What is Average Order Value (AOV) and How To Increase It?

As your Shopify store grows, you'll come across a variety of metrics that help you understand how your business is performing. One key metric is the Average Order Value (AOV). Knowing your AOV can help you make informed decisions to boost your store's sales. 

But what exactly is AOV, and why is it important?

In this post, we'll explore what AOV means, how to calculate it, and how you can use this metric to your advantage.

Understanding AOV in E-Commerce

Average Order Value (AOV) is a vital e-commerce metric that measures the average amount of money spent by customers per transaction in your store. It is calculated by dividing total revenue by the number of orders received. For Shopify merchants, monitoring AOV provides insights into customers' buying behavior and the effectiveness of pricing strategies.

For instance, if your store generates $2,000 in revenue from 100 orders, your AOV is $20. This metric is crucial because enhancing the AOV means you are effectively generating more revenue without necessarily increasing traffic to your store.

The AOV is usually tracked over time, so you’ll often see it calculated as a daily, weekly, monthly, or yearly metric. Understanding your store’s AOV can provide valuable insights into customer behavior and help you develop strategies to encourage customers to spend more per transaction.

AOV vs. Customer Lifetime Value (CLV)

While Average Order Value (AOV) and Customer Lifetime Value (CLV) both offer insights into customer spending, they focus on different aspects of the customer experience. AOV measures the average amount spent per order, providing a snapshot of transaction habits. In contrast, CLV calculates the total revenue you can expect from a customer over their entire relationship with your store.

Understanding both metrics is crucial for a comprehensive view of your store's performance. While AOV helps you optimize individual transactions, CLV focuses on long-term customer relationships. By using both metrics, you can better tailor your marketing and sales strategies, balancing immediate gains with long-term growth.

Why is AOV important for Shopify merchants?

1. Provides Insights into Customer Behavior

AOV helps you understand how much, on average, customers are willing to spend per transaction. This information can guide your pricing and product bundling strategies.

2. Identifies Opportunities for Growth

By analyzing AOV, you can identify opportunities to encourage customers to spend more, such as upselling higher-priced items or cross-selling related products.

3. Helps in Personalizing Marketing Strategies

AOV data can inform personalized marketing strategies, such as recommending products based on past purchases, which can enhance the customer experience and increase sales.

4. Optimizes Pricing Strategies

Understanding your store’s AOV can help you decide on effective pricing strategies, such as tiered pricing or volume discounts, to maximize revenue.

5. Complements Other Key Performance Indicators (KPIs)

AOV should be considered alongside other metrics like Customer Lifetime Value (CLV) and conversion rate to get a comprehensive view of your store’s performance.

Case example: Two stores with the same revenue

Let’s say you have two clothing stores, Store A and Store B, to compare their performance for a certain month.

Both stores made the same amount of revenue in that month, $10,000. But these stores didn’t have the same amount of orders, as Store A had 50 orders, while Store B had 25 orders.

By calculating AOV, you get:

Store A AOV of $200, and Store B AOV of $400.

This comparison reveals that Store B had a much higher AOV than Store A during the same period. This higher AOV suggests that customers at Store B are spending more per order, even though the total revenue is the same. Store B might be using effective upselling and cross-selling strategies or offering higher-priced items, which can be valuable insights when planning sales and marketing strategies.

Strategies to Increase AOV

1. Upselling and Cross-selling

Encourage customers to purchase more by suggesting complementary products (cross-selling) or higher-end versions of items they're considering (upselling).

Shopify app recommendations: Upsell and Cross Sell.

2. Product Bundling

Create bundles of related products at a slightly discounted rate to encourage customers to buy more items in a single order.

Shopify app recommendation: bundler apps.

3. Implementing a Loyalty Program

Reward customers with points or discounts for higher spending, encouraging them to add more to their cart to reach the next reward tier.

4. Offer a Volume Discount

Rewarding customers who purchase multiple units of a product with a discount encourages them to buy in larger quantities, such as ‘buy 3, get 1 free’.

By implementing these strategies, Shopify store owners can effectively increase their Average Order Value (AOV), thereby boosting overall revenue without necessarily increasing traffic.

Wrap Up

Average Order Value (AOV) is a crucial metric for Shopify store owners, providing valuable insights into customer spending habits. By understanding and focusing on AOV, you can implement strategies like upselling, cross-selling, and product bundling to encourage higher spending per transaction. These efforts not only boost individual order values but also contribute to overall revenue growth, making AOV an essential part of any successful eCommerce strategy.