. After all, it’s arguably the most important metric for any seller, providing the vast majority of a company’s income towards achieving a positive net turnover.
Regardless of whether you’re running an entirely online business via a website or mobile app, or also managing retail outlet(s) based in brick-and-mortar premises, you always should be prepared to invest considerable amounts of time and energy in building up your overall sales numbers. Moreover, you can and should be tackling this issue on multiple fronts, taking various different approaches to the fundamental issue of raising your bottom line.
One particularly common area of focus for most online businesses will be on increasing conversion rates. In web retail, conversion rate optimisation typically means boosting the average proportion of visitors to your site who then go on to successfully complete a purchase (or any other type of transaction you’re aiming to encourage).
In a sales-orientated environment, another equally crucial metric to look at is increasing your loyal customers’ average order value. This quick guide from duologi will look at exactly what ‘increasing average order value’ means in practice, as well as suggesting some tried and tested methods for encouraging people to spend more money with your online business.
What is ‘average order value’?
In both online business and face-to-face retail, your customers’ average order value represents the typical amount of income you bring in per transaction. This figure is normally given as a mean average across all sales: in other words, it represents the average customer spend per purchase, averaged out across all the successfully completed orders made at your store.
It’s easy to calculate your average order value, using the simple formula ‘total revenue/number of transactions’.
In other words, you can work out your average order value by adding up how much money was spent overall at your business within a given period of time, and then dividing that figure by how many times your customers completed a purchase (regardless of their individual transaction values).
Note that, in this model, purchases of multiple goods or services within one transaction will count as a single sale. If the same customer buys from you in two or more separate transactions, however, those will be counted as discrete sales.
Why is it important to increase average order value?
Knowing your average order value – and devising a robust plan to increase it – is a crucial part of any successful retail strategy. There are several key reasons why it’s an especially important figure for an online business owner to keep an eye on, as we’ve outlined briefly below.
In simple terms, 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 will both increase, as customers are spending more in a single transaction.
- Encouraging increased spend per order is generally easier for most types of online business than convincing the same customer to make multiple separate purchases over a number of visits.
- Inventory turnover rates improve, meaning you can clear stock or bring in new items sooner.
- This helps you make cost savings by keeping overheads for long-term goods storage down, while simultaneously allowing for faster refresh of the product ranges you’re holding in stock.
- Offering free delivery wherever shipping thresholds allow for it will also help with this – see the following section for more on that.
- Marketing efforts become more cost-effective, showing increased ROI for your outreach spend.
- You’ll normally find it much quicker to balance your marketing campaign costs against sales budgets when fewer customers are spending more money per order.
- Needing to reach large numbers of new customers who’ll each be spending less is generally seen as a trickier challenge in this regard.
The last point above is an especially important one to bear in mind when developing strategies to increase average order value. Regardless of the type of products or services you’re selling, it’s almost always easier (and cheaper!) to retain an existing customer base – 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
Offer finance options
Offering flexible 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 an individual customer from purchasing more expensive items, larger quantities, or higher-value bundles.
Financing options are also highly effective at reducing rates of shopping cart abandonment, whether at online points of sale or in a physical retail space. Additionally, a successful and hassle-free shopping experience while using a managed payment plan can significantly improve overall perception of your business from a customer experience standpoint.
Free shipping above a 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 total amount either way. Most customers will happily add extra items to their basket to avoid any shipping costs, as the perceived value of physical goods they receive is generally higher than that of intangibles like postage.
As long as a customer is hitting a minimum purchase value that makes it feasible, always try to offer free delivery wherever your shipping thresholds for a particular item allow for it. Again, this can also go a long way towards improving the lasting impression of the overall customer experience your buyers leave with after shopping with you.
Create bundle deals
Another compelling way to increase AOV is to offer reductions on one or more additional products when bought together with another full-priced item. Product bundling is a particularly effective strategy if you’re able to group together goods, items and services that have an obvious thematic link to larger purchases, or even complementary products that work together in some direct and practical way, within a single transaction.
Note that if your eCommerce business features customer product reviews for individual goods, it will be especially important to keep an eye on these for any bundle products in order to maintain a compelling perception of value.
% off over a certain spend
A basic but fairly potent way to imply a more aggressive approach to product pricing strategy is simply to provide money off coupons for spends above a certain spend threshold. In most cases, customers will be driven to add additional items to their order if their basket total is already close to this tipping point; 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: we’ve all seen 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 and ideally an additional purchase. Most notably, it can prove a very effective marketing strategy for highlighting already popular products that the buyer is likely to have heard of elsewhere.
Remind customers of previous interests
This one is 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 relating to any items they’ve looked at previously – it’s a guaranteed way to steer them towards a bigger ticket item that you already know they’re likely to have some level of interest in.
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.
The compelling idea of ‘getting something back’ in this way can also help reduce rates of basket abandonment, especially when buyers are close to completing larger purchases at higher product prices.
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 competing directly against similar retailers who also sell a specific product, brand or range.
While these ‘welcome’ discounts can be an effective strategy for attracting buyers of popular items to your business in the first instance, it should go without saying that early engagement must always be followed up with a coherent plan for longer-term customer retention.
This is somewhat similar to the basic concept behind gift cards and vouchers, providing a direct incentive for customers to return to your business when looking to make a future purchase. There are many types of customer loyalty programs in widespread use, with one notable business model being some sort of transaction-based points system.
These are often seen in supermarkets, where they’ve established themselves as a reliable method for improving retention rates. Similar models have also proven equally effective in e-commerce business, generating customer loyalty by encouraging buyers to keep coming back repeatedly over time.
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.
This can often prove an equally effective strategy whether you’re helping the customer keep track of savings on one-off buys of expensive products, volume discounts and product bundles, or any type of special discount in the form of add-ons and complementary items.