What would you say today if I asked you
Wouldn’t it be great if you could make more from the sales you are already getting?
Of course it would — so just how can you go about doing that?
Today we’re going to cover what your Average Order Value – or AOV – is, how to calculate it, how to increase it, and perhaps most importantly, the trap that many people fall into when they try to increase their AOV – and how to fix it! That’s a BIG one!
So, ready? Let’s dive in.
Let’s start off by defining exactly what your Average Order Value, or AOV, is. In your business your AOV is the average amount of money that a customer spends in a single transaction or order.
It’s calculated by dividing the total revenue generated in the specified time period by the number of transactions.
So for example, if you have a candle company and your total revenue last month was $600 and you had 10 sales, then your AOV would be $60.
Your AOV can be very useful to track your customers’ purchase behavior and make better decisions about pricing and marketing your products as well.
It’s a great way to get more revenue because obviously these people are already there, they’re ready to purchase — you just need to get them to spend a bit more on their order!
Increasing your AOV is not hard if you know the right strategies to use, so let’s talk about your options!
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The first way to increase your AOV is by bundling your products so that people buy more than one.
And there are endless ways you can make clever package bundles that incentivize people to buy them.
You could bundle three of the same product, for example bundling three candles, each with a different scent, or three of the same candles.
You can also bundle products that have a common theme. So a spa-night bundle might have scented soap, a candle, and a lavender eye mask.
Or a pet product shop could make a “puppy bundle” that has a leash, a collar, and a cute little puppy jacket.
Another type of product that bundling works really, really well for is digital products — downloadables like printables, planners, calendars, graphic design templates, patterns – all of these things are great opportunities to bundle. You can create bundles of 35 fonts, 35 patterns , a planner and 5 planner add-ons . . . whatever you think will appeal to your ideal customer.
In each of these bundling examples what you are doing is bundling products together in a way where it will make sense for someone to purchase a bundle instead of just the one product.
The key is to make the bundle value more appealing, either financially or psychologically.
So if you sell candles for $10 individually, selling in bundles of 3 for $24 provides a financial value to the customer.
But bundles also can provide an added perceived value: if you give a new mom an eye mask, that’s a nice gift, but if you give her a care package with an eye mask, a bath bomb, and a tiny perfume roll-on, that would be a really special gift – it provides a perceptual value to the buyer. So less about price in this case and more about perceived value.
Another way to increase your AOV is to offer shipping thresholds — which is where you offer free shipping if your customer spends a certain amount of money. It can be $50, $100, whatever makes sense for your products and your market.
You can also use gift offer thresholds, where you offer to add a free product to the order if the customer spends a certain amount of money.
For example, before Christmas I ordered some skin care products, and if my order was $100 or more I got a free face cream.
Gift offers are a great way to not only increase your AOV, but also to get your customers to try a new product, which they may end up liking and ordering more down the road. In my example, if I like the face cream they sent me, in my next order I may purchase it!
If you know your customers are motivated by discounts, another way to increase AOV is to offer different discounts based on the order total.
So perhaps you offer 10% off orders >$75 or 25% off orders >$100. If your customer is near one of those sales thresholds in their cart they will be motivated to add one or two more things to take advantage of the discount!
You can also offer set dollar amount discounts, like $5 off orders >$50, $15 off orders >$100, etc.
Another way to increase your AOV is to recommend complementary products on your product pages.
So this means that when your customer is getting ready to add a product to their cart, right near the “add to cart” button you will see “We also recommend:” and some pictures of products that complement what they’re buying.
So if you are purchasing a bath mitten you might also like this towel or this scented soap, and if you are buying a moisturizer you may also like this exfoliator or this lotion, or if you’re buying this wallet you might also like this key ring or this purse.
You can also upsell to increase your AOV, by giving the customer an option of a bigger size or bigger quantity.
You might have different size candles, and the XL candle is by far the best deal – even though it costs a bit more the customer knows they are saving money in the long run.
Using a limited time offer is another great way to increase your AOV. Basically, you can offer any of the things we talked about above with a limited time offer on top of it.
So for example you may say free shipping on all orders today only, or get a free face cream with orders >$100 for the month of February. And the time deadline of these deals can convince people to order more products, or may convince people to order that may not have ordered otherwise.
Okay, so this all sounds great, but there’s actually a big limitation to AOV and we need to talk about it because not enough people know about it, and I don’t want you guys to fall into this trap.
Because if you don’t know about what I’m about to tell you, then none of what I just explained is going to work. And so let’s talk about this trap and how to fix it.
So the problem with the AOV is that it is an average by definition – an average order value. So your average order value may be $52. And so you’re thinking, Okay, well, cool, I’m going to put the free shipping or an offer threshold at $70, for example, to encourage people to spend 18 more dollars.
But before you make that decision, you also need to look at the individual order amounts that made up that average to see if there are any super-high orders that are skewing the average.
Because averages can be misleading and you never know the full picture until you look at the details behind that average.
Let’s look at an example.
So let’s say you sell candles, and last month your AOV was $45, so you are thinking you might want to make your threshold $60 and try and get the AOV up to $60.
Before you decide anything, you go and look at your orders for last month, and here is what you see:
You had:
6 orders of $28 each (so $168 in sales)
1 order of $124
1 order of $46
1 order of $32, and
1 order of $83
So a grand total of $453 in sales for 10 orders
Your AOV will be $453 / 10 = $45.30
BUT and this is the key, what I see when I look at these orders is that the majority of your orders are actually at $28. So if you put a threshold at 60, it’s going to do absolutely nothing for you because for the people who are buying at $28, $60 is way too far away— it’s asking for them to more than double what they’re currently spending to get that free shipping or gift with an order or whatever offer that you have at that threshold.
It’s not going to work because it’s just too high.
And what I would tell you is in this situation, you’re better off offering that threshold at say $35 or $40.
This is much lower, and actually LESS than your AOV, but it will still end up boosting your AOV — because if we convince those six people – the ones who spent $28/order – to suddenly spend $40 per order, and keep all other orders the same (so assume an identical month except the $28 orders become $40 orders) look what happens:
6 orders of $40 each (so $240 in sales)
1 order of $124
1 order of $46
1 order of $32, and
1 order of $83
So a grand total of $525 in sales for 10 orders
Your AOV will be $525 / 10 = $52.50
So as you can see, even though your threshold didn’t influence the people who had larger orders, it influenced your most common order amount and boosted up your AOV, in this case by $7.
If you can increase your AOV using one of these techniques, and you are smart about it and don’t fall into the trap we just talked about, you can make a really positive impact on your sales!
There is one more thing you can look at to maximize your sales, and that is being sure that your products are priced correctly for profit.
I have an article that shows you how to price your products to achieve the maximum profit , so be sure to read that next!
Thanks for reading, and until next time, aurevoir!
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