Average Order Value explained: what it is and how to calculate it

What is the meaning of AOV?

The Average Order Value (AOV) measures the average amount spent on your website, calculated each time a customer makes a purchase. It is one of the most important metrics to be aware of if you run an ecommerce business because it informs key business decisions such as advertising spend, store layout, and product pricing.

Essentially, this metric provides insights with regards to customer behavior. For example, a lower AOV usually indicates that your customers prefer to make smaller purchases with each order. It helps every e-commerce company’s purpose, which is to maximize its value.

Why is it important?

Knowing the AOV of your company will help you evaluate your pricing strategy and marketing expenditure by providing the right metrics you need to measure your customer purchasing behavior, especially how much they are spending, and on which products. 

Once you improve yours, you can directly scale your profits and revenue growth upward.

It also allows you understand your customers’ behaviour better in a variety of ways, such as knowing:

• How they shop: Are they the type that head directly to your desired product pages or do they browse around and make purchase “on the fly”?
• Item choices: What kind of products do they prefer to purchase?
• How much money they spend: Do they make big purchases? Do they prefer to make smaller purchases, but more often?

With this kind of information, you can start to identify opportunities and take business decisions that will help you increase your AOV.

How do you calculate it?

You can easily calculate the AOV of your business by dividing the total revenue by the number of orders during a particular period: 

For example:

1. Your total revenue for the month of May was $100,000.
2. The total number of orders on your ecommerce channels for May was 1625.
3. 100,000 / 1625 = 61,53
4. Based on this, your AOV during May was $61,53.

Remember that AOV is determined by using sales per order, not sales per customer. One customer can come back multiple times to make more purchases, but each order should be counted into AOV separately. 

How to find AOV in Google Analytics

First of all, you need to set up Google Analytics on your site. Make sure you enable eCommerce Tracking in Google Analytics.

Once you’ve done this, sign into your Google Analytics account and click the Admin button in the right menu bar.

After that, go to eCommerce Settings under the View column and click on it.

Activate Enable Ecommerce first. Then, turn on Enhanced Ecommerce Reporting and click the Save button.

Once you have eCommerce tracking enabled in Google Analytics, go to Conversions » Ecommerce » Overview.

Here you will have information about: 

• Shopping and purchasing behavior: you’ll find reports that give you insights about shopping activity such as product page views, adding and removing products from shopping carts, initiated, abandoned, and completed transactions.
• Economic performance: this includes a) data for the revenue and conversion rates your products generate, b) how many products the average transaction includes, c) the average order value, d) refunds you had to issue, and e) the rates at which users add products to their carts and make purchases after having viewed product-detail pages.
• Merchandising success: measure the internal and external marketing efforts that support those products (revenue, transactions, the effectiveness of product-level coupons, unique purchases, and product revenue per purchase).
• Product attribution: it helps you understand which Product Lists are driving conversions and allows you to optimize your merchandising efforts and drive sales. 

What is a good average value of your orders?

Boosting your AOV is essentially about getting these two points: 

• Customers purchasing more items from you
• Customers purchasing products with a higher price

So going back to the question in the title. You will find that there isn’t an exact answer; it varies. Your metrics will vary based on your business, your audience, and what strategies you put in place. Furthermore, the AOV metric is useful only as a reference-point.

Before determining your goals and KPIs, you should keep these point in mind:

• The disparity between industries: There is no “correct” AOV for every industry; it is vital to account for the differences between them. If a business has an excellent AOV, it doesn’t mean that it might be great for you too.
• Pay attention to anomalies: Some ecommerce tend to cite abnormally with high metrics (sometimes including their AOVs too). For example, Amazon Average Order Value boasts an impressive high conversion rate of 13%.
• Create specific AOVs based on devices: When it comes to the average order values across devices, the figures vary significantly. Purchases made via Windows desktops can be different if we compare them to purchases made via iPhones.
• Seasonality: There will be specific times of the year when your Average Order Value might be greater (Christmas, Black Friday…). 

Taking these points into account, you should focus on your own business (not comparing to others). In this case, a “good” AOV is something that is better when compared to, let’s say, your previous month/year results. 

However, you want to have a reference of the value by industry, check the following section.

Average order value by industry

Industry-specific benchmarks are among the most useful reference-points for your own performance. In the chart below, you have a visual overview of the AOV for each industry in the United States ($). 

Your order value depends on the type of products you sell. But keep in mind that solid businesses bring in solid revenue. 

You can attain specific data about the AOV worldwide, focusing on a) the industry, b) the device on which the purchase is made, c) the season (such as holiday seasons or Black Friday), d) by channel, and so on. 

These are the most visited eCommerce benchmarks and studies:

• UK (British Pounds): IRP Commerce 
• United States (US Dollars): Monetate Ecommerce Quarterly 
• Europe (EUROs): Wolfgang Digital KPI Report
• Global: Statista

How do you increase it?

You now know what Average Order Value is, and how to calculate it. It’s almost time to talk about the strategies you can use to increase it. Before starting with the strategies, here is a little tip to take into account:

You’ll want to segment your customers into three groups:

• High spenders
• Average spenders
• Low spenders

Once you have these basic segments set up, you can then focus more on each section based on extra data such as purchase frequency, type of purchased products, etc. 

Segmenting your audience will always help you know them better (not only during the analysis of the AOV, but for every marketing decision you make).

And now, here are the strategies you can carry out to increase your Average Order Value:

Have Loyalty Programs

Having a loyalty program can help increase Average Order Value. Each time a customer orders, they can earn points or discounts just for being loyal customers.

This helps you get more customers that keep coming back to your online retail to shop, creating a customer fanbase who will be more likely to order larger quantities of products and, therefore, increase your AOV.

Give a Gift Card

Gift cards are also a great way to increase AOV. If your customers get a gift card, they’ll be more likely to spend again.  

However, you should keep in mind that these kinds of incentives work when your product prices are high enough, otherwise it would end up as a free purchase for your customer and could cause a profit loss for you. 

Finally, offering gift cards encourages future purchases, which helps reduce future ad spend. It’s a great bonus to give customers when sales are seasonally lower. Don’t offer this deal year-round as it can lose its effectiveness over time.

First Time Offers 

If you’re running a new online store, most of your customers will be first-time visitors. Offering deals/discounts to new visitors can help them start buying from you and improve your initial Average Order Value. 

Offer Time-Sensitive Deals

You can offer a time–sensitive deal (for example, where the time period is 48hrs for a free gift or discount) to help increase Average Order Value. 

They might not increase the value for a long duration, but the urgency helps increase conversions. These kinds of deals are great for boosting your AOV during slower periods. 

Create A Game Or A Contest 

Several companies have created games or contests to increase their order values. You encourage customers to buy/order more frequently so they have more chances to win big prizes.

McDonald’s Monopoly Game is a good example of this tactic.

How to increase the average order value on Shopify

1. Pricing strategy

Price anchoring is a marketing tactic that you can use in a couple of different ways: 

• Show the High Price First

When consumers evaluate a list of products, they use the initial prices to generate their reference price. If the initial prices are high, customers generate a higher reference price. 

• Sort Prices from High to Low

Most people accept the first piece of information they see as the basis for their decision-making.

2. Provide Targeted Product Recommendations

Social proof is a great way for marketers to build credibility and also create a sense of FOMO for customers. This method can significantly support your AOV initiatives. It’s as easy as projecting the reviews that you already have on your website. 

3. Establish Order Minimums for Discounts

You can set up a minimum order amount for customers to get free shipping or other discounts. People usually prefer to add (and pay for) more items just to avoid the cost of the shipping. It’s a great way to increase your AOV.

4. Cross-sell & Upsell

Cross-sell and Upselling are two of the best marketing methods that work almost every time. The first one refers to the action of getting a customer to spend more by purchasing a product that’s related to what’s being bought already or bundling products. The second one is the technique of persuading customers to purchase a more expensive, upgraded or premium version of the chosen item.

You can immediately impact your AOV by offering customers these options. 

5. Offer Simple or Volume Discounts

Another simple yet effective way to boost your AOV is to offer customers a “just because” incentive, such as discounts or promotions when they add products to their cart.

As you can see, analyzing AOV is crucial for your business. It not only increases sales, it can also help your business in making important marketing and sales decisions, which will improve your customers’ experience while improving your bottom line.