If you’re an ambitious ecommerce seller looking to uplevel your year-on-year performance, you already know there are a number of KPIs to keep an eye on.
From ROAS to CLTV—and of course, that ever-so-sacred ROI—focusing on the right numbers can absolutely improve your sales performance.
But when it comes down to it, there are really only two main ways to increase the sales performance of any ecommerce store:
- Get more users
- Get current users to spend more
Many sellers focus their efforts on the former—and that’s a good thing—but we encourage ecommerce owners to not neglect the second option.
Because increasing your average order value (AOV) is a surefire way to increase your total revenue, and with way less effort than you might think. Today, we’re going to dive deep into AOV and reveal some of the best ways to boost this number for optimal ROI in your ecommerce business.
Table of Contents
- What Is Average Order Value (AOV)? (And Why Every Ecommerce Seller Should Know This Number)
- How to Calculate Your Average Order Value
- 5 Simple Ways to Increase Your Average Order Value with Complementary Products
- Other Important Metrics that Influence Average Order Value
What Is Average Order Value (AOV)? (And Why Every Ecommerce Seller Should Know This Number)
Simply put, average order value is the average dollar amount a customer spends each time an order is placed, whether that’s on your own website or a marketplace like Amazon or Walmart.
How to calculate your average order value
In a world of complex KPIs, AOV is one of the easier numbers to put your finger on.
Simply divide your total revenue by the total number of orders.
AOV = Total Revenue/Total Number of Orders
For example, let’s say the total revenue for the month of January for an ecommerce store that deals in high-end electronics is $56,000 and the total number of orders is 35.
The average order value will be 56000/35. So, for every order, your shoppers spent an average of $1,600 in the month of January.
In this scenario, if you increase your AOV by just 10%, you can deliver a serious boost to your total monthly revenue:
1760*56000 = $61,600
Some of the benefits of increasing average order value are:
- Lower customer acquisition costs: Acquiring new customers is way more expensive than getting current shoppers to either purchase more frequently, or buy more items per order.
- Sell more inventory: If your customers are buying more products, your inventory will empty faster, but the resulting increase in cash flow can give you better control of your inventory.
- Higher revenue and profit: Cost-effective tactics for increasing the average order value will not only increase total revenue but also raise your bottom line. This is because all the money you would have spent to acquire new customers remains in your pocket.
- Leverage your rankings into more revenue: By adding upsells to your existing product listings on Amazon and other marketplaces, you increase your chances of earning more with every order and boost the ROI on all the time, effort and money you’ve put into securing a good ranking.
- Reduces traffic dependency: If your growth strategy for your owned sales channels is centered on getting more traffic, paying attention to your average order value will give you something to fall back on if your traffic sources suddenly dry up.
For all these reasons, AOV is a metric that deserves your attention. Once you’ve built out your strategy for increasing your AOV, make sure you check in on this number weekly, bi-weekly or monthly to know exactly how well your store is doing.
5 Simple Ways to Increase Your Average Order Value with Complementary Products
1. Group a high-priced product with another high-priced product
You already know segmenting your customers is crucial to the success of your business —and one of the best ways to segment your buyers is based on how much they spend.
When it comes to spending, research has shown that there are generally three types of buyers:
- Spendthrifts
- Average spenders
- Tightwads
Spendthrifts spend the most because they feel almost zero buying pain. This makes them the easiest group to appeal to with your complementary products.
Because spendthrifts are impulsive when it comes to buying, grouping a perfect high-priced complementary product with your already higher-priced main product is a great way to increase your average order value.
You might be wondering:
Why not combine a high-priced and low-priced product?
There are two main reasons why you don’t want to take that route:
Reason #1 – Categorical Reasoning
Research carried out by Professor Alexander Chernev of Northwestern University and Professor Aaron Brough of USU suggests that the conventional marketing wisdom of grouping expensive and inexpensive products may be hurting rather than increasing sales.
Due to a process called categorical reasoning, bundling a high-priced and low-priced product makes people devalue your entire product grouping and reduces their willingness to pay.
Reason #2 – Spendthrifts prefer to pay more
Studies on the buying behaviors of spendthrifts have shown that they perceive high-priced products as more valuable and are even willing to pay additional fees, like express shipping fees, etc., if they’re assured of getting greater satisfaction.
If you’ve got a fair number of spendthrifts in your customer base, defying the conventional wisdom and adding high-end complementary products could be a great way to boost your AOV.
Most importantly, when it comes to marketing to spendthrifts, make sure to keep the focus on the pleasure they’ll get from buying your products.
Use five-star reviews, raving customer testimonials, and compelling product descriptions that focus on the emotional end benefits of buying your products in order to assure them that satisfaction is guaranteed. ✔️
?Pro tip: Amazon and Walmart sellers can easily add product bundles to their offerings to instantly increase AOV depending on the type of shoppers most likely to purchase from them. You can even offer shoppers the option to create their own customized product bundles.
2. Upsell a high-priced complementary product after a low-priced main product
We all know upselling is another great way to boost your AOV.
But instead of suggesting an expensive version of the same product, try offering a high-priced complementary product.
For example, if someone just ordered a low-priced headset, you can offer suggestions of expensive complementary products such as a tablet or laptop.
Make sure your suggestions are relevant to the customer’s needs and expectations and that the perceived value of buying an additional product is high.
Also, when offering complementary upsells, you don’t want to suggest products with a price range that’s way out of the customer’s league. The ideal products should be more expensive, but not too expensive that they turn your customers off.
?Pro tip: Leverage Amazon DSP to retarget your customers and bring them back for upsells. Amazon’s shopper data makes it easy to identify those audiences that have already shown interest by browsing or buying your products.
3. Offer a complementary product with limited availability
The principle of scarcity when it comes to buying behaviors tells us that the rarer or harder it is to obtain a product or offer, the higher the value in the eyes of the customer.
So, instead of merely suggesting a complementary product, try attaching a constraint that makes the customer want it more.
You could say that only a limited number of products are available, and it’s a product made by a very good or exclusive manufacturer—one that’s tough to find, so they better act now to avoid missing this deal!
Or, you could offer a one time discount if they purchase the complementary product together with the product they initially came for.
?Pro tip: While this tip is hard to replicate on a marketplace, one tactic to try is to offer shoppers a coupon at checkout. By having a clear incentive to purchase another item, they’ll be much less likely to wait on an item they’ve been thinking about.
4. Reduce the price for a set of grouped goods
Here, you take your product grouping a step further by offering a discount to customers who buy a particular set of complementary products.
The beauty of this approach is that it can work for groupings of any type of complementary products, provided the customer sees the value in buying them together.
This is an especially ideal strategy for seasonal offers. For example, you could offer a discount on a group of men’s skincare products and market it as the perfect set for father’s day.
The only thing you’ll want to keep an eye on when dealing with reduced prices, is to make sure you’re not offering your products at a price that is too low just because you want people to buy more.
Dropping your prices too low in an effort to sell more complementary products can actually reduce your AOV and lock you into a vicious cycle of too much downward pressure on your prices.
?Pro tip: From your Seller Central account, create a promotion offering a discount on a complementary product. Amazon will then display this promotion in your product listings, increasing the likelihood that shoppers will buy both products. Over time, these products may be featured as ‘Frequently bought together’.
5. Free shipping order minimum
Customers love free shipping. ?
A study carried out by the National Retail Federation reported that 65% of customers said they look up free shipping thresholds before adding items to their online shopping carts.
Even better, they’re often willing to buy additional products if it means qualifying for free shipping.
You can take advantage of this super simple way to increase your AOV by offering complementary products with price ranges which, when added to the price of the product they’ve already added to their cart, will help them meet the free shipping order minimum.
For example, if your free shipping order minimum is $120 and a customer orders a $75 product, you can suggest complementary products with a price range of $45-$50.
They get the free shipping, you get the AOV boost. It’s a true win-win.
?Pro tip: Use your marketplace’s free shipping thresholds wherever possible to make it extra easy for them to keep adding products to their cart.
Bonus Tips to Increase Your AOV without Complementary Products
Complementary products are a fantastic way to boost your AOV, but they do require time, effort and a set strategy.
If you’re looking at other ways to increase your AOV without launching into new product groupings or completely new product lines, here are a few other simple ways to make it happen.
- Raise product prices: Increasing prices is a simple way to boost your average order value. Just make sure the price increase isn’t too high that it turns your customers off completely or you lose the Buy Box on your marketplace.
- Create and offer rewards for contests: Contests are an amazing way to get customers to buy more. And depending on the type of contest (for example, referral contests) they can also lead to increased brand awareness, which will help bring even more customers over time.
- Execute first time offers: If your store is less than four months old, the majority of your customers will be first timers. You can offer these first timers special deals to get them to buy more, visit your store again and spread the word to other shoppers.
- Use A/B testing to find out the best method for your store: Not all of the methods mentioned above will work for your store. That’s where split testing comes in. With split testing, you can identify what’s working and what’s not and reveal the best ways to improve your AOV.
Not only that, split testing will also help you get to know and understand the purchasing patterns of your customers, which can help with future marketing and advertising, potential expansion opportunities, new product lines and more.
In split testing, just like in a science experiment, you test variants against a control.
You’ll create multiple versions (the variants) of your website and test them against an original version (the control) to see which performs better. The one with the highest conversion rate is your winner.
Other Important Metrics that Influence Average Order Value
In order to stand above the competition and capitalize on the ecommerce gold rush, sellers need smart strategies for understanding the real numbers behind their business.
The KPIs you choose will always depend on your unique goals and customer base, but here are a couple other important metrics to watch, along with your AOV:
- Conversion rate: The percentage of website visitors that completed a desired goal compared to the total number of visitors.
- Customer churn: The percentage of customers that stop purchasing from your store within a certain time frame.
- Customer engagement: The process of actively interacting with customers using different channels and improving your relationship with them.
The future of ecommerce is all about customer experience. And it’s a bright future indeed.
In Q3 2020 alone, there was a 44% increase in ecommerce sales for online sellers in the US. During that same period, SellersFunding clients have seen, on average, an 85% increase in sales compared to the previous year.
When you have access to the working capital you need, you can sidestep costly delays in marketplace payouts, keep your cash flow strong and ensure that your customers keep coming back for more.
Ready to hit the next level? At SellersFunding, we know eCommerce. We offer a range of flexible working capital solutions designed to give you easy, transparent access to the funds you need to grow and profit. Learn more here.