Have you ever looked at your online sales reports and thought the average order value is too low? You aren’t alone. Many organisations encounter this problem at some point.
Even if you are happy with your current sales, there is always the drive to sell more. Focusing on average order value is an easy, but important, way to do so. It’s so important that Klaviyo dedicated a course to the topic, which is what this article is based on.
What Is Average Order Value (AOV)?
The average order value (AOV) indicates the average amount of money spent per order. You can calculate it by dividing the total revenue for a period by the number of orders.
AOV can be tracked for any period of time: Weekly, monthly, quarterly, annually, or whatever amount of time you deem suitable.
For example, imagine your store earned €30,000 from 1,500 sales in the previous month. It means the AOV for last month is €20.
Why Is Average Order Value (AOV) Important?
Once you know what the AOV is for your store, this information can be used to uncover purchasing patterns and to determine marketing strategies that may increase future revenue.
By concentrating your efforts on increasing AOV, you essentially focus on building better relationships with your existing customers. New customers are not easy to come by which is why you want to create value for loyal customers.
This sentiment is one that has been captured by Forbes and shared many times:
“It can cost five times more to attract a new customer than it does to retain an existing one.”
It is much cheaper and easier to foster existing customer relationships than to start from scratch. AOV reveals a lot about small changes that can improve these relationships resulting in higher revenue for your company.
AOV also makes it easy to compare progress from one time period to another. If AOV increases, then the marketing strategies you put in place are working. If AOV stays the same or decreases, then it might be time to reevaluate your marketing efforts.
Strategies to Increase AOV
There are various strategies to increase average order value, but the best ones all share a common thread — they focus on owned marketing since it is under your control. These strategies can be split into three categories, namely, on-site experience, owned marketing, and social media.
Note: Before jumping into the different strategies to increase AOV, we have to mention a caveat. All strategies have some kind of cost involved when put in place. These costs should be minimal compared to the increase in AOV. Always compare the costs of a given strategy with the revenue increase to determine if the idea is feasible.
Improving On-Site Experience
Your online shop is as important to customers as a physical store would be. It should contain promotional information similar to what a customer would see if they had been to a brick-and-mortar shop, although there are some strategies that apply better in each situation.
Increasing average order value can happen through the experience customers have on the website. It’s possible that a single strategy could work, but it’s more likely that you will use a combination of strategies.
Offer Free Shipping
One of the best ways to motivate customers to spend more is by offering free shipping, but only if they spend a minimum amount of money, known as a threshold. The current AOV can be used to determine a suitable threshold amount, which is usually about 10–20% higher than the average order value.
When you set the free shipping threshold slightly higher than the AOV, you are only asking customers to spend a little bit more than they usually do. It is a reachable amount for them and probably only requires the addition of one item to their cart — that doesn’t seem unreasonable to them, especially when they compare the price of the addition to what their shipping fee would be otherwise.
For this strategy to work well, you need to explain it clearly on your website. For example, place a banner at the top of each page saying “Free shipping on orders over €100.” You can also include this messaging in promotional material like newsletters and social media posts.
An added communication feature is to create dynamic carts that update information as customers place items in their carts. A message could pop up to say how much more they need to spend to qualify for free shopping.
As mentioned earlier, you do need to consider the costs of every strategy, in this case, shipping fees. If your business sells small or lightweight items, then the additional items in the cart shouldn’t impact shipping costs; you should only need to pay for packaging and shipping which could be worth it if the profits from added items are sensible.. However, heavy or large items may incur additional shipping fees and negate profits.
Make Product Searches Easy
A well-organised website should be easy to navigate and make it effortless to find products. As soon as a customer lands on your website, they should have the option to search for items via categories or a search bar. Additionally, the use of complementary product suggestions can help to increase AOV.
Put effort into adding details for every product. Include a clear product name, description, tags, and attributes. When a customer searches using any of these descriptors, relevant products should appear.
Focus on Categories
Categories also make it easier for customers to find what they are looking for. You can include as many categories as sensible, and one product may fit into various categories. For instance, if you sell clothing, a t-shirt could be found under both “Shirts” and “Women’s Clothing”; it could even be included under “Summer” should you decide to add seasonal categories.
Indicate the categories clearly within a menu, and feature some of them on the home page. Ensure that similar products are shown next to each other once someone selects a category because that allows for comparison. Sometimes, this strategy makes customers realise that a slightly more expensive product is more appealing to them.
Customers should be able to see product recommendations based on what products they are browsing or placing in their cart. Indicate recommendations clearly with headings such as “you may also like,” “people who chose this product also bought,” or “recommended for you.”
Recommended products could complement the current product, such as suggesting a specific wine to go with cheese, or be a substitute for the current selection like recommending different black pants to the one the customer is looking at. A suitable recommendation may result in the customer pressing the “add to cart” button which results in a higher AOV.
Offer Bulk Discounts
Customers want to get value-for-money deals, but these deals can also increase average order value as they may require customers to spend more. One option is to provide “bulk” or volume-based discounts to encourage customers to buy more than usual, especially if it’s an item that customers tend to buy more of at one time.
For example, if customers usually purchase two beverages at a price of €3 each, then you could offer them three beverages for €8. This price is slightly less per unit but results in the customer spending €2 more than normal.
State the details of the discount clearly on the product page so that customers know about it. You can also add a button that allows them to add the specified number of products with one click.
Create bundle deals where customers purchase complementary products as a unit. These are products that would usually be purchased together or make sense to purchase together.
Think of items like a makeup kit containing lip gloss, eye shadow, eyeliner, and mascara, or meal deals including a burger, fries, and cold drink.
Price the bundle at a slightly lower price than a customer would pay if they had to purchase all of the products separately. Although this decreases profits slightly, the customer is still paying more (thus higher AOV) than if they had gone with only a few of the items in the bundle.
Bundle deals work best when you pair best selling products with lesser-known products or slow sellers. This strategy allows you to move stock while also increasing average order value.
You can offer bundle deals all year round, but they work particularly well as part of seasonal campaigns. Events such as Valentine’s Day, Christmas, or gift hampers are ideal for bundle offers.
A final opportunity to increase AOV when customers are on your website is within the cart itself and just before checkout. Once customers click on “View Cart” or “Checkout,” provide them with some final product recommendations to see if they will purchase them.
Just like with the free shipping threshold, the items you suggest should only be slightly more expensive than those currently in the cart. For example, if the cart value is €45, suggest items that cost no more than €5. This way, the extra cost seems small in comparison to the total cart value.
Using Owned Marketing to Increase Average Order Value
The experiences customers have on your website are just one aspect to help improve AOV. Another way to increase average order value is to tell your customers about promotions and products that may appeal to them.
Both email and SMS strategies can help with this objective, but what should you communicate to customers? You need to tell them about the great deals you offer, free shipping, and any other information that makes them increase the value of their purchase.
Promote Products of Higher Value
It’s normal to promote products that are seasonal or popular; however, you can also choose to promote products based on their price.
A product highlighted in an email or SMS can be swapped out for a similar product that costs slightly more. The trick is to show that the more expensive product provides greater value to customers. A product deep-dive discussing its features and benefits could be just what customers need to make a purchase.
In some cases, customers will simply add the product to their next purchase without considering alternatives properly or because they already know the value of the promoted item.
Entice With Minimal Details
It’s also useful to create emails that provide product options without going into too many details. The aim is to entice customers to make a purchase by piquing their interest.
For instance, you could send an email featuring the top five most popular products in your store. All you show is an image of each product, the product name, and a “Shop Now” button beneath each product. In this case, you don’t need to indicate the price or provide further details about the product.
Customers should be intrigued enough by the email to click through to the shop — it’s crucial to create enticing imagery for this to work. Without seeing a price from the start, customers are giving a new product a chance that they otherwise may have passed by because they deemed it too expensive. It may lead to a purchase that increases average order value.
Create Excitement About Discounts and Bundles
Earlier, we discussed bundling products together. This can be taken a step further by promoting the bundles and other promotions, such as tiered discounts.
Tiered discounts are popular sales options that offer customers a percentage or set amount off their order if they spend a certain amount. For example, giving 10% off on €100 spend, 15% discount on €200 spend, and 20% off on €300 spend.
When you use tiered discounts, customers are encouraged to spend more (which increases average order value) but it does come at a slight cost to you as you do provide some discount.
There are alternatives to this model. One option is to bundle products together resulting in a “free” product for customers. Alternatively, you could provide tiered gift vouchers based on the amount a customer spends. Once again, consider the costs involved with these kinds of deals.
It’s important to share information about tiered discounts with customers, and emails are a fantastic way to do it. Provide all the relevant details in the email so that customers know exactly what benefits they get from spending more.
Invest in a Loyalty Program
Loyalty programs are a fantastic way to keep customers interested in your business, nurture relationships, and earn more from customers over the long term. If customers are loyal, they make repeat purchases which could increase average order value. Most businesses have loyalty programmes in place, but if you don’t, it’s time to consider the benefits.
Loyalty programmes should benefit customers in some way; they should be rewarded for shopping at your business frequently. Popular options include special deals (like bundles) and the ability to shop promotions earlier than other customers.
To increase AOV, consider running a campaign where loyal customers can earn points over a period of time. You could even offer double or triple points if the customer reaches certain spend amounts. The key is to limit the period of time in which they can earn points which encourage customers to increase their purchases. Customers can use their points to get discounts, gift vouchers, or even buy a selection of products reserved specifically for those enrolled in loyalty programmes.
Tell your customers about these rewards and your loyalty programme in emails, or even using SMS, so that they know what they will get out of it. Consider segmenting your email list into two groups: One group containing customers already enrolled in the loyalty program and one list with customers who have made a purchase but haven’t signed up for the loyalty program yet.
Create emails that appeal to each segment and send it to them specifically. Explain the benefits of joining the loyalty programme to those who haven’t enrolled yet, and provide extra deals for current loyal customers.
Nurture Customer Relationships
To increase average order value, your business needs to connect with its customers at every level. Enticing promotions and solid marketing communication is one part of improving relationships; another part is leveraging social media to connect with customers and cultivate a community of loyal customers.
Keep In Touch Using Social Media
The more your customers know about your brand, the closer they feel to it. They learn to trust your opinion and product suggestions which makes it easier to convince customers to buy slightly higher-priced items.
Use your social media accounts to share the same information about promotions that you are already sharing on your website and through email or SMS strategies. Post reminders about free shipping thresholds, tiered discounts, bundles, or specific products.
Target loyal customers with details about the rewards they get from shopping frequently. Attract new customers to your loyalty program by enticing them with the benefits they can get from joining. Consider using paid ads on Facebook or Instagram to help you achieve these goals, and remember to use hashtags that people can search for easily.
Create a Community
Customers talk to their friends and family about their experiences with businesses, brands, and products. This word-of-mouth is important to your business because it can create a community of people that appreciate what you do and increase your customer base.
Focus on developing a community of customers by engaging them on social media, in-store, and through other marketing channels. Encourage customers to share images of the products they purchase, ask for reviews, and ask questions or create social media posts that elicit responses from customers.
For example, if you sell healthy food products and frequently share recipes, then you could promote a meal bundle and ask customers to upload photos when they make the meal. Give them a hashtag to use with the photos, then share user-generated content with the rest of your social media followers. The stories feature works quite well for this strategy.
Every business wants to increase its market share and sell more of its products. One of the best ways to achieve this goal is to increase average order value.
The barriers for this strategy to work are low because AOV only requires customers to make a slightly higher-value purchase. By improving on-site experience, focusing on owned marketing, and nurturing relationships on social media, your business is in a good place to take advantage of increased AOV.
Are you ready to take the next steps in improving your digital marketing strategies? We can help you to develop and execute strategies that convert.