Average Order Value: Winning Techniques and Approaches To Boost Sales for Your eCommerce Stores.
What will you choose? Try to sell as many $1 Tshirts as possible, or, try to double the value of each 1$ Tshirt order? This simple math problem is the prelude of what is called: “Average Order Value”.
All businesses want to sell more to their customers, regardless of the nature of the product or service. However, selling to more customers and selling more to a customer are entirely different playing fields. So you can use a great multi-platform marketing strategy and a killer sales funnel to help your customers move from awareness to consideration and decision quickly, but do you ever consider that maybe there could, or should have been more value out of each customer’s purchase?
When you sell more to a customer than the initial product, or the version of the product that they chose, you have the potential to double or even triple your revenue. In the business world, that is generally all you can ever hope for.
Average Order Value (AOV) is a measurement of your sales performance and of your customers’ value. Increase AOV to help you redefine how to promote your products in a collective way, understand customer behavior better and gain insights for your pricing strategy. There is a huge added bonus too, is that increasing AOV does not cost money, unlike increasing traffic.
So how do you do it? In the vein of our exploration in CRO strategies, let take a deep dive into Average Order Value (AOV) strategy.
We will find out in this article the most common, proven successful and easy-to-adapt techniques to improve your AOV, so you can step closer to those sales targets that you have always wanted to achieve. Let’s start.
I. What is Average Order Value (AOV) and why is it important?
Average order value (AOV) tracks the average money amount spent each time a customer places an order on your Ecommerce website. The calculation is quite simple, you divide total revenue by the number of orders like below:
For example, an online bike components store’s sales were $10,000 in January, and they had a total of 500 orders during that month. They divide $10,000 by 500 = $20, and that is their AOV for January.
Although Average Order Value does not factor into gross profit or profit margins, it’s still an important decision-making metric. It provides marketers insight into buyer patterns and trends, advertising spend habits, store layout and even product pricing. A retailer that has products valued between $15 to 40 but with an average order value (AOV) of $25 means that their customers are 1) buying multiple items and 2) mainly buying cheaper items.
Although an example, $25 is in no way an ideal number that you should strive for. According to Salesforce, the top performing Ecommerce businesses have an average order value of $119 in 2018. In the UK market, IRP Commerce conducted a specific research on average order value (AOV) by industry. Understandably, there are significant disparities that occur between industries.
If your business falls under any of the above industries (and it must does), then you can use their number to measure your marketing and sales performance.
By monitoring your AOV, you can increase marketing ROI. The higher your AOV is, the more you are getting out of each customer – and the more you are getting out of acquiring each customer. If your Average Order Value (AOV) is not that great and you start to pay attention to the insights, you will see the missed opportunities where you could have influenced your customers to add more items to their cart, or select a more premium version at the price of better features.
Monetate Research showed that customers who click on a recommended product have a 70% higher purchase rate within that session. To back up this information, a similar study conducted by SalesForce found out that shoppers that clicked on recommendations are 4.5x more likely to add items to cart, and 4.5x more likely to complete their purchase.
As mentioned above, the core of AOV improvement lies in studying customer behaviors and pricing. It is a lengthy research and string of A/B testing before you can reach the best conclusion to increase your business sales. However right off the bat, you can still adapt some very common tactics to improve AOV, simply because the majority have done the same things before you do. We will go through each one right now.
II. Proven successful tactics to boost Your Average Order Value
01. Offer free shipping
Free shipping is the easiest way to increase AOV and gain an advantage over your competitors in the same industry. Various research has shown that throughout the years, free shipping is still the #1 concern for customers when it comes to checking out. Similarly, overly high shipping cost is the #1 reason for shopping cart abandonment. The truth is that, while customers have mustered enough determination to proceed all the way to the checkout page, they can and will drop out the moment they think their order’s shipping cost is “unreasonable”.
For Ecommerce businesses, free shipping commonly comes with a requirement. For example. “Free shipping on all orders over $100”. This is to encourage your customers to purchase more so that their order will be qualified. Topo Designs display their deal right on top of the homepage in a bold, red box to make sure it’s the first thing visitors have their eyes on.
It also would be beneficial to add a notification when your customers’ orders almost add up to the free shipping threshold. Telling customers the exact amount of money they are missing to qualify for free shipping is a powerful motivator for customers to add another item to their cart. Velour Lashes does this extremely well with their sales funnel.
But do you just pick a number out of nowhere and set it as the order value limit? Nijala, a Canadian online retailer for black beauty and hair care products, realized that their offer of free shipping in Canada on orders over $80 was still too hard to swallow for their customers. Only 48% of their shoppers were eligible for free shipping, and they got a whopping 91% carts abandonment rate.
So they analysed their customer cart history, and found out that the average cart size for those abandoned checkouts was $45. It was the reason for them to lower the threshold to $45.
The result was after 8 weeks, Nijala doubled their revenue and almost tripled their number of sales. The change caused a huge shift in their customers’ mindset, as they became much more willing to complete their purchase. Of course, the extra revenue came at the expense of paying the shipping fees on the orders that would have been paid by the customers under the old shipping fees system, but for them the pros far outweighed the cons.
If you already calculated your Average Order Value, Aaron Zakowski suggests that you add 30% to it to find out the ideal threshold for your “free shipping over …” deal.
Not only you can set order value as requirement for free shipping, you can also consider setting order delivery time. According to Shippo’s State of Ecommerce Shipping survey, only 41% of shoppers say that they would be willing to wait up to 4-7 days for a delivery. So why not giving customers the option to choose the shipping they need? They can enjoy free shipping for a longer delivery period, however if they want the product asap, then they will accept paying the extra fees.
02. Buy more with a discount
You may think that providing discounts is counterintuitive to increasing AOV, as the goal is to make each purchase generate more revenue for your business. However like free shipping, you will not give out discount coupons without a certain criterion. Meebox, the web hosting and cloud hosting company, ran a test on discounts of 20% (40% for the highest plan) if customers locked in for a 2 year period.
Here is the original pricing page with basic information like cost per month, space, bandwidth and domains:
Comparing to the original, the new pricing page added discount information to the pricing table:
Soon after the deals went live, Meebox got astonishing results: A 121.56% increase in revenue, 46.24% increase in AVO, and 51.85% increase in conversions.
Discounts generally come in 2 types: Percentage-based discount and dollar value discount. Percentage-based discount, like Meebox’s tactic above, ranges from small incentive percentages like 5% or 10% off, larger discount to drive sales like 20% and 25%, or significant percentages like 50%+ to liquidate old merchandise. On the other hand, dollar value discount acts like credit. It give customers a number that will make them feel that they are wasting money if they don’t take the offer. In actuality, Entrepreneur disclosed that dollar value discount has as much as 170% more redemption rate than percentage-based discount.
Shopify give out an easy-to-use tip when deciding between the 2 discount types: If your item is less than $100, go for percentage discount; if higher, then go for dollar value discount.
As discount is everyone’s favorite hunting game, you can use discounts to increase AOV in various scenarios and occasions. Holiday and seasonal deals, like Black Friday, Christmas, Back to school are the big ones. Reward your first-time shoppers is perfect to secure the purchase, like Clearly providing all new visitors with a 50% discount on prescription glasses and 15% on contact lenses.
Some brands also have volume discounts, which is when certain order value meets the threshold of a particular discount.
Whichever route you take, when offering discounts to potential customers, try to make it work for your company as well. You can discount all you want, but if it’s not fiscally wise, you won’t be doing it for long as you’ll eventually be out of business with no money.
03. BOGO (buy one, get one for free)
“Buy one, get one for free” is arguably the most common type of promotion that businesses use in their day-to-day marketing campaigns. Consumers like getting items for free, and they are much more tempted to take the offer in the belief that they are getting twice as much as they normally would for the same price. Behavioral economics researcher Dan Ariely even states that shoppers will even overvalue “free” when compared to high-quality items at “discount”. In an empirical study conducted by Maxwell Scientific Organization in 2013, 42.3% were highly satisfied when purchasing products under BOGO promotion, and 46.8% have repurchase intentions.
BOGO examples are not hard to find. Cosmetic brand Ahava puts on an attractive and clear display for their promotion, and event throws in a back-to-back offer of free shipping for certain order value.
However when applying the BOGO tactic, be mindful of which products you want to promote. While consumers may be high on the “free stuff” wave, they will soon come to their senses if the offer turns out to actually not be that practical. You should focus on products that are 1) Expendable – things that run out in time like cosmetics, food and beverage, 2) Usable in two – you wouldn’t buy 2 hammers if you only needed one to use for the next 10 years right?, and of course there is 3) With at least a 50% margin – avoid making your sales break-even.
To spice up the campaign, add in a time limit to create the sense of urgency and push customers to make a purchase. Also, don’t limit your customer’s choices. Pairing products from different categories can make a great deal for seasonal products or certain groups of targeted customers. Bargain Moose launched their Back to School BOGO, urging students and parents to get their free backpacks by buying shoes.
Or, you can bypass the 1-1 ratio and go for other combinations. Product types that can be purchased in bulk and customers can use simultaneously are ideal for a “buy 3 for the price of 2”, or “buy 5, get 2 for free” offers. EMP’s way of tackling the BOGO strategy can inspire you to do the same if you own similar product lines.
If you have product samples, why not giving them away with your customers’ order? For example, if customers buy hand cream, they will also get a small sample of the newest toner on the market. Especially for stores without physical address, giving away free samples of another product is the perfect way for customers to experience the real thing. It is an investment into the future demand.
Upselling is the practice of encouraging customers to purchase a comparable higher-end product than the one in question. This is when customers are already in serious consideration, have already decided that they will choose your products, or best above all, they are returning to buy more. Thus, it is a wasted opportunity if online businesses don’t attempt to upsell in those scenarios. Marketing Metrics stated that “The probability of selling to a new prospect is 5-20%. The probability of selling to an existing customer is 60-70%. More facts, a 2015 report by For Entrepreneurs and Pacific Crest Securities found that acquiring a new customer typically costs companies 68% more than upselling to a current customer does.
So evidently, if you have a range of products in the same sector, but with different levels of features and pricing, you have to consider upselling. Based on the fact that 88% of consumers trust online reviews as much as personal recommendation, and 77% of online shoppers use reviews to make a purchase decision, you can offer your customers alternatives with better ratings.
On RayBan’s website, their Predator Polarized Sunglasses only have a three and a half star rating, despite solid build and benefits.
Some customers will be skeptical when they see this, and they will scroll down to see other options. Right as they expect, RayBan has already provided them with a nice selection of other sunglasses that all have consistently higher ratings at four and half stars. The first recommendation is even the number one bestseller on their store.
You can also show a more popular option (usually among the middle price range) among your product lineup. This neat tactic emphasizes on the “popular” wording to cement the fact that the recommended product is consumer-approved, and new customers will not fall behind by following the trend. GoToSchedule highlight their Pro plan of $29/month in a way that it’s impossible to be ignored by visitors.
BuzzSumo also adapt the same practice; the only difference is that they phrase it differently with their top plan being “recommended” rather than “most popular”.
When upselling, you need to know your customers. A satisfied customer means a golden opportunity to sell them the better version of what they are currently using, and a dissatisfied customer means a golden opportunity to offer them the solution. If you have evidence of clients who achieved success by upgrading, show it. Marketing agency Hawke Media features a large, visible portfolio of “happy clients” on their website, which their customers can access at any time.
With their client Petnet, Hawke Media increased its revenue by 80% and gross profit by 14%. These remarkable achievements are golden for when Hawke Media decides to upsell their service to a customer who already signed a contract with them. In fact, it would be a breeze.
Cross-selling is when businesses sell an additional product or service to the current one that customers are in consideration/have made decision to purchase. Cross-selling identifies products that satisfy additional, complementary needs that are already fulfilled by the original item.
Sounds familiar right? But what is the difference between cross-selling and upselling? Let’s have a brief walk-through with an example from Dollar Shave Club, the monthly shaving kit subscription for gentlemen and those interested in it. One of their lower-tier products is “The 4X” blade subscription for $6 per month. If Dollar Shave Club wants to upsell to their customers, they will suggest them to buy the superior “The Executive” for $9 per month instead.
But of course, well-groomed customers will not do with just shaving razors, so to boost their sales, Dollar Shave Club can chip in another offer of adding the “Smooth Shave Bundle” to complement their customers’ razors.
You will see how both techniques revolve around a similar strategy, and many marketers lump cross selling with upselling. In Ecommerce, cross-selling or upselling are often utilized on product pages, during the checkout process, and in campaigns. For example, in Ecommerce websites, usually, you will see the “You might also like” section filled with recommendations that match your preference and search history. This is called automatic cross-selling which generates personalized offers to each customer who visit the Ecommerce website. The more you personalize the offer, the more effective your strategy will be.
Spyder the clothing brand even includes previously viewed items, so it is easier for their shoppers to go back to an item they might have been on the fence about.
Learning from Amazon – a champion in this domain, you can set up your automatic cross-selling system to show products based on customers’ browsing history, their wish list, and products to discover – based on their purchase history for example.
You can also back up your cross-selling efforts with social proof, by showing customers a list of “Other users bought…”. Customers will feel more assured knowing that others also made the same decision as them.
Even better, if you can show them another product that is typically bought with the first one, they will think “there must be a reason” for the popular combination and likely repeat the same pattern.
They can be essential related products, like selling batteries or bulbs together with lamps. Though they are minor sales, most of the time the margins on these extra products are very attractive. Or if your products require installation or frequent technical support, offer additional services instead. ThemeForest offers extended support up to 12 months for theme users if they are willing to pay extra, and even these services are put on sales to make them more appealing to customers.
In fashion and Hollywood gossip columns, you must have seen more than a hundred “steal her look” recommendations tailored after famous people. Among your customer base there are those who lack knowledge about the norms, and even hate the experience of searching and contemplating every product they encounter. The “take the whole outfit” strategy will work perfectly for them.
If your customer likes a shirt, show them matching trousers and a scarf – in a complete look that they can imagine it being applied on themselves. This system is really popular amongst online clothes shops or decoration. The product is shown with other products in order to create your desire to have the whole design or look.
DIllard’s has a whole “shop by outfit” section on their website, where the most enticing and stylish sets are showcased for customers who need a clown-proof solution.
Cross-selling is best utilized when you keep it simple. By offering too many products or services at once, you can accidentally create confusion for your customers and divert them away from their purchase intention entirely. Know which products to offer to which customers that will complement the original item. If you can, offer loyalty perks – customers get rewarded with more purchases.
Many small businesses have found success by selling products and services as a package/bundle rather than individual offerings. Customers equate a bundle of items with savings, even if those savings are nominal, making it a much easier sell for you. For example, instead of selling three items for $30 each, your bundle would be priced at $75 of only $25 per item. If possible, try to keep your bundles somewhat flexible; a potential customer may reject a bundle because he or she feels that only three of the six items apply to his or her business. If you can stay flexible enough to swap out different products or services to align with multiple needs, you’ll find success.
Bundling strategy is an art by itself, but only require the artisans a small amount of creativity and a healthy dose of smart planning. The following are 3 more-or-less standard product bundle strategies commonly utilized in Ecommerce that you should take note of:
- Bundle #1: The complementaries: Best Buy performed this quite well with their Beats by Dr. Dre headphones. Directly under product description, there is a recommended product bundle like this:
This list shows 1) products your visitors didn’t otherwise know you offered, which can be seen and purchased in a single bundle; 2) an “Add 4 items to cart” button that encouraged visitors to purchase all; 3) products that visitors can deselect what they didn’t want and get what they were interested in.
- Bundle #2: The “more of the same”: With the Fingerlings Baby Monkey, since Best Buy doesn’t have other complementary products to offer, they recommend buying even more Baby Monkeys:
This list shows visitors an easy way to add more products of the same line to their cart without having to go to four (or more) different product pages and individually add each one. This has “good user experience” written all over it.
- Bundle #3: The gift card: Again, Best Buy proved the leading executioner by offering a hair straightener plus a gift card of equal value to use at Sephora:
This list works if you sell a one-time use product and have no other complementary products to offer. People have friends, and they may want to send their friends a gift card so they can buy the same product together.
“Give and thou shalt receive”, overall what lies in the core of all these tactics is to help your customers acquire greater value, while also generate more revenue for your business. Moreover, the most cost-effective and efficient way to increase average order value is by concentrating on your existing, most loyal customers, as increasing customer retention by just 5% can increase profits by 25-95%.
While they are all actionable and widely popular with million case studies to back them up, still there are Do’s and Don’ts when you decide to include them in your business strategy:
- Don’t implement all these tactics at once
- Do A/B testing to find out what works best for you
- Do strike a balance between discounts/free shipping and your profit margin