There are multiple ways to grow your sales. Unfortunately, not enough eCommerce stores focus on increasing average order value as a lever to multiply profits.
While we’ve covered conversion optimization and retention marketing in the past, this guide will focus on average order value. If you'd like to skip straight to the examples, including tactics by Fashion Nova, Parachute, and Target click here.
What is Average Order Value (AOV)
Definition: Average Order Value (AOV) measures the average revenue generated in a single transaction. To calculate AOV, you need three inputs.
First, what timeframe are you measuring your AOV. Second, what is the total amount of revenue generated during your timeframe. Finally, count the total number of orders during the same time.
Average Order Value = Total Revenue / # of Orders
How to Increase Average Order Value (AOV)
Luckily, increases the average order value is a long-standing problem in retail. There are many best-practice strategies and tactics used to routinely increase this conversion metric.
How Fashion Nova Maximizes AOV for Every Shopper
We've covered how Fashion Nova maximizes conversions with browse abandonment before.
Here, I want to tear down an entire customer journey to see how they push the average order value up for each customer.
1. Using Onsite Personalization to Create Rewards for Order Minimums
Fashion Nova uses a multitude of incentives to drive AOV and conversions.
Above we see their homepage. They use various advanced eCommerce personalization tactics to present the right offer to the right customer.
Two message bars are placed, one above and one below the main navigation bar. Both emphasize free shipping on orders over $75.
Free shipping is an optimal incentive for a few reasons. First, it is a primary reason for shopping cart abandonment. Second, it is a direct financial incentive without discounting your product.
Dynamic Onsite Personalization: Create message bar offers just like Fashion Nova with Barilliance's Onsite Personalization. Request a demo here.
2. Creating Site-Wide Campaigns to Increase AOV
Fashion Nova actively creates campaigns to multiply the amount customers spend.
These types of campaigns are common - and include ideas such as buy one get one, spending thresholds, and more. Here, Fashion Nova uses a ladder approach, establishing multiple thresholds in $25 increments.
3. Creating Dynamic Bundles with Shoppable "Looks"
Bundles are fantastic at eliminating the "Paradox of Choice" and leveraging authority to increase the average order value.
Here, Fashion Nova combines products across categories to create a complete look. Then, with some great content personalization on the product page, they are able to showcase with imagery how the outfit looks together.
Finally, these products are combined into a simple bundle that visitors can add to their cart in one click.
4. Using Personalized Recommendations to Surface Like products
As customers shop, they reveal what types of products they are interested in.
You can use this information to create informed, personalized product recommendations.
Fashion Nova actually inserts three product recommendation widgets on their product pages. The fist dynamically inserts related products based on style and category - in this case, items similar to their canopy jean.
This tactic is not only great for ensuring a sale, but it also presents shoppers with items they are likely to buy in addition to the product they are looking at increasing AOV.
5. Using Personalized Recommendations to Offer Complimentary Products
The second product recommendation widget Fashion Nova creates are "Suggested Add-Ons".
The items suggested all compliment the current product, and are often popular accessaries bought alongside the viewed product or curated looks.
Increase Your AOV with Effective Product Recommendations: Get dynamic, personalized product recommendations that adapt in real-time to customer behavior. Request Here.
Other ways to increase AOV
6. Arrange your "Top Shelf"
By default, many eCommerce stores sort based on which products are most likely to convert in isolation.
Unfortunately, this approach ignores how adjacent products impact each other. As Wayfair data science explains, "product appeal is not a fixed quality: it can actually change depending on the context in which a product appears."
This is where merchandizing best practices come in.
“...product appeal is not a fixed quality: it can actually change depending on the context in which a product appears.”
7. Leverage payment plans
Part of creating the best customer experience is providing additional payment options.
Forms of credit have been used in retail since the beginning of time. According to Deloitte, co-branded credit cards drove $350B and partnership programs as a whole represent a whopping 10% of credit card spending.
Below, Parachute makes their luxury bedding products more affordable by offering low monthly payments.
8. Use contextual, personalized popups for up-sales and cross-sales
Instead of displaying generic offers, use in-session behavior such as cart contents to create compelling up-sales.
My personal favorite way to increase AOV involves combining cart thresholds with cart contents to create dynamic incentives. We detail in our guide "Advanced Pop-Up Use Cases with Personalization" how to create these offers with Barilliance.
The key is to only present the offer to customer segments who are just shy of getting the deal. This maximizes both engagement and conversions.
9. Setup add to cart triggers ft. Target
Adding an item to a cart is one of the most effective triggers for customer lifecycle management.
Based on this customer action, brands can trigger several different types of campaigns, such as email my cart, personalized lifecycle campaigns or various types of discounts and replenishment offers.
However, from an average order value perspective, this is the perfect opportunity to engage shoppers with personalized offers that compliment the item that was just added. Below is an example of this tactic in action from Target.
What is a good AOV?
A good AOV will depend on a number of factors, including
That said, below are a few AOV benchmarks you can use as a reference when determining what a good AOV KPI would be for your eCommerce store.
AOV changes across devices
First, average order values are influenced by device type. A 2019 study by Statista found that the cart values on desktop were, on average, 48.12% higher than like sessions on mobile devices and 32.20% higher than tablet shopping sessions.
“...Cart values on desktop were, on average, 48.12% higher than like sessions on mobile devices and 32.20% higher than tablet shopping sessions."
AOV is impacted by global trends
We performed an in-depth study on how COVID-19 impacted eCommerce stores. One major finding was COVID-19's impact on average order values across industries.
From out own database, we saw an average AOV of $129.70 before the pandemic. This number steadily rose as the pandemic grew, ultimately reaching a max AOV of $248.28, over a 91% increase from before the pandemic!
Why Does Average Order Value (AOV) Matter
AOV is a revenue based metric. As such, it's effects start trickle down through all parts of an eCommerce business. Below are a few major reasons to focus on increasing AOV in your business.
AOV is essential in evaluating acquisition spend, customer lifetime value, and modeling future revenues and profits.
Further, AOV has a multiplier affect on profitability. Your store incurs fixed costs everyday - from warehouse to labor costs. Increase AOV gives you incremental profit that is essential to
1. Multiply Profits
AOV has a multiplier affect on profitability. Your store incurs fixed costs everyday - from warehouse to labor costs. Increases in AOV gives you incremental profit every order.
2. Decrease payback period for new customers
Payback periods are the most practical KPIs for customer lifecycles. We cover many ways to decrease your customer payback period in our guide on customer lifecycle marketing here, with increasing average order value being one of the core tenants.
Increasing AOV means that each transaction moves you further towards breakeven.
3. Improves cash flow
As a consequence of decreasing the payback period, your overall cash flow will improve. Cash flow will decrease the necessary working capital you need to operate and allow you to better pursue other opportunities.
Increasing AOV is a central component to multiplying revenue.
Personalization software, advanced product recommendations, and merchandizing campaigns are effective tools you can use.
If you'd like to learn more about how to select a personalization partner, click here. Otherwise, request a demo to see how Barilliance can help you increase AOV.