Doing the Math with Average Order Values

Working out the kinks in a new online store, or fine-tuning an existing one, requires a commitment of time, energy, and knowledge. Your business is your baby, but it’s also likely to be your bread and butter. Among the myriad factors to focus on is Average Order Value, or AOV. Getting up to speed with familiarity of that term and its indicators may make a difference between a boom or a bust.

Average Order Value is a metric that measures an average total of each order placed with a merchant over a set period of time. With this gauge in hand, you can map out strategies from web store layout, pricing, and how much to devote to advertising. As a rookie, you have the advantage of beginning that measuring system early. But as you proceed through a host of sales, it becomes even more important.

Of course, every sale is a good sale. But to maximize profitability, it’s essential to make the most of each shopper’s experience. Determining who buys what, when, and how the buyer may be operating when making purchasing decisions, you are instantly ahead of the game.
 
Find your AOV
Here’s how to calculate your Average Order Value: Divide the number of orders by the total revenues. Sound easy? It is. AOV reflects sales per order, not sales per customer. Returning customers do count, but surprisingly, not as much as it may seem.

Don’t think in terms of gross profit or profit margins. Those are strict business indicators resulting from sales, and not a marker used in increasing sales. To understand this better, think of a home goods e-seller offering three lamps priced at $24, $39, and $88, with an average AOV of $37. This figure presents two storefront trends: first, customers are not buying multiple items; and second, their sales are most often represented by the lowest-price item.

Now you’re armed with overall stats that can drive your marketing and advertising decisions and your product selection. Attracting high-volume buyers is a lofty goal, but keeping it simple and tied to proximate reality allows you to use real-time data to not reinvent the wheel.
The economies of scale prove that mid-sized and large ecommerce stores realize a much higher profitability level with sales at just a few cents per unit. Smaller entities must show a greater volume to make a difference.
 
Sell up and Upsell
The old-fashioned concept of romancing clients works well here. Convince customers that they should consider expanding their purchase habits by trying similar or new products. Use app features to “recommend” other products as they are both viewing and purchasing their targeted choices. Employ friendly and persuasive text, short in nature, to persuade them. Don’t be afraid to use their previous buys to suggest new purchases.

If you’ve spent time as a shopper on Amazon, you’ll understand how effective this can be. That mega-platform has a robust, built-in mechanism for displaying high volumes of similar products, even including purchases others have made after they either bought or glanced at similar items.
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The more you personalize the customer experience without having to manually reach out, the faster your profitability will grow. Approached carefully, you will earn the loyalty and trust of longtime customers who get that you get them. And that goes a long way in the chaotic world of online selling. For more excellent advice, see Shopify’s tutorial.