When it comes to driving revenue growth, most marketers naturally focus on acquiring more customers. While that is a valid strategy, it's important not to overlook the unsung hero in boosting revenue: Average Order Value (AOV).
In general, increasing AOV is a more cost-effective and sustainable approach that also enhances brand equity. A higher AOV translates to more items in customers' shopping carts, which ultimately means more products in their homes and increased cash flow for your business.
What is Average Order Value?
The Average Order Value is defined as the mean amount that each customer spends on purchases from your store.
For instance, if your total revenue is $5,000 and you have received 60 orders, your Average Order Value would be $5,000 ÷ 60 = $83.33. This indicates that, on average, customers spend $83.33 per transaction.
AOV is a powerful metric that can unlock tremendous revenue potential. By focusing on increasing your AOV, you can extract more value from each customer without the need to attract new ones. This presents an excellent opportunity, as every AOV improvement directly enhances revenue.
Why increasing your AOV is crucial for your e-commerce business
By boosting your AOV, you can generate more profits without necessarily increasing your customer base. It allows you to maximize the value of each transaction, resulting in higher overall sales. Also, a higher AOV means you can generate more profit from each sale. By increasing the value of each order, you can offset the costs associated with customer acquisition, marketing, and fulfillment, leading to improved profit margins.
A higher AOV enables you to allocate your marketing resources more efficiently. You can focus on acquiring high-value customers who are likely to make larger purchases, allowing you to optimize your marketing campaigns and budget allocation for maximum return on investment (ROI). E-commerce brands can offer premium products or services and position themselves as providers of high-value offerings. This differentiation can attract customers who are willing to spend more for quality and exclusivity.
How to increase Average Order Value for your DTC
Product bundling strategy
There are several strategies to boost your average order value, and an excellent method is creating packages of complementary products. Customers perceive bundles as providing enhanced value, which motivates them to spend more.
Combine products that are logically related. For instance, when customers purchase gym trousers, offer a bundle with a shirt or hoodie to complete their gym look. Offering a slight discount on the bundle, compared to purchasing the items separately, is often perceived as an incentive by customers to make the purchase.
But, bundles can often be more than a perceived benefit; they can help sell slow-moving or excess inventory by combining them with more popular items. This helps maintain inventory turnover and prevents stagnant stock.
Shopify currently offers two bundles options:
Fixed bundles, which is also the default implementation to support basic bundle use cases across Shopify’s ecosystem. These include Standard bundles and Multipack bundles that fit within Shopify’s variant limits.
Customized bundles can be used for more complex use cases, particularly when offering more choices to customers or modeling a more complex composition of products, such as Mix-and-match bundles.
These options can accommodate all needed scenarios allowing businesses to manage their inventory effectively while increasing the AOV.
Upselling and cross-selling
Another effective approach is to suggest complementary products or upgrades. As shown by a pilot study of McKinsey, cross-selling and category-penetration techniques can increase sales by 20 percent and profits by 30 percent.
Ideally, you emphasize the advantages of the suggested items and how they enhance the customer's initial purchase. Also, brands should ensure that the recommended products align with the customer's needs and preferences and complement the intended purchase. Using compelling and concise language when presenting the additional offers helps transmit the right message.
In the example below, both upselling and cross-selling strategies are showcased.
Free shipping threshold
An effective tactic for increasing AOV is to offer free shipping, but only if the order value exceeds a specific amount. Customers generally prefer to spend more on products rather than paying for shipping. Offering a threshold for free shipping incentivizes larger purchases and motivates customers to add more items to their cart to reach the threshold. Customers who initially intended to purchase only one or two items might be encouraged to explore more offerings, resulting in larger orders and higher overall transaction values.
Another effective strategy for increasing your AOV is to set the shipping threshold slightly higher than your current AOV. This encourages customers to add more items to their orders. Promote your free shipping offer prominently in your website header, on product pages, and during checkout.
Another direct benefit, besides increasing the AOV, is reducing cart abandonment rates. It’s important to notice that around 35% of shopping carts are abandoned as soon as shipping costs are disclosed. These findings clearly emphasize the significance of well-designed shipping fee structures and shed light on consumers' reactions to such fees and their perceived value.
To continue nurturing your customers’ trust, it is important to offer full transparency over your return policy and make it as friendly as possible.
In the example below, Dagsmejan, a premium sleepwear company featuring patented technology in their products, offers free delivery for orders above 150 USD.
Discounts for bulk purchases
Offering discounts for buying in large quantities can significantly boost your AOV. Customers are motivated to purchase more of a product to save money based on perceived value. DTC brands can provide tiered discounts based on the quantity purchased and offer substantial enough discounts to incentivize customers to buy larger quantities. Oatsome, a German health nutrition brand, is juggling bulk discounts on their discovery packs coupled with free shipping thresholds.
Time-limited offers
Creating a sense of urgency can motivate customers to make larger purchases. By implementing time-limited offers, you can instill a feeling of necessity that encourages customers to increase their order sizes.
Harnessing the power of urgency and leveraging FOMO are highly effective marketing strategies. This is particularly significant, considering that 69% of millennials experience FOMO. By incorporating subtle cues like limited stock availability or time-limited substantial discounts, DTC businesses can effectively re-engage prospective customers and drive conversions.
Why tracking AOV is key for any DTC business
As shown in this article, tracking your AOV metrics provides insights into customer behavior, helping you understand their purchasing habits and develop strategies to make each sale more profitable. AOV metrics can serve as a benchmark for measuring your customer acquisition cost. Ideally, your AOV should significantly exceed your acquisition cost. It directly impacts your bottom line.
As brands struggle to find the perfect strategy for boosting growth, at Admetrics, we offer the perfect tools to track and measure the impact of any marketing initiative. Within Admetrics Data Studio, users can find predefined dashboards and configure more than 100 metrics to track the results of their marketing efforts and get actionable AI-based analytics on winning strategies.
Start your free trial and discover the needed insights to increase ad performance and outpace competition to grow your DTC business.
