When it comes to growing your ecommerce business online, most strategies fall into one of three categories; increasing traffic, increasing purchases and increasing your average order value (AOV). While customer acquisition can be costly and customer retention can be lengthy, increasing your average order value can be achieved relatively easily and affordably.
What is average order value
Even if you have just launched your ecommerce business you will have probably already seen the acronym AOV around. In ecommerce, it stands for average order value and is quite simply the average amount spent each time a customer makes a purchase on your site. You can work it out over any time period, though most merchants and ecommerce managers choose to look at it on a monthly basis. You can calculate it for your own business with the following equation.
This metric is a behaviour benchmark that should help set goals and guide your marketing budget. It will also help to indicate and measure the success of any marketing efforts aimed at improving user experience or customer behaviour.
Additionally, merchants can now use AOV to provide even more valuable insights. With ecommerce data now easier to use and extrapolate, practices like customer segmentation are now more accessible than ever. Comparing this metric between segments can help merchants understand their customers better and choose the right strategies to improve problem areas or leverage strengths.
Focusing on average order value aims to make the most out of your current customer base rather than paying out for additional traffic with no conversion guarantee. Additionally, strategies are often easier and quicker to implement than other ecommerce optimisations like conversion rate optimisation.
The biggest plus, however, is its impact on your bottom line. Shoring up your average order value will see you weathering low traffic storms for both seasonal and sudden fluctuations. Even if you find your site with less traffic than usual, you may find your revenue still increases. This is great news for your cash flow and your bottom line, plus all of these techniques come at little cost to your business.
While flash sales and special discounts can be one way to entice customers to spend their money, these types of promotions still don't guarantee customers will actually spend more. In fact, slashed prices and bargain offers often result in more customers spending, but spending less rather than more. To encourage purchases while guaranteeing a minimum purchase amount, merchants need to start thinking smart when it comes to setting promotions.
Free shipping threshold
Free shipping is now a must-have for online shoppers and often a nightmare for merchants. Ecommerce retailers will struggle to part customers with their money without it but must battle with shipping and returns costs to provide it. This can lead to the service costing more than it’s worth and impacting that crucial bottom line.
The answer? Set a free shipping threshold. This is a minimum order value that customers will need to meet to qualify for free delivery. While no minimum is inevitably more attractive to customers you’ll find that most ecommerce retailers, including your competition, now set a free delivery threshold.
To work out your free shipping threshold you need to consider your shipping costs and current AOV. Your minimum shipping amount needs to encourage customers to purchase something extra to meet the threshold while remaining within their budget to avoid cart abandonment. Some research indicates that aiming for about 30% on top of your current AOV is a good goal, but you should look at your own business and test out several options.Time and purchase restricted discounts
You should also look to set a minimum purchase amount for discounts and create a sense of urgency with all sales and promotions by setting an end date. Setting a minimum spend ensures carefully planned and promoted offers don’t become an excuse for customers to spend even less, and instead offer them value for money without eating away at your margins.
A straightforward way to improve your average order value to is to reward your customers for buying more. Loyalty schemes can help with both purchase frequency and shopping cart size by giving your customers freebies or loyalty points.
You can do this by rewarding freebies based on a minimum cart size, for example earning a gift voucher or cash back offer with every £50 spend. Alternatively, you can also use a loyalty card scheme where points can be used for money off or a gift only redeemable on orders of a certain minimum spend. As with your smart promotions, base your thresholds on your current AOV and aim for a 30% increase.
Upsells and cross-sells
Encouraging customers to buy more often simply comes down to offering the right product at the right time. Ecommerce merchants should be inspired by the techniques of brick and mortar retailers, such as positioning styles together and placing cheaper, everyday items near the checkout. Simple layout and merchandising techniques like these work to influence purchasing behaviour and metrics such as AOV. Ecommerce platforms such as Magento now offer a variety of tools to help merchants implement these tactics online.
Just like offline retailers, ecommerce merchants can merchandise their category, product and checkout pages to increase AOV. Upsells, for example, offer a luxurious alternative or an upgrade to the original product. Upsells work best as recommended products on category pages and displayed on the side or bottom of product pages to target potential customers during the decision-making process. You can also make upsell products more enticing by highlighting the additional features or benefits to be gained from the extra cost.Cross-sells
Cross-sell products are recommended additional items to purchase with the original product, such as a laptop case and headphones for a laptop. These products work best on product pages and at the checkout to encourage last minute ‘point-of-sale’ purchases. Cross-sells can be any additional items that you think customers might purchase together, but will need to be affordably priced to be convenient additions.
Purchase history & personalisation
While upsells and cross-sells can both encourage larger shopping carts, personalisation can be used to make these product recommendations more relevant and appealing to customers. Purchase history from your entire customer base, specific customer segment or individual customers can be used to suggest relevant products. For example, Amazon recommends other items to purchase based on what previous customers have purchased together.
You can also send emails of product recommendations based on individual browsing and purchase behaviour. Customers that have shown interest in several clothing items without making a purchase could be inspired by a simple reminder email or a special discount. Product recommendation emails should always remind customers of your free delivery threshold as further incentive to purchase all the products.
Curated commerce uses trends, segmentation and personalisation to create a special selection of products that customers are encouraged to buy to achieve a complete look or lifestyle. This technique works especially well for retail businesses where customers are more likely to purchase an outfit or a set of home accessories together to achieve a certain style. Using ecommerce data makes this technique more effective by suggesting products that your customers are more likely to be interested in based on their own and similar customers’ browsing and purchase history.
Curated commerce can be promoted via a variety of channels, including blog posts, email or simply offering bundled products to purchase together on product pages. Creativity is key when it comes to presenting a lifestyle that customers will want to buy into; fortunately, there are now more opportunities than ever for merchants to execute unique creative commerce. Topshop, for example, now use a style quiz and customer data to present a personalised wardrobe. This uses basic recommendations and a style guide to the latest trends as well as curations of complete outfits to suit a range of basic occasions.
The right metric
Like any metric or area for growth, choosing to improve average order value should be dependent on the business. Ecommerce businesses with more than 50 SKUs or a range of product categories will have more scope to implement these types of strategies. Additionally, always A/B test and closely track the impact of any changes on all your metrics and KPI's, not just the average order value. With the right personalisation and timely product recommendations, you should find many AOV optimisations have a positive knock-on effect across your whole business.
Our digital marketing and website maintenance services are perfect for merchants looking to grow their business online. Contact one of our team today to find out how we could help you focus on the metrics that matter to you, from average order value to return on investment.