What is AOV?
AOV (Average Order Value) is an indicator that shows the average value of each order placed in the online shop in a certain period of time. Thanks to this indicator, every e-commerce owner will be able to make more informed and accurate business decisions regarding, for example, advertising expenditure or pricing policy.
How to calculate AOV?
Importantly, the AOV takes into account sales in relation to the number of orders and not to a given customer. Thanks to this, it is possible to accurately determine the value of a single order, even if the same customer performs several purchases in your e-shop.
How to interpret the AOV?
In general - the higher its value, the more you earn. However, this factor should be analysed in relation to:
RPV (Revenue Per Visitor), or revenue per one person visiting your e-shop. If this ratio stays low in your e-shop, it means that customers do not make too many purchases, which in turn translates into a lower return on investment incurred in advertising.
CPC (Cost per Conversion), i.e. the cost of conversion. This metric notes how much it costs to acquire one client. Subtracting this value from the average order value, you can accurately determine the actual profit.
How to improve the AOV?
If the analysis shows that the AOV ratio in your e-shop is low, it is worth starting optimisation activities aimed at increasing revenues. How to do it?
Introduce customer segmentation - take the shopping frequency or basket value as a criterion. Thanks to this, you perfectly match the promotion strategy to the needs of recipients. For those who regularly spend a lot of money in your e-shop, prepare an interesting loyalty program. For those who spend only small amounts, suggest a coupon for further purchases.
Take advantage of cross-selling and up-selling - try to maximize profit from one transaction using the cross-selling and additional method. In your e-shop, add a field with recommended products, point customers to products compatible with those they have just purchased.
Offer free delivery - offer your customers free delivery from the specific order value.
What factors affect the AOV?
AOV, or the average value of the basket, is one of the key factors showing whether our online shop performs well and whether our promotional activities are going in the right direction. How should it be analysed in e-commerce?
What is the “weight” of your client's basket?
Analysing the AOV we know the shopping behaviour of our clients, and thanks to the information we receive, we can make more informed business decisions. This indicator also provides us with information on the effectiveness of our promotional activities.
For example, if your online shop generated revenues of £50,000 last month and purchases were made by 250 customers, the average value of each basket would be £200.
What if you had an influence on the AOV?
Increasing the value of the shopping basket in the e-shop is possible by introducing recommendation engines, namely:
Personalise the home page - give your customers the feeling that the offer of your e-shop has been created especially for them.
Use up-selling and cross-selling - recommend the products of a higher value than those which the customer has previously purchased or recommend complementary products.
Use zero search strategies - recommend to users of your online shop other offers on the page with no search results. Instead of leaving your website, they will have the opportunity to learn about the additional offer.
These solutions have a very positive effect on increasing the value of shopping baskets. If you want to implement these functionalities in your e-commerce, please contact us at email@example.com. You can read more about the implementation of personalisation and recommendation systems on our blog.