Common questions
What is Average Order Value (AOV)?
Average Order Value (AOV) is the average amount of money customers spend per transaction. This metric helps businesses get insights to evaluate business performance over time and optimize sales.
Why is AOV important?
- Knowing AOV lets companies evaluate the effectiveness and impact of marketing and pricing strategies and find new ways to increase revenue.
- AOV reveals customers’ behavioral patterns, such as that customers prefer making individual purchases rather than buying multiple items.
- Increasing AOV allows companies to improve their ROI, since the higher the AOV the more value they get from each customer.
How to calculate average order value
The average order value meaning is closely connected to its formula. AOV is calculated as a ratio between the total revenue and the number of orders per month or some other period. For example, if store revenue is $5,000 per 500 orders, its AOV is $100.
Average Order Value (AOV) = Total Revenue / Number of Orders
Along with the common average order value definition, which is also known as a mean AOV, knowing definitions of related metrics is essential.
- Median AOV is the middle value across all orders. That is, 50% of the orders have a value lower than or equal to the median, while the other 50% have a value higher than or equal to it.
- Mode AOV is the most frequent value across all orders. Typically, the mode value is lower than the average order value. For example, a store sells 100 T-shirts for $20 and 10 pairs of pants for $200. In this case, the average order value is around $36, and the mode is $20.
By calculating mean, median, and mode AOV, a seller can rethink their strategy, for example, to concentrate on increasing the modal order to increase the overall AOV.
The most common techniques to increase average order value
- Price increase
Price increases for some or all products may quickly raise AOV. At the same time, this technique can lead to fewer orders than a business had before the rise.
- Upselling
By offering accessories or upgrades to the purchased products, business owners can increase AOV and the total revenue without the risk of losing customers.
- Cross-selling
Similar to upselling, cross-selling implies offering complementary or related goods, and bundles on product pages or at checkout.
- Free shipping
A free shipping threshold is an effective technique to improve AOV since it motivates customers to purchase more and not pay for delivery.
- Discounts
Discounts for a predefined order amount can also motivate customers to buy more products, improving the total AOV.
- Loyalty program
By rewarding customers for different actions, such as for every dollar spent, merchants nudge loyal customers to spend more, increasing AOV.
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