If you run an online store, knowing your average order value is one of the most important (and easiest!) ways to increase profitability, and to intelligently expand your business.
What is average order value?
The average order value is as it sounds – it is the average amount spent by a customer per order. The higher average dollar amount spent per order, the more your online store is profiting. When it falls below a predetermined or projected average, you notice the loss in profits as well.
How can I calculate my store’s average order value?
To calculate the average order value of your online store, simply divide the total online store revenue by the number of orders taken.
Average order value formula: total online store revenue/number of orders taken
Some customers will naturally spend more, and others less. The number you want to focus on is the average of all orders, and then you want to focus on increasing this number.
Why increase average order value?
The higher your average order value, the higher your revenue and profit will be, for a few reasons.
Know how much to spend on advertising
How much you profit from your online store depends on expenses such as marketing, advertising, and shipping you have counting against your revenue earned. However, once you know your average order value and you track it accordingly, you can make spending decisions accordingly.
Sell more products
As you understand how much customers are purchasing per order, you can find ways to increase product orders which increases your overall purchase order value and encourages a higher number of overall products sold.
Let’s take a look at how to increase your average order value, so you can earn more through your online store.
How to increase average order value?
One of the best ways to increase the average order value is to offer discounts when products are purchased together. Offer related accessories and necessary parts as though it were one packaged product. By packaging products together as a bundle, customers understand they are getting a deal on products that they’re likely to purchase in the future, anyway.
Discount products or offer to earn money back
Offer set dollar amounts as returns on purchases over a certain amount. For example, offer redemption of $5 for every $25 spent, or $10 for every $100 spent.
Make sure that your profit margins can afford whatever amount of discount you decide to offer and that the offer is strong enough to entice consumers to purchase the set amount.
Explicitly display money saved on bulk orders
Show customers how much they save when they purchase the product in bulk. Typically, the customer will opt to purchase more now in the effort to save on future purchases.
Provide time-sensitive deals
Time-sensitive deals might not provide the longest-lasting results, but they can help increase your short-term profits, especially if you want to increase average order value within a particular time frame.
Free shipping (after set amount spent)
Provide free shipping on orders over a certain amount spent. Free shipping is enticing to consumers, and when it is offered only after a certain amount sold, customers are more likely to try and reach this set dollar order.
Provide offers to first-time customers
When customers are first-timers on your site, offer an exclusive discount to encourage a purchase upon their initial visit.
To better understand average order value and the effect it has on your e-commerce store, contact our team at Executive Digital. We can bring your company up to speed on the ins and outs of the average order value and help organize your store so that you can achieve your highest profitability.