The Ultimate Guide to Average Order Value (AOV)
Welcome to the “Ultimate Guide to Average Order Value” brought to you by Splitit!
In the Guide, we will cover everything you need to know about this important metric. Tracking Average Order Value (AOV) is a vital tool for e-commerce success.
The topics we cover include the definition of AOV and how to calculate it, the difference between upselling and cross-selling, site design techniques you can use to increase AOV, and the psychology of shoppers in several key e-commerce categories.
As you read the Guide, you can skip around to find the information that is most helpful for your e-commerce business. Be sure not to miss our list of the 10 Things You Can Do Right Now to Increase Average Order Value – it is at the end of the Guide!
Jump ahead to any section you like, or keep scrolling to find out everything you need to know.
- What is Average Order Value?
- Calculating AOV
- Comparing AOV and Average Transaction Value (or ATV)
- The Two Types of Higher Average Order Value
- Tactics for Increasing Average Order Value
- Overall user experience
- Product browsing and catalog pages
- Product pages
- Shopping cart experience
- Order confirmation
- How Shoppers Think
- Sports and outdoor
- Luxury Retail
- 10 Things You Can Do Right Now to Increase Average Order Value
1. What is Average Order Value (AOV)?
Average Order Value, or AOV, is one of the most crucial metrics in e-commerce. It measures the average amount spent on each order. It is important to note that this should be calculated based on the number of sales per order and not per customer.
By increasing the amount of money per order, you increase your revenue, along with additional benefits that we cover below.
Monitoring your AOV regularly helps you evaluate your business performance and make profitable decisions by finding ways to increase it.
You can calculate AOV by dividing your total sales by the number of sales. The resulting figure will be your overall AOV. You can get more sophisticated in your AOV calculations by segmenting them by demographics or geography, and by finding statistical correlations between different types of shopper behavior and AOV. For example, perhaps shoppers who purchase products from some categories tend to spend more than others, or perhaps there are seasonal variations (a common situation for many sorts of retailers).
For example, if you sold $400,000 across a total of 1,000 orders in one quarter, your AOV was $400 per purchase. If you sold $200,000 across a total of 200 orders in the next quarter, your AOV was $400 per purchase. A likely reason is that you had much higher traffic in the first quarter, but much better offerings in the second quarter. You would therefore want to repeat your tactics from the high-AOV quarter in higher traffic quarters, too.
These numbers have been exaggerated to make a point, but you can see just how AOV provides guidance.
The math is simple, but the power is enormous!
Comparing AOV and Average Transaction Value (or ATV)
Some people are confused by the difference between Average Order Value and Average Transaction Value and use them as synonymous. However, there is an important subtle difference. ATV is the average amount of money spent by your customers per transaction.
The difference between AOV and ATV is that AOV is based on the number of orders, while ATV is based on the number of transactions.
The formula for ATV is:
To understand this better, let us also differentiate order vs. transaction.
- An order is a list of item/s that a customer has purchased.
- A transaction includes other costs associated with the sale like taxes, shipping fees, and other charges.
Order value is a better metric than transaction value because it better reflects the decisions and behaviors of your actual shoppers. Using AOV helps you filter out the noise of things that can skew your results. For instance, opting for faster shipping, or purchases made in places where you need to collect higher sales taxes are factors that lie outside your control and may not even benefit your bottom line.
2. Two Types of Higher Average Order Value
Upselling means inducing shoppers to upgrade to a more expensive item than the item they might originally have selected. A shopper might opt to purchase:
- A dress made of higher-quality materials or with greater fashion and design content
- A wristwatch with precious metals, a more sophisticated movement, or more functionality
- A mattress with greater thickness or higher comfort materials
- A larger or higher quality diamond
- A computer with more memory and storage or higher-performance components
Upselling increases the order value because the eventual item purchased is more expensive than the initially intended item. In many cases, upselling also leads to higher shopper satisfaction, because shoppers purchase an item that better fits their taste or that promises greater durability or more favorable usage occasions.
Cross-selling means inducing shoppers to add additional items to their originally intended purchase. In this scenario, a shopper might opt to add:
- Additional items of apparel to purchase a full look rather than a one-off item
- Accessories or cases suited for an electronic item
- Occasional furniture or decor items to accompany a larger piece of furniture
- Camping gear and accessories in addition to a tent, trailer, or other more expensive purchase
- An additional warranty or service contract that can help extend the life of the shopper’s purchase
Cross-selling increases the AOV because shoppers purchase more items than they originally intended. It also indicates greater customer loyalty and can help maximize customer lifetime value, because your offerings have met a wider range of their needs or allows you to capture a greater share of wallet from retailers who offer complementary products (i.e., products that the shopper may have purchased elsewhere).
Upselling and Cross-Selling Together
Upselling and cross-selling can often be used in tandem. They increase the value of individual orders, which is the connection to AOV. They also demonstrate that you are able to meet shoppers’ preferences or needs in ways that competitors may not.
So, the benefit lasts beyond the individual sale, and correlates to additional important factors such as repeat visits and likelihood to recommend to a friend. In other words, AOV increases your revenues in the short-term, while creating a better relationship with your shoppers in the long-term.
Keep in mind two important findings about the economic value of customer loyalty:
- It costs five times more to attract a new customer as it does to keep an existing one.
- Increasing customer retention rates by 5% increases profits by 25% to as much as 95%.
One of the most critical factors when encouraging shoppers to increase their order values is to make it easy and affordable for them to pay. That is why Splitit is such a powerful tool to increase AOV. Shoppers often have a psychological threshold for how much they intend to pay.
Your shopper might have set a budget of ~$200 for a sports watch, for example. But a watch that will better suit their needs might cost $279. Allowing them to split that purchase into three installments of $93 over the course of three months helps them choose an item that will lead to higher satisfaction, but also stay within their budget better. Splitit offers a great way to do that responsibly by creating installment plans with no fees or interest charges. Shoppers can simply use their available credit and have the charges appear on their credit card statements over the course of the installment plan.
In the following sections, we will cover how to take advantage of user experience and design improvements to induce both upselling and cross-selling.
3. Tactics for Increasing Average Order Value
Overall User Experience
One way you can increase AOV is by improving the user experience of your website. Your online shop should create a seamless experience for your visitors. Some of the best practices include simplifying your navigation, making sure your pages load almost instantly, and optimizing them for mobile visitors.
Here is our list of the user experience factors that have the highest impact on your AOV:
- Use high-quality photos, appealing fonts, and design elements that are appropriate for your user base. It is human nature to prefer to spend time in a pleasant and familiar environment.
- Make the user experience sticky, or in other words, create a high-level of engagement. Here is a great guide to sticky design. The more time shoppers spend browsing your site and exploring your products, the more likely they will see items they want to buy.
- Focus on usability as well as on visual appeal. When users can easily orient themselves, understand how to complete tasks, and intuitively complete the steps they need to follow, they spend more time thinking about your products instead of how to use your site.
- Make sure shoppers understand upfront that you offer payment options such as Splitit, so that they are already thinking about their ability to extend their buying power before they even start browsing.
Product Browsing and Catalog Pages
One of the advantages of having an online catalog is the ability to organize your products by category. This makes your site more accessible to the consumers and provides a better shopping experience. It is also one of the biggest opportunities you have to let your shoppers discover items they might not have in mind, or might not even know you carry.
Your catalog should be optimized to trigger impulse purchases. When shoppers see a product that complements the item that they want to buy, it is more likely that they will add it to their cart as well.
Here is our list of the product catalog factors that have the highest impact on your AOV:
- Create a logical hierarchy, but make it easy for shoppers to make new discoveries. For example, if you sell apparel, your catalog should be organized into Men, Women, and Children, with subcategories such as Outerwear, Shirts, and Pants. But also give people other ways to find things. For example, a men’s t-shirt could also be found in catalog pages for Active and Sports, Casual, Summer, etc. Even if your shopper does not want to buy more than one t-shirt, he can easily see shorts, polo shirts, athletic socks, etc.
- Offer extensive filtering. Let shoppers browse by product features once they get into a product category section. For apparel, for example, include filters for size, color, fit, occasion, etc. A woman looking for a blouse might be interested in other blouses in her size even if she only intended to purchase one.
- Personalize, personalize, personalize. The more you know about your shopper, the more you can tailor product pages to their preferences and past behaviors. You can also tailor them to clusters of similar behavior. For example, if you sell camping gear, and your shopper previously purchased a tent and sleeping bag, you might give them personalized recommendations on their next for lanterns and flashlights, camping stoves, and other equipment that would improve their camping experience. If people who previously purchased backpacks for hiking also often purchased trekking poles, you can add “frequently bought together” features to the catalog page for backpacking.
- Display the availability of installment options on every catalog page so that shoppers have a constant reminder of this budget-friendly, easy-to-use means of payment.
Product pages should present all of the necessary information that shoppers need to make a buying decision, but they also create many opportunities for you to persuade your shoppers. There are many things you can do to create a sense of urgency as well as upsell and cross-sell. Keep in mind that a shopper on a product page is already that much closer on the journey from consideration to making a purchase.
Here is our list of the product catalog factors that have the highest impact on your AOV:
- Show the remaining available product count on your page if inventories are low so that you can spark shoppers’ fear of missing out.
- Add product bundle suggestions to product pages. These typically work better if shoppers have a few choices (such as adding two accessories or two accessories, a case, a spare charger, etc.).
- Offer your shoppers “social proof” by showing what other people also bought with their desired item, as well as showing actual customer reviews.
- Display the installment price prominently. Shoppers will fully understand that a sofa might cost $1,500, but showing 6 payments of $250 as well has a powerful effect on their price perception.
Shopping Cart Experience
Shopping cart design is essential to reducing the rate of cart abandonment, but it also can have a major impact on increasing AOV. To start off with the basics, remember that a sale is not finished until the customer checks out. The most important thing you can do is simplify the checkout process. Everything that you do from the list below should be sure not to violate this rule.
Here is our list of the shopping cart factors that have the highest impact on your AOV:
- Display related products based on the shopper’s cart and past shopping history, as long as they do not interrupt the checkout process.
- Clearly offer free shipping with a minimum purchase requirement, and show shoppers how much they need to add to qualify for the free shipping offer.
- Present alternative payment options in clear, bold ways that are as easy to select as other payment options. The “Buy Now, Pay Later” solution provided by Splitit is a great way to convince shoppers to purchase the items that they want.
Increasing AOV after an order is confirmed might seem impossible, but you can, in fact, give your shoppers an opportunity for last-minute additions. You can do this by not closing the order immediately in your systems.
If an order remains open for a certain window, you can try one of two things:
- Order confirmation campaigns encourage consumers to act on impulse. The confirmation page where the shopper is redirected after placing an order can be used to promote additional items that are often purchased along with items in the pending order. Before they close their browser tab, they can add other products that are related to their purchase, thereby increasing their order value.
- Order confirmation emails can also promote higher AOV. These emails can suggest additional related products to buy as well as simply confirming order status. They can also offer discounts or promo codes that can be used within a very small expiry window, allowing your shopper to add new items to their order before your e-commerce system considers it complete.
4. How Shoppers Think
We have now covered a wide range of ideas for capturing additional shopper spending as they make use of your store. In the next section, we will share further insight into how to make use of the unique psychology of shoppers within a selection of major e-commerce product categories.
You can adapt many of these to similar product categories, or read them all to stimulate creative thinking about how shoppers think and spend.
Sports and Outdoor
As you can imagine, sports and outdoor shoppers are motivated by a sense of health and adventure. You can tap into this psychology to increase by actively promoting these benefits while shoppers are browsing and considering products.
For example, you can promote weight training supplements if you offer them on product pages for weightlifting gear, or promote items that will improve the experience of a camping trip alongside tents and sleeping bags for campers. You can get creative with all of the cross-selling opportunities for increasing AOV with these shoppers, test what works, and then apply the learnings from those tests to future visits to your site.
In addition, shoppers strongly value durability. They want to make purchases that stand up to active usage. In fact, three-quarters of shoppers pay attention to longevity when choosing products, according to a recent study.
You can use this psychology to your advantage by offering more durable options as an upsell. For example, you can offer more technical fabrics for running or hiking gear that stand up better to rough use or harsh weather conditions. You can offer products that better support use in multiple seasons.
As with any upselling, you want to be sure not to diminish the value of the lower price point option. Splitit helps sports and outdoor retailers by making it easy for shoppers to afford the items they really want for a complete experience in their exercise, fitness, and outdoor activities.
Mattresses are all about comfort and quality sleep. Mattress shoppers want to purchase a mattress that will help them get a restful night’s sleep for years to come. When shopping for mattresses online, shoppers also worry about buyer’s remorse. Will the mattress live up to its description, and will it be easy to return if it turns out to feel different from the way it sounds?
Mattress retailers can tap into this buying psychology by providing extensive product information as well as customer reviews. They can also help personalize this information by asking shoppers for their sleep preferences.
Imagine the power of a message such as “most shoppers who prefer very firm support select this option,” and then offering a selection of reviews from shoppers with similar preferences. It is a great way to upsell while being attentive to the shopper’s needs.
Or similarly, you can cross-sell with mattress covers that extend the lifetime of the product, or pillows that further contribute to the sleeping experience your shopper is seeking.
In addition, imagine the power of being able to show the price of the mattress as six installments of $166.50 instead of a potentially intimidating $999. Splitit gives you that ability. While you are being fully transparent about the final cost of the selected item, you also benefit from the ways in which shoppers react to the number that they see.
Furniture shoppers almost always put quality above price, which is a consistent finding across many consumer research studies such as this study on wood furniture. Per a second study, 31% of furniture shoppers are ready to pay more than their intended budget if they find the perfect item.
But that does not make the furniture shopper an easy sale. Because they are so discriminating and are balancing factors such as design, quality, durability, and more, they tend to do a lot of research before they buy.
Over 90% of furniture shoppers use online research to compare products and take in reviews before making a final decision. That means they are visiting many competitor sites, and therefore furniture retailers need to focus on conversion (a separate topic, which you can learn more about here).
Because of these psychological effects and retailer challenges, it only makes sense to focus on AOV so that you maximize your revenues from the small percentages of visitors who ultimately buy with you. Because Splitit installment payments help make larger purchases more affordable and more responsibility, Splitit is a fantastic option to offer shoppers.
By making it clear upfront that you offer installment plans through Splitit, you not only capture more shoppers. You also help them purchase items that will meet their needs and match their tastes, either by selecting more expensive items or by furnishing an entire room or area rather than making a one-off purchase.
IFN Modern saw an increase of 80% in their AOV after offering Splitit.
The luxury shopper’s mindset is typically aspirational. They care about status. Luxury brands represent a lifestyle and aesthetic that they can participate in by purchasing luxury goods. As such, they seek the best in their purchases – unique items with high fashion and design content as well as precious materials.
The psychology of luxury shopping plays well into the strategy of upselling or cross-selling to increase AOV.
Shoppers are likely to seek out goods that come at a higher price point if the fit is right and the price point works with their budget. They are usually willing to splurge more on items that speak to them. They also are interested in completing an entire look, so cross-selling can work well. A shopper buying a luxury handbag may be very receptive to including shoes that complete the look, for example. Give them as many ways as possible to upgrade and accessorize, and they will be delighted.
The final piece of the AOV puzzle for luxury shoppers is making the price point easier to say “yes” to. Shoppers sometimes get cold feet or sticker shock when they see the final total in their shopping cart. Splitit gives them a creative but responsible way to afford the items that they most aspire to purchase. Making it a prominent option in your shopping cart alongside additional product recommendations encourages shoppers to treat themselves a little bit better.
As in other luxury categories, many jewelry shoppers care about status and quality. They shop with an aspirational mindset. They often seek out goods that come at a higher price point if the item is right and the price point works with their budget.
Status conscious shoppers are very receptive to upselling if it results in a more unique or precious purchase that they can wear with pride.
However, not all occasions for wearing jewelry are equal. Shoppers may want to buy items for formal occasions, for work, for fun and sport, or just on a whim. This element of shopper psychology means that retailers have many opportunities to cross-sell. If the shopper likes a certain brand or designer, why not add a casual bangle or pair of earrings alongside a more formal bracelet or choker?
Finally, jewelry is also a category where many shoppers are purchasing gifts for others. Not to stereotype, but often when a shopper is a man buying for a woman, he is unsure what to buy or what goes with what. He will benefit from more product education and gift guides, both of which give you opportunities to cross-sell and upsell.
The same is actually true for a more confident jewelry shopper buying something for a friend or relative–she will also find gift-giving ideas helpful, and appreciate ways to purchase a better gift such as a slightly nicer pin or an additional matching item to be worn with the main gift.
Once the jewelry shopper is ready to purchase, research finds that having payment options makes a concrete difference. Splitit is an excellent option in that category because it fosters higher AOV at the same time that it decreases cart abandonment – a winning combination!
Jewelry retailer PrimeSetting, for example, achieved a 25% lift in sales after making Splitit available to its shoppers.
Apparel is an ideal category for increasing AOV for one simple reason – most people wear multiple items of clothing per day and different outfits every day.
In apparel, upselling is certainly possible, but cross-selling provides the more likely opportunity. Apparel shoppers can find matching items that complete a look or develop a strong preference for the items that you offer. You simply need to make it as easy as possible for them to find complementary items or find things that are frequently purchased together by optimizing the recommendations on your catalog pages, product pages, and on your shopping cart page.
The simpler it is to add items, the more likely you are to increase the total amount of the order.
Once the shopper gets to the end of the shopping session, especially if they have liberally added items to their cart, you risk having them delete items or even abandon their cart entirely.
By giving them an easy-to-use and budget-friendly way to split the cost of their order over a few months (namely, via Splitit), you lower the likelihood of this happening.
The results achieved by Vestiaire Collective prove the point. Their average ticket went up by 120% after introducing Splitit as a payment option.
5. 10 Things You Can Do Right Now to Increase Average Order Value
As you have learned, Average Order Value is a powerful metric that unlocks many layers of value for your business. On the face of things, it increases your revenues, but beyond that, it makes your business more profitable and increases lifetime customer value.
The techniques that you use to increase AOV also create a better shopper experience and happier, more loyal customers. It is up to your imagination how you can add more and more value to their basic experience of shopping with you.
For more answers to your questions and a one-on-one conversation about how you can increase AOV for your e-commerce store, please be in touch. We love connecting and helping merchants like you thrive!