Table of Contents
- 1. What is AOV?
- 2. How do you calculate AOV?
- 3. Why do you need to track AOV?
- 4. What's a good AOV?
- 5. How to increase AOV
- 6. Do all customers have the same AOV?
AOV is critical measurement metric for ecommerce brands. It allows you to benchmark your customer's current spending behaviours, the effectiveness of your marketing campaigns and the spread of products and category purchases across different cohorts. While most businesses use it as a throwaway benchmark it shouldn’t be discounted as it has a direct correlation on your acquisition strategy and future product/category decisions. Overall a metric that you MUST track on a frequent basis.
What is AOV?
Average Order Value (AOV) is a metric that tracks the average amount that a customer spends in a selected period (month, quarter, year etc..
How do you calculate AOV?
AOV is calculated as all revenue divided over orders in a selected period. For example, if you had revenue of $100,000 over a period of 3 months, and in this period you had 300 orders the calculation is as follows. (100,000 / 3000) = $33.00). This means that each customer for the period spent, on average $33 per transaction.
Why do you need to track AOV?
It provides a baseline of how effective marketing activities are for a selected period (Did your AOV increase or decrease during a campaign or season?).
When tied in with other metrics such as Customer Acquisition Costs (CAC) and Life Time Value (LTV), it allows you to understand profitability of a selected channel on first purchase and future purchase behaviour (If your CAC is $50 while AOV is $33 and a customer typical LTV is $50 you will need to spend a large amount on acquisition to break even) – is this channel profitable or do i need to revisit my unit economics and or promotional strategy?
What’s a good AOV?
AOV is entirely dependent on your industry and product catalogue. No two business are the same. It’s worth establishing a baseline and comparing historically (month on month (MoM), quarter on quarter (QoQ) and year on year (YoY) to determine how you’re tracking.
How do you track AOV?
The good news about tracking AOV is that you don’t even need a platform to tell you (Although it’ll save you some legwork). In a platform like Shopify the AOV can be accessed via the analytics area on the left hand side of the dashboard (make sure you are looking at the correct period). I suggest uploading AOV into a spreadsheet (with other eCommerce metrics) to track MoM, QoQ, YoY etc.
How to increase AOV?
Typically the following four ways will aim to increase your AOV. Increase pricing, ross and upsell other products at cart/checkout, create new categories or product lines that compliment existing or bundle products together.
Do all customers have the same AOV?
Not all customers are equal when it comes to AOV. It’s well worth breaking your customers up into different cohorts based on their spend, demographic, product history etc. You may find that the top 80 percentile of customers (VIP) spend more in a typical transaction compared to a new customer therefore they may be more open to upsells, cross sells and or different bundles.
