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Everything You Need to Know About Average Order Value

Everything You Need to Know About Average Order Value

What is AOV and why it is important?

As a Shopify store owner, it might seem natural to focus on getting more customers to increase your revenue. But acquiring new customers takes time and money, and it isn’t always the best use of your limited resources. Thankfully, there's another approach to generating more revenue, which is increasing your average order value (AOV) instead.

Average order value is an important metric for Shopify stores because it measures the average amount that a customer spends when buying from you. AOV is calculated by dividing the total revenue by the number of orders fulfilled over a given period of time, such as a month.

By increasing your AOV, you can make each customer more valuable to your business, which in turn means you need fewer transactions to generate healthy revenue. And this helps your business scale and grow more rapidly because you are making the most use of your spending on customer acquisition costs.

How?

First, a higher AOV means that you can offset rising customer acquisition and overhead costs, which can reduce your revenue. Additionally, measuring AOV (and related metrics) helps you better understand the success of your marketing campaigns and set goals and strategies for your business—this way, you can grow your bottom line without increasing marketing and advertising spending.

According to a study from Littledata, here are some key benchmarks from Shopify retailer’s AOV you might want to know:

  • The average AOV for Shopify was around US$ 85
  • AOV more than US$ 192 would put you in the best 20% of Shopify stores
  • AOV more than US$ 311 would put you in the best 10%
  • AOV of less than US$ 50 would put you in the worst 20% of Shopify stores
  • AOV less than US$ 39 would put you in the worst-performing stores

If your AOV is below $50, then keep reading for more marketing and pricing strategies to improve the average dollar amount that your customers spend.

GMV or AOV, which metric should be taken more seriously?

A related metric you’ll often encounter in the eCommerce space is gross merchandise value, or GMV. GMV represents the number of total transactions multiplied by the AOV over a given period of time.

Merchants sometimes make the mistake of focusing only on GMV and neglect the significance of AOV metric. (Both are important.)

According to the analysis of SHEIN, If you work in the apparel industry (or heck, even if you don’t) SHEIN is likely a retail success story you’d benefit from analyzing. It turns out this 64 billion-dollar titan of fast fashion achieved success not only by pursuing GMV but also chasing a higher AOV constantly.

Why does SHEIN focus on AOV? Because they know that blindly following GMV can lead you into financial trouble.

If your GMV growth rate is 10%, for instance, but your AOV decreases by 10%, you’ll actually lose more money as the GMV gets higher. This can be confusing (since AOV is used to calculate GMV), but it’s because of the bigger picture that focusing only on GMV can obscure.

We can illustrate this fact with simple math:

Assume that your AOV is $100. Now imagine the following transaction:

  • Item cost: $ 40
  • Customer acquisition cost (CAC): $ 30
  • Shipping: $ 10

In this scenario, your gross profit is:

  • $100 - $40 - $30 - $10 = $20

Now imagine the same transaction again. Only this time your GMV increases by 10%, but your AOV decreases by 10% from $100 to $90. Crucially, when this happens, the CAC, item cost and shipping ($40 + $30 + $10) also increase by 10%.

  • Profit: $90 - $44 - $33 - $11 = $2

If you focus on growing GMV purely through increasing the number of transactions but not improving AOV, you can end up in a scenario where your costs take a bigger and bigger bite out of your profit.

How to grow your average order value?

There are various strategies you can use to increase your AOV. All of these strategies involve either incentivizing customers to buy more or informing them of other potential purchase opportunities.

The strategies include but are not limited to:

  • offering bundle deals
  • upselling and cross-selling complementary products
  • creating a subscription service
  • providing free shipping thresholds with a minimum order value
  • boosting trust and authority in your brand through shopper’s reviews

By following the tips in the section below, you can generate more revenue from each transaction, provide more value to your existing customers, and grow your bottom line.

What tool can help you implement strategies for higher AOV?

One really effective way of boosting AOV is through personalized shopping experiences. When your customers encounter a curated purchase experience, they become a lot more likely to add another item to their cart or purchase a bundle or complementary product.

If you're looking for ways to increase your average order value on Shopify, a seamless integration like AfterShip Personalization can be an extremely effective way of doing it.

AfterShip uses helps you quickly create thoughtful and personalized shopping experiences and privacy-conscious product recommendations with advanced machine learning. Plus, features like checkout order bumps, customizable banners, line item editing, and real-time analytics help you create an engaging, tailored shopping experience that’s miles better than anything they’d encounter in the brick-and-mortar world.

How Elegoo boosted AOV using AfterShip Personalization

Elegoo, a popular 3D printer retailer, experienced phenomenal growth by using AfterShip Personalization to create a curated buying experience. Using AfterShip Personalization, they were able to achieve phenomenal results, including:

  • 70% increase in average order value (AOV)
  • A 4.5% increase in total revenue (also thanks to that higher AOV)
  • A 40x return on investment (ROI) for their efforts.

The numbers don’t lie. You can read the entire case study here, but let’s take a deep dive into how they actually made it happen: upselling and cross-selling directly on the checkout page.

Why was cross-selling so effective for Elegoo? Because some shoppers never see all of the company’s other complimentary products, including accessories, resins, and filaments, when they make a purchase.

Implementing recommendations at checkout not only helped with product discoverability but also recommends super-relevant items under AfterShip Personalization’s powerful AI algorithms.

AfterShip Personalization also allows customizations at the checkout page that help your conversion rate and increase average order value.

For instance, you can add special offers to encourage more spending or add customized banners to build trust. You can also display a free shipping bar, use real-time analytics or A/B testing to monitor performance and create smart upsell widgets, or include AI-powered recommendations tailored to each customer's preferences and behavior.

Want to go deeper? Elegoo also takes advantage of custom rules in the recommendation engine, giving them the flexibility to make different recommendations depending on specific conditions. (If you’re interested in seeing what it can do for your Shopify store, sign up for a free, no-pressure demo.)

Bonus Tip:  Add a post-purchase upsell with AfterShip Personalization

This might seem like a no-brainer, but another great way to increase your AOV is with an add-on offer that comes after your customer has paid. This page gives shoppers one last chance to add a product to their order, often with no additional shipping cost. You can even set up a timer and a special discount to really encourage them to click.

By adding this post-purchase page, you also increase the overall number of pages that contain product recommendations to increase the exposure of your products. To implement upselling and cross-selling most effectively, it’s not unusual to see merchants create an extended journey like this one:

  • Home page
  • Product page
  • Collection page
  • Cart page / Cart drawer
  • Checkout page
  • Post-purchase page
  • Thank you page

Want to see how you could set up product recommendations across your eCommerce site? Book a free demo today

When is the best time to measure the average order value?

It's recommended that you calculate your AOV at least once a month, and even daily during special occasions like Black Friday.

The average order value can vary depending on the time of year and the types of products you're selling. For example, in January and February, customers tend to purchase lower-priced items, which can result in a lower AOV. It's also important to note that the AOV benchmark for your store will depend on the average cost of your products.

Overall, AOV is a great indicator of customer behavior and helps you set goals and strategies for continued success. As a Shopify-certified checkout extensibility launch partner, AfterShip Personalization is the perfect solution to optimize your average order value. So why not give it a try today and start seeing the benefits for yourself?

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