There are several ways to increase your profit. Some of them include finding more buyers, reducing operational cost, selling more by increasing your average order value (AOV), etc.
In this article, we’ll concentrate on the last point and explain how you can increase average order value.
What is Average Order Value?
The average order value is defined as the average amount of money your average customer spends on a single order.
It is calculated by dividing revenue by the number of orders over a specific period of time.
Here’s how to calculate average order value:
Let’s say you earn $2,000 in February by selling to 40 customers who made a total of 50 orders, i.e. some of your customers gave multiple orders.
You’ll reach the AOV by dividing 2000 by 50 = $400.
The average order value formula does not consider the number of buyers one has, it only considers the number of orders.
Now that we’ve understood average order value calculation, let’s talk about how to increase average order value online.
How to Improve Average Order Value eCommerce
Very few businesses pay attention to increasing average customer value. They are typically busy acquiring new customers and making more sales from them instead of focusing on customer retention and selling more to existing customers.
It’s more beneficial and profitable to target your current customers as it costs 5x as much to attract a new customer, than to retain an existing buyer.
We know that growing traffic usually results in more money in the form of more customers or orders. This is why businesses happily invest in SEO and other marketing techniques. However, merely getting visitors can never be enough. You must try to make sure they ‘buy’ as much as they can.
At the end of the day, traffic does not matter. It’s the volume of purchases that does. SEO alone may not be enough to increase your AOV. Here are some reliable and cost effective ways to increase your website’s AOV:
#1 Consider Offering Free Shipping and Use Thresholds
In one of our previous blogs, we talked about the importance of free shipping and how it can be used to make more sales and retain more clients.
Customers pay a lot of attention to free shipping and most are willing to spend more if it means free shipping. However, one has to be very careful when creating this strategy as it can backfire if not used properly.
It’s understandable why businesses do not offer free shipping. Transport costs money and the profit you make may not always be enough to off-set the costs. This is why we suggest that you put a threshold so that you can cover shipping costs without stressing your business.
You must choose a threshold that doesn’t interfere with your profit margin. Think about a user who lands on your site to purchase a t-shirt that costs $40. He notices that he’ll have to spend $15 on shipping, which means he’ll have to spend a total of $55 to get his hands on the t-shirt.
On the same page, he sees that he can qualify for ‘free shipping’ if he spends a total of $50 or more. The person decides to purchase two t-shirts for $80.
From the buyer’s perspective, each shirt now costs $40, whereas it would’ve cost $55 each if he had opted for a single t-shirt. This can be a great motivator for buyers to spend more money. But, it can be bad for businesses if not handled well.
You need to calculate your profit margin and shipping costs because now you will have to bear shipping and the money will be deducted from your profit.
If you make more profit than the cost of shipping only then this strategy will be helpful. If you feel that the threshold should be higher than you set it $100 or more, but make sure to understand how much your customers can or are willing to pay.
A threshold that is too high will repel customers. Also, advertise your free delivery offer as much as possible so that buyers are fully aware of it.
#2 Offer Special Discounts on Bulk Orders
Discounts on bulk orders isn’t a very popular eCommerce concept but many businesses now are using it to make more sales and increase the average order value.
Nothing works like a discount, customers are attracted towards ‘low prices’ and many end up spending more than they originally planned to.
Use words like ‘cheap’, ‘offer’, ‘discount’, ‘free’ and ‘economic’ to attract customers. It doesn’t matter how much of a discount you offer – 2 percent or 20 percent – words like these always attract buyers and can help increase your AOV.
These offers make buyers feel they’re getting a great deal. You can also use other tricks such as timers to create urgency or scarcity, i.e. 20% off for 2 days. This will make buyers feel they must make an order today if they wish to buy the product at a discounted rate.
A large number of eCommerce stores use this trick to get rid of old stocks but if used cleverly, it can also help increase your average order value. Tell buyers they can get a discount if they spend $100 or they can get 1 item for free if they purchase 3.
Once again, be smart and calculate your costs and profit margins so that you don’t end up facing a loss.
#3 Consider Cross-selling and Upselling
These two concepts are different yet very similar. They have one aim – to increase your average value order by motivating buyers to purchase more.
It’s believed that upselling can drive between 10 and 30 percent of revenue. The term can be defined as ‘offering an improved version of the product the customer is interested in.”
On the other hand, cross-selling can be defined as ‘offering a complimentary, additional product that completes the first order.”
Let’s say you sell mobile phones. A buyer shows interest in the device that goes for $499 and comes with 256 GB of space.
Here’s how you can upsell:
- You can offer a 500 GB version of the same device and highlight its benefits, i.e. how more space can be beneficial for the user. If your promotion works, the buyer will purchase the ‘upgraded’ version of the same device and you will make more money.
Here’s how you can cross-sell:
- You can show the user a phone cover with the line “Those who purchased this device also bought…” and highlight how the cover can be beneficial for the user.
Both upselling and cross-selling are beneficial. Moreover, you can use both techniques at the same time. However, cross-selling can be a little complicated.
You have to be careful when selecting products to show. They must be related to the product the buyer has purchased.
For example, you cannot suggest a keyboard to a user who purchased a cell phone but you can suggest a wireless charger.
Also, make sure your strategy is very clearly defined. Do not show products the person has already purchased or products that can be considered substitutes.
Adoric offers a special upselling tool that can be used to display recommended products on the cart page to push people to buy more.
#4 Offer Conditional Promotional Codes
This is a very effective way to increase your average order size while also improving loyalty. This one works quite like the ‘offering discount’ method but to target buyers who aren’t presently on your site.
You can offer special discount codes via email.
Michael Words, for example, ran a promotional campaign in 2019 where it offered existing customers 1 free month on the purchase of 3 months given that they make a lump sum payment. It resulted in more sign ups and an increase in the AOV.
While you can have several conditions, if the purpose is to increase the value you should stick to one condition – buy more.
You can offer several things in return. In addition to free shipping and discounted rates mentioned above, you can offer premium customer support, access to more tools, etc.
Since this technique is used to target existing customers, it’s important to use personalization and offer people what they are interested in.
Study your audience, know their pain points, and what can motivate them to spend more. This tactic can be very useful for the service industry or sellers of digital goods.
#5 Provide Suitable Recommendations
A part of cross-selling, this technique can be effective for all kinds of sellers. Think of Netflix, the company uses an impressive algorithm that suggests users ‘suitable’ content based on their watch history and things they’ve shown interest in. This is one of the major reasons why Netflix has been able to capture such a large market.
Its recommendation engine is among the most impressive out there but it’s not the only site using this technique.
You might be thinking that this Netflix example does not fully fit here because it isn’t directly selling something by recommending content, but if you look at the business model, you will realize how the company works.
It follows a unique model where it pushes people to binge-watch more shows, which ensures they stay subscribed.
Let’s now think about eCommerce stores. In most cases, buyers who land on a website have a specific purpose – they know what they want. They don’t always browse random products, which is why the average cart size is often very low.
Zaful seems to have understood this and the company now recommends products based on what others have bought and what the customer has shown interest in.
Showing what others have purchased can be very effective as it serves as social proof. But, you don’t have to limit yourself and you can show other products as well, including slow-moving products.
You only need to be sure about one thing – there must be a connection between what the buyer has purchased and what you’re recommending him or her.
Fashion stores, for example, can use the ‘Buy These Accessories’ line to show relevant and related products. This can
#6 Create Packages or Bundles
Customers enjoy buying bundles as they make shopping easier. They find everything on a single page, which saves time. However, this alone might not be a reason enough to buy a bundle, which is why we suggest that you offer these bundles at a lower price than what the customer would’ve paid had he or she bought the items individually.
Let’s think of an online store. You offer a variety of goods including t-shirts ($30), jeans ($40), and shoes ($50).
If a customer purchases all these items individually, he’ll have to pay $120. However, the problem is that one customer may not purchase all these items for a variety of reasons, which may cause your average order to stay on the lower side.
Someone interested in a pair of jeans may not browse the site to look for shoes or t-shirts, even if they know they’ll have to buy them later on. By showing bundles, you can push people to consider more items while also saving money.
You can offer three three items for $100 and highlight savings. This increases the perceived value of a purchase.
Remember that for this tip to work, you must highlight the benefits to your customers. The benefits can be both ease and savings.
Moreover, consider empowering customers by allowing them to create their own bundles by adding products that they like.
This can be great for businesses that offer gift boxes or other such goods. You can’t always be sure what to put in a box, so allow your buyers to choose what they want.
#7 Come Up With a Loyalty Program
You can’t have a successful business without loyal customers. They can help spread words about your business, and thus bring more sales and increase your revenue.
Loyal customers do not typically need discounts or special offers to remain faithful. They will remain royal for as long as you continue to offer what they’re interested in – good products or services.
Think about Apple, the company has a very strong fan base despite high prices, yet it’s among the biggest names out there.
Loyal customers will stand by your side even when you’re going through a tough time and they need to be rewarded for this loyalty.
A loyalty program can be very helpful in not just keeping customers loyal but also increasing the average order value. You can offer a special 5 percent or 10 percent discount to customers who suggest your store to friends or family.
Another great option is to offer a discount on the next order when a customer spends $1,000 in a month. This does not only encourage more spending but also gives buyers a reason to come back to your store.
#8 Use Exit-Intent Popups
Exit-intent popups are popups that are shown to a customer once he or she decides to leave your site.
This might come as a surprise to some but these ads can be used to increase your average order size depending on how you display them.
Customers might decide to leave your site because it doesn’t offer free shipping or because the prices are too high. By giving users a chance to get a discount or enjoy free shipping, you can push them to stay on your site and make a purchase, eventually spending more than they originally intended to spend.
When it comes to exit-intent popups, it’s all about being creative. Adoric can help you come up with powerful popups to keep your viewers glued.
Check our Exit Intent: How to Use Them With Real-Life Examples article for more information on how exit-intent popups can be used to increase the average order size and win more customers.
#9 Special Payment Options For High Spenders
It is important for online stores to offer several payment options from online wallets like PayPal to credit cards to cash. The problem, however, is that there are several payment options out there especially now that Google and Apple have also entered the market.
It can be very difficult for a business to offer and manage all payment methods. Some customers have very unique demands when it comes to payment processing. Some want to use crypto coins, some wish to use checks, and some prefer bank transfers.
You can attract more buyers by offering all these payment methods. However, we know it might not always be possible. Use this to increase your average order size by putting ‘prerequisite’ for buyers.
For example, the option for check may be given to customers who spend at least $10,000. Similarly, offer wire transfers for customers who sign up for an account and show tendencies of loyal customers.
These tricks can be very useful in attracting and retaining buyers while pushing them to pay more
Think from the point of view of a buyer. Some prefer credit cards since they’re easy to use and come with great security but some are more interested in cash since credit cards fees can be high.
Let’s take the example of a buyer who wishes to buy a laptop for $900 but he’s not sure of the company and prefers to pay via cash after getting his hands on the product.
Since cash transactions can be tricky for businesses, very few offer this payment method. This mistake can be very costly as by not offering this payment method, you might lose out on a good customer.
The person might choose another store that offers the same laptop with the option to choose cash payments. To salvage the situation and to profit from the scenario, you can put a limitation on ‘cash transactions on minimum spending of $1,000’.
At the same time, you can show bundles or recommendations to make it easier for the buyer to buy more products and reach the $1,000 threshold. This will not only increase the average order size but also ensure you don’t lose potential buyers.
#10 Make Your Store More Trustworthy
First time buyers are usually cautious and may not spend a lot. You need to build trust and ask them to come back so that they’re motivated to increase the order size.
There are several ways to turn first-time buyers into regular customers. Consider personalization, email marketing campaigns, and retargeting.
A good example of a site doing this well is Zoma. They add customer testimonials directly onto their product pages, which helps to instantly build trust and credibility for first time buyers.
Average order value is a useful key performance indicator. It allows business to track customer behavior, identify different segments according to spend, and find the most profitable channel.
According to this Wolfgang 2019 study, the average order value is $250. However, the amount changes from industry to industry. Moreover, it also depends on your source.
The average value order for general emails, for example, is only $99.80. Direct offers the best numbers at $107.37.
Similarly, when preparing your strategy, make sure to not look at outliers like Amazon, which enjoys a conversion rate of 13 percent.
We hope these tips will help you improve your average order value. The key lies in pushing users to buy more. Consider using Adoric to try A/B testing and find the technique that works the best.