Average order value

An average order value (AOV) is a critical SaaS metric. It allows businesses to find out how much money a user spends making an order on a website. AOV enables marketers to get insights into consumer behavior and make informed decisions.

In this article, you'll get to know why an average order value is an important metric. You'll also learn how to calculate and increase it, so stay tuned.

Why is an average order value important?

Each business owner should monitor this metric regularly, especially in high-competitive industries. It informs them about the income from an average order during a specific period. If the indicator is low, users are not willing to spend much money for some reason. So, marketers try to attract new customers, implement new strategies that will help them increase income from existing customers, or change their pricing.

Acquiring new customers quickly requires significant investments and doesn't guarantee the flow of orders. Besides, you'll also need to work on increasing your website traffic. That's why marketers often choose another alternative. They try new strategies to make existing customers spend more money. They apply segmentation, personalization, loyalty, affiliate programs, etc. Hence, improving an average order value builds long-lasting customer relationships and maintains brand loyalty.

While implementing different strategies, marketers will analyze their customers' behavior, competitors, and market trends. They'll get valuable insights that will help them better understand their client's pain points, desires, and preferences. Later, they will be able to create segments based on this data and approach each consumer individually, resulting in high conversions and trustful relationships.

Now that you know the benefits you can reap by monitoring and improving your average order value, it's time to learn how to calculate the metric.

How to calculate an average order value?

It's to find out this metric for your business. Open your CRM system and check out the revenue and number of orders made per specific period. Then, use the formula below.

Average order value = Total revenue/Number of orders

For example, you have a clothing store selling T-Shirts and jeans. The price for each item varies from 20 to $60. During the previous month, your store sales were $25,000, and you had 720 orders. Let's calculate your average order value for the last month.

25000/720=35

So, your AOV was $35. So, you can draw the following conclusions. Firstly, your customers tend to buy low-price items, most likely T-shirts. Secondly, something is wrong with the sale of jeans. Thirdly, you don't use upselling and cross-selling strategies, and your clients don't buy multiple items. Based on this information, you can already get a hint at increasing your average order value.

So, in the next section, we'll share some effective strategies. Read on.

How to improve an average order value?

If you consider increasing prices for your products an incorrect strategy, check out other tips that will help you earn more without big investments.

1. Segment your customers. To sell more, you need to know the people you're selling to because you can't treat all consumers the same way. Create different segments for your buyers based on their purchasing history. For example, low, medium, and high spenders. Then, you can approach each group individually. For example, you can offer your low spenders to buy two items at a reduced price. Medium spenders can be offered free shipping when reaching a certain threshold. And high spenders can be rewarded with a loyalty program that will stimulate them to spend more. With LIKE.TG, you can segment customers and send them personalized emails for free.
2. Implement cross-selling, upselling, and bundling. These are highly effective sales techniques that customers like. With cross-selling, you can recommend a complementary product that will make using the initial item with much more pleasure. Upselling lets you advise buyers to choose a more advanced and upgraded item instead of their initial choice. Bundling enables consumers to save money by buying several products at a reduced price. You can use these technics on your product cards, in the checkout, or via an email campaign.
3. Provide free shipping. If you work in an oversaturated niche, your customer will choose your competitor, providing this option. So, to offer free shipping without going broke, you need to set affordable spending for your business that will cover shipping expenses. Inform customers about free shipping on orders over a certain dollar amount at checkout. This way, this purchase will seem an excellent bargain. Consider using different thresholds for different shipping zones. Otherwise, you can lose money.
4. Give coupons. This is another selling trick that works. Receiving a discount makes clients feel valued and important to the brand. You can offer a coupon after buying for a specific dollar amount. For example, let your customer spend $60 and get $10 off their next purchase. It acts like a game and motivates users to buy more to reach another level. Then, you can provide them with additional personalized perks.
5. Encourage clients to join a loyalty program. It is a win-win for both parties. Companies can increase sales, reduce customer acquisition costs, reward loyal customers, and build long-lasting relationships. Clients can reap additional benefits like purchasing with a significant discount and getting gifts. There're lots of options for launching a successful loyalty program. You can stimulate your customers by giving them points after each purchase, encouraging them to participate in a subscription-based program, enabling them to get cashback, or offering them to reach a VIP tier with exclusive individual discounts.
6. Increase prices based on adding value. If you work in a competitive industry, setting higher prices may not seem relevant since customers can easily switch brands. Still, you need to analyze your competitors to determine their weaknesses and act on them. For example, if they have lower prices but have no refund or return policy and don't provide a guarantee, do that. Clients appreciate excellent service. If your competitors offer such perks, go further and offer assistance with your product a month after the purchase. You need to know your clients' difficulties with your product and solve them to your advantage. People are ready to pay more to companies that care.

Congrats, now you know how to calculate and improve your average order value. Use LIKE.TG promotional tools to boost sales without much sweat!