When it comes to increasing revenue, often many business owners instinctually think the only way to grow is to find more customers. It’s a way to grow certainly, but not the only way.
Instead, we would make the argument that increasing your average order value (AOV) is actually one of the most cost effective and efficient levers available to you as you grow revenue. But, over the years we have discovered that many marketers/merchants approach the problem of growing revenue from an entirely different approach. Many say they are actively working to improve metrics anchored to some combination of lead gen strategies designed to drive more website traffic and/or tinkering with different ways to improve conversion rate. Now to be clear, lead gen and conversion rate strategies are crazy important areas to focus on for the overall health of your business but in this article, we are trying to help you prioritize which solutions to deploy earlier on to pick up those high impact, quicker wins.
Let’s assume you are already driving at least some traffic to your business. You are spending money acquiring new customers and those costs can add up pretty quickly too. But the why behind our obsession with AOV is that if you focus on increasing the average order value of the customers you already have instead of trying to win over new customers to your site through paid traffic, you can draw more value out of the customers you already have.
Meaning you can grow your business without having to invest heavily in additional marketing and advertising to drive more unqualified traffic to your site. By weeding out unqualified leads and motivating customers you already have to buy more during the sessions they make a purchase from you, you are inherently becoming a more efficient company.
What is average order value (AOV) and how can you benefit from it???
Simply put, average order value (AOV) represents the average dollar amount a customer spends when placing an order from your store.
And calculating it is straightforward as well. You can calculate your brand’s average order value by dividing your business’s total revenue by the total number of orders taken in a given time period. Keep in mind that the simplicity of this calculation as it was just described doesn’t take into account the extent of your marketing costs – so you are not getting the full picture here for a holistic P&L. Be aware that with your AOV, it is helpful to understand that it works in concert with other metrics like your total costs and gross margins. There are certainly more complicated methods to calculate this formula because you can always find ways to drill down to a deeper, more granular level, but for the purposes of keeping this concept digestible, let’s agree to keep it simple stupid.
For my more visual learners out there, check out the simple scenario below:
Average order value = Total Revenue / Total Number of Orders
If your online store generated $20,000 in total revenue last month and you sold 520 units of product, what was your average order value?
Your average order value will be: $20,000/520 = $38.46
So you should care why exactly?
- Cost-effective marketing return: If you spend $15 on marketing and the average order value is only $45, you haven’t earned much after you deduct product costs and taxes right? However, as you see a positive change in average order value, meaning your order sizes are ballooning, your marketing spend enables your margins to grow larger relative to costs and any inflationary pressures assuming they stay the same or near the same levels.
- Increase revenue and profit: When the average order value rises, you’ll see an increase in revenue and profit, again assuming that supply chain and other costs don’t consistently fall victim to pandemic era inflationary pressures. The more you earn per order, the more your business makes altogether. If you can see a positive change in average order value, you’ll be able to reinvest more money into your business’ growth and pocket more too which can often hedge against or even offset rising CAC (cost to acquire a customer) costs.
- Sell more inventory: Unfortunately dropshippers can potentially skip this because in most instances it doesn’t directly apply to you. There are, however, exceptions to this rule. But if you own stock for a brick and mortar store or even an online store, you can sell more of your inventory by executing a proper average order value plan. By making changes to see a boost in AOV, you’ll be able to sell more of the products you carry.
In the rest of the article we’ll dive into some strategies we’ve seen brands have real success with in terms of growing their AOV!
Let’s dive into strategies 🙌
Use web design to highlight higher priced plans
The most effective way to increase AOV is to present the purchase options in a way that highlights your brand’s higher dollar value options. Many businesses offer multiple pricing tiers but they often want to sell upstream to more of the midmarket and enterprise shoppers.
In order to make that happen, you want the visual aesthetic of your website to highlight those choices, both in terms of colors/layout and in terms of verbiage/copy. In the image above, this example shows how the standard tier represents, what the business wants you to perceive is, their best value and probably most frequently purchased. They are visually highlighting the standard pricing tier in a very purposeful color palette that remains on brand with the look and feel of the rest of their website.
Add a discounted upsell after order completion
Using upsells to boost AOV is all about giving customers a reason to spend more during each transaction and creating a sense of urgency around it. Whereas most businesses send customers to a thank you or order confirmation page after checkout, we recommend taking this upsell opportunity to increase AOV instead. Upselling is a time tested method for increasing average order value, and it’s widely used by ecommerce businesses.
In this simple example, let’s say a user buys a product for $100 from Train Baseball in the image below. Once they make their purchase, the user is typically about to leave the website. Instead of directing them to a thank you page, which is what many merchants do, direct them to an upsell page. Propose a product related to what the customer just bought, and note that if they purchase that extra product now, they get an additional 50% discount. If your copy, creative and most importantly your offer are compelling, you will increase the likelihood of growing your AOV. If you are able to turn this into a scalable, repeatable and predictable process, you will have discovered something profoundly insightful in regards to the way your business drives incremental revenue.
Use a minimum dollar threshold for free shipping
Free shipping is a big deal! We have seen countless success stories over the last decade or so where merchants were able to increase their average order value by making one, seemingly small, change: increasing the minimum order amount customers need to hit in order to get free shipping.
At the end of the day, everyone is a consumer themselves. At one point or another, we have all found ourselves trying to find one more $5 or $10 item to add to our cart for no reason other than we want to avoid paying for standard shipping. Just ewwww, right? Most shoppers would rather spend $45 or $50 to unlock free shipping than pay $35 for standard shipping. In order to sort of force the shoppers hand a bit here so to speak, we encourage your brand to set your free shipping threshold higher than your AOV. Get shoppers to stretch a bit. Adjust the free shipping threshold to encourage customers to add one or two more items to their cart to earn that free-shipping. It’s a small thing, but it can reap big rewards.
We also see that when users are near the threshold for free or reduced delivery, many merchants deploy a pop-up message at this moment to notify them in hopes they can push the AOV over the top. In many instances, this action results in a user adding more items to their cart to qualify for said discount. What’s more, your business also benefits from the user being appreciative that your timely nudge made them aware of a deal they previously did not know existed.
In fact, Jet.com even built a lot of their very successful business model around incentivizing shoppers with big discounts when they added more items to their cart for checkout. The more they bought, the more they saved. And who doesn’t love to save?!
Loyal shoppers crave the savings while Jet.com’s revenue skyrockets. Increased average order value per shopper in turn grows GMV and the sales cycle continues. Brilliant.
Offer strategic limited-time promotions
Limited-time offers are a simple and often very effective approach to increasing average order value.
You’ve been keeping a close eye on that watch with the brown leather band that works with your suits and shoes for every wedding but you have expensive taste and you just can’t justify spending $ on it at this time. Fortunately, you’re a savvy shopper and you sign up for their email newsletter to make sure you receive their flash sales whenever they may be. In this scenario, maybe that watch brand shoots you a 50% off discount for the exact watch you’ve been dying to get!
What are you gonna do? Let the sale pass you buy or open your wallet up and shell out the dough? And what’s more, the watch brand is even throwing in a heavily discounted pair of sunnies 🕶️ to match your favorite watch and they’re throwing in an extra two toned band you like for your watch should you feel like swapping styles for a minute. But the kicker is you need to buy now. Do you need the sunglasses or extra band? Maybe not, but you want them and you think to yourself, “how could I pass up a deal this good?”
The limited-time offer is a powerful sales tool that speaks to a lot of underlying psychological behavior displayed by your target audience(s). But make no mistake, this type of offer can help you improve your average order value periodically, if properly executed of course.
Below are a couple of powerful ways you can utilize limited-time offers with your own business to encourage a higher average order value:
- Every shopper has seen countdown timers at one time or another. But they really do work. We recommend using countdown timers to build on the sense of urgency because they can be an effective method to increase conversion rates. There are certainly best practices and some more, let’s call them, annoying ways to deploy them but if they’re used correctly, they can provide real value for your business. Try not to be intrusive with them because nobody wants to feel like they’re being coerced into making a purchase under duress. If free shipping is only available before a certain predetermined time, implement a countdown timer to let customers know that. Shoppers will reward you for your transparency as they hunt for those deals!
- Leverage price anchoring. Don’t just show the item you have on a limited-time discount on a 16 BG iPad for $429, show the original price of $629 as well as similar items alongside it for more money that also come attached to steep discounts. Anchoring prices with comparisons will help shoppers realize the price they’re being offered isn’t so high after all and it may stimulate something inside of them to feel they can get even better bargains if they pay for even higher priced items because we 👏 all 👏 love 👏 discounts 👏!!!
Build trust and authority with your target market
With eCommerce, there’s a direct link between how much customers trust you and how much they’re willing to spend on your website or with your brand. Always understand that customers are voting with their wallets. Said another way, either people are buying, or they aren’t. So, we would argue that boosting trust and authority in your brand is one of the more important ways to grow AOV.
The more people are convinced about the trustworthiness of your brand, the more likely they will be to purchase anything from you. But when they first come across your brand, you need to put yourself in their shoes. It shouldn’t be that hard really, because we are in this position ourselves many times over, probably every day, when we are buying one thing or another. Anyways – think about how you feel when you come across a company while you are browsing the internet. Maybe its a Google Ad that popped up in your SERPs (Search engine results page) that interested you. Maybe you clicked an ad on Facebook or Instagram for some chair you are dyinggggg ☠️ to get. No matter how you got to that brand you’re obsessed with now, they did something to earn your trust. Maybe the ad hooked you with a warranty or the free shipping angle? Or was it the copy that made you feel “you know what, this company just gets me.”
There are so many trust signals being transmitted by a brand to its customers and visa versa all the time that it may feel overwhelming to keep track of. Good thing we know a company that can help your business feel confident it is nailing some of the basic fundamentals necessary to create long lasting, trusting relationships with online customers as they grow to love your brand.
If your business has incredible return policies, make shoppers aware. If your warranties are outstanding, let your audience(s) know. Take pride in your customer service? Shout it from the rooftops. Whatever angles you feel your business does better than anybody else, let your successful sales testimonials do the convincing. Happy customers will reward you with revenue for your candor and transparency. But you will fall short of your financial goals every time if you fail to care deeply about building genuine trust and authority with your target market.
Take an analytical approach to AOV
We are firm believers that data will tell you everything you need to know about your products. Sure you can analyze it with a pre scripted narrative in your head but if your business conducts itself from a place of thoughtfulness and a commitment to remain agile, let the data determine your path, not the other way around. Let the data shape your narrative and then take the appropriate action in terms of planning, strategy, roadmapping and choosing which tools to use to help accomplish your goals.
First, we recommend you look at your top-selling products and dig beneath the surface. Analyze the why behind your customers buying your products. How do they use them? Which types of buyers do you have? What’s stopping shoppers from being successful with your products? Is there any drop off at any stage in the buying journey?Which advertising channels are yielding the best results for your business? Do people resonate with your brand in the way you think they do? Once you feel confident that you have some strong answers to these questions, you can begin to play around with deeper monetization concepts. We recommend starting to explore how additional products, higher quantities, or a subscription model might be good fits to help customers with their problems.
Cross-sell related products during checkout
This tip may seem like a no-brainer, but there’s a right way and a wrong way to cross-sell. Getting it wrong could mean stagnant AOV.
“The key to an effective cross-sell is to offer items that will add value to the customer’s experience rather than superfluous items. For example, if someone is buying a heavy raincoat, they may also be interested in getting a waterproof hat or a pair of rain pants.
Maybe your customer is interested in animal themed smartphone cases like in the gif below. Don’t leave it up to the customer to remember everything they need when shopping on your website. It’s your job to help them out. Show them additional phone cases, maybe other accessories like mugs, totes or shirts. A word to the wise – don’t try to cross-sell with unnecessary or unrelated products. It will create friction in a buying process where none currently exists.
Lastly, we think a really underrated cross-sell strategy is looking for trends in your order history for different cohorts of users. Are there connections that exist you may have overlooked? It’s very likely that there are product combinations you haven’t thought of, because you can’t think like every segment in your target audience all of the time. But if you make a calculated effort to look through your order history to identify buying patterns, you may stumble across some super helpful information to up your cross-selling game.
Bundle products and offer bundle discounts
We have already alluded to this tactic in some of the strategies outlined above but the key to increasing AOV is creating a bundle of products that will all be of interest to customers and will represent a great value.
Bundling helps to increase efficiencies and as a result, reduces marketing and distribution costs. When done correctly, a product bundling strategy can significantly increase margins as well as profits on individual sales over time. Selling multiple products in one solution means a greater initial return on the cost of acquiring a customer. Sometimes effective bundling strategies can also be an extremely efficient way to help your business move lower-volume products. Let’s say you have a product or feature that’s underperforming. Price bundling, for instance, helps you boost customer engagement by selling it alongside a more popular one. Just make sure that both/all of the products you’re bundling together increase in value as a result of the bundle. You have to be careful here because you don’t want to decrease the value of a more popular product or feature by connecting it with one that your customers don’t actually need or don’t value. If you’re not careful, you may actually be decreasing the value of certain products or services by bundling them together with others that aren’t as useful for potential customers.
Overall, create bundles of items that make sense together. If you know your customers need shorts, socks and a ball to go with their cleats, don’t let them forget! Create a bundled offer to make it easy for people to buy everything they need at one time.
Cross-sell & upsell in your email flow
It’s important to note that upselling and cross-selling are important tools that require striking the right balance between prioritizing the current sale and working to add value if they are to work effectively for your business. You run the risk of distracting your customers if you come off too pushy. But if you do nothing, you also run the risk of missing out on a valuable opportunity to increase your income.
So how do you navigate a situation like this? Answer: Include upsells and cross-sells in some of your email flows/sequences. Specifically target the confirmation email as the lower hanging fruit. As soon as a purchase is officially made, an automatic confirmation email should be in the customer’s email inbox shortly. Use this confirmation email to suggest other items the customer may be interested in.
We recommend cross-selling every chance you get. For every item you sell, come up with add-ons and recommend them to your visitors. Cross-selling isn’t just a product page, a checkout tactic or unique to email sequences. Think of it as a service you provide. You are offering customers additional chances to purchase product(s)/service(s) that provide solutions to their problems. Change your mindset if you think this is too intrusive and test out different ideas to see what works. Do this consistently and watch average order values respond to your helpfulness.
Let customers trial higher service tiers
Research collected over the last couple of decades suggests that, depending on which niche or industry your business is in, letting customers get a taste of higher tier products or additional services can generate so much goodwill that users have a higher likelihood of purchasing higher-priced products/services at some point in the future. If a customer has a good experience with the higher tier product/service during their trial, they’ll be more willing to buy those higher-priced items later on. Once a customer can actually utilize a product or service and learn to rely upon it, it makes it that much more difficult for them to let it go at the end of the trial period. The switching costs may be too high for example. Or changing to something else again is simply too inconvenient or unpleasant that your business has successfully retained that customer at a higher price point than you may have previously captured.
Many times offering customers discounts for the next model up or higher tiers produces wonderful results.
Offer a higher-priced payment plan
Over the course of time, customer behavior has remained remarkably consistent in one aspect: they are willing to spend more when they don’t have to pay it all upfront. This adage remains even more remarkably consistent for high ticket items. Payment plans at a higher total price points do work. Perhaps now more than ever…
Buy Now, Pay Later companies, show yourselves!
It’s easier than ever before to postpone payments on purchases. You might be familiar with Affirm or Klarna but buy now, pay later, known as BNPLs, lets shoppers break their purchases into equal installment payments, often interest-free. This unique advantage can make even the biggest-ticket items feel affordable. These payment systems have the effect of making even cheaper, more downstream items feel more attainable. Old-school layaway options paved the way to where we are today but think of these BNPLs as the digital world’s way of making sure consumers get the product up front and pay for it in incremental amounts.
The widespread popularity, level of acceptedness and appetite for ecommerce shopping among the public markets has been reflected in a number of earnings reports throughout the course of the entire pandemic predating the initial COVID lockdowns in early 2020. People love to shop and with limitations placed on public places for large chunks of time, they’ve turned to eCommerce shopping more than ever before. As the surges in online shopping gain momentum along with the general public’s hunger for installment payment options, we are all going to see many more high ticket items get financed through these payment companies and companies that iterate this financial space. The data is already showing heavy trends for repeat purchase behavior among many sectors and niches but this is only early innings people.
Bottom line – if your business is able to offer payment plans for high ticket products/services or partner with some of these massive payment companies, we think it is wise to do so. Your customers will most likely thank you for it. But don’t just take our word for it. Measure what’s going on. Try to take notice of your increasing conversion rates and noticeably higher AOV as more high priced items get sold.
Down-sell add on items
There’s a lot of information out there about upselling and cross-selling but when it comes to the strategy of downselling, good tips are hard to come by.
While traditional sales training has made many businesses lean towards creating a tripwire for customers, meaning merchants offer a product at a $20-30 price point or less with the intention to then offer a higher-priced upsell after the purchase, there is evidence that downsell processes work just as effectively out there in the wild. For whatever reason, it is much more popular for many businesses to lead you down the upsell/cross-sell rabbit holes but downselling shouldn’t be completely ignored the way it seems to. If executed thoughtfully, downselling can add substantial value to your business.
Small increases per user makes a big difference to your bottom line
Calculating your average order value can help you understand how well your store is performing. After you’ve calculated your average order value, you feel comfortable that you have a good grasp of the underlying behavior dictating the analytics, your business should try executing some of the strategies in this article to increase it. Whether you create bundled deals, implement a downselling flow as a complement to your upsell or cross-sell flows or create a free shipping threshold, we’re excited to see what works for you.
Remember to test, test and test some more to make sure you really understand the different buckets your customers fall into because a misdiagnosis at this stage can cause your business to chase metrics that may not have as much of the dired impact on your business you are aiming to achieve. Instead, measure twice and cut once so to speak so that your strategies to increase AOV are architected to fit the problems the data suggests you should be working on. Said another way, make sure the data informs your strategies of how to most efficiently grow your AOV so you can make the appropriate investments at the right times. Follow this type of overall framework and you’ll be on track to seeing the type of revenue results you want for your online store.
