Welcome to the world of e-commerce, where online stores enter into fierce competition to win over new customers. All day, every day.
In such a competitive setting, wouldn’t it be nice to make the most of the orders that are already being placed in your store?
Increasing the Average Order Value, AOV for short, is all about that — and it has many other benefits, too.
As we explore upselling, setting free shipping thresholds, and leveraging post-purchase communication in this article, you'll learn what the Average Order Value is and how to increase it. Ready when you are.
What is “Average Order Value”, exactly?
Average order value (AOV) measures the average amount of money your customers spend per transaction.
To calculate Average Order Value, divide the total revenue generated by the number of orders. For example, if your e-commerce store generates $10,000 in revenue from 500 orders per month, your AOV in that specific month is $20 ($10,000/500).
It might seem like a simple metric at first, but it’s actually really helpful to measure for e-commerce businesses. If you track Average Order Value over time, you’re not only able to better understand your customer behavior and offer relevant incentives (like a free shipping threshold or discounts), but also identify more opportunities to increase revenue.
Actually, speaking of the benefits…
Go big or go home?
The most obvious benefit of increasing Average Order Value is that it can help increase your total revenue. When customers spend more per transaction, your overall sales and profitability go up. It’s mostly because the costs of acquiring new customers and fulfilling orders remain relatively stable, while you’re making more money on single orders.
From a sustainability standpoint, “bigger” orders are also better than repetitive ones. The more parcels are being sent, the more packaging is used and the more vehicles are on the roads. Focusing on Average Order Value instead of repetitive purchases can then lower the fulfillment and delivery costs, and cause less harm to the environment — especially if you offer sustainable last-mile delivery options to choose from.
Improving your AOV over time is a smart way to grow an e-commerce business and achieve more revenue in the long run. If you’re convinced, let’s talk about the ways to increase Average Order Value in your store.
How to increase Average Order Value in e-commerce
By using the following techniques to achieve a higher Average Order Value, you can unlock a range of benefits that will help your e-commerce business succeed:
Try e-commerce upsell
E-commerce upsell is a strategy that encourages customers to buy additional products or services that go well with their original purchase. There are a few different ways you can leverage it in your online store:
- Upsell — recommending a product upgrade of some sort (more expensive or sustainable alternative, higher quantity, or bigger size). Interestingly, GWI’s flagship report on the latest trends in commerce indicates that most consumers look for eco-friendly versions of products when they shop online, and 58% are willing to pay more for sustainable fashion items.
- Add-ons — offering extra services that complement the purchase (e.g. gift packaging or insurance). Research shows that shopping cart add-ons make up 10 to 30% of online shopping revenue!
- Bundling — suggesting products that specifically complement each other and are easy to add to the cart from the product page or checkout. You might have seen them introduced as “People also buy”.
- Cross-sell — putting forward products from a different category to increase the initial shopping cart value. It's often used to get more customers to qualify for free delivery or special discount offers.
The number one rule when using these tactics? Relevancy. Ideally, the offers that you put forward should go well together with the contents of the cart.
For example, if you’re about to buy a pair of trainers, you won’t be easily tempted to add a pair of high heels to the order. Nice socks or slightly more expensive sneakers could work, though. Keep that in mind when planning any special or recurring offers!
Use order delivery to your advantage
Speaking of relevant deals: Another incentive for increasing the order value and completing the checkout is also free shipping (or additional delivery options offered after reaching a certain delivery price point).
The thing is, free delivery can be beneficial for a wide range of customers — for your e-commerce business, not as much. That's precisely why setting a free shipping threshold in a data-driven way is crucial in order for it to work to your advantage.
"Imagine if paying for delivery could be translated into an income that can not only cover the shipping costs but affect the bottom line as well." - Anders Ekman, Ingrid
In fact, there is a “sweet spot” where paying for delivery might mean selling fewer products, but still earning more — but finding it is not always intuitive.
Here’s when delivery checkout A/B testing comes in: E-commerce businesses like yours use it to determine which delivery options and prices resonate more with your customers — and increase Average Order Value in the process.
With A/B testing, you can find out exactly:
- How much can you charge for deliveries?
- When to offer free shipping & how high the threshold should be?
- In what order should you display shipping carriers?
- How do you encourage customers to choose more sustainable delivery methods?
When done right, A/B testing allows you to validate the assumptions before making important business decisions, and improve the shopping experience for your customers in the long run — which drives conversions and repeat purchases.
Take IDEAL OF SWEDEN, as an example. With Ingrid Delivery Upsell, the brand was able to experiment with consumer preferences in the Dutch market and offer free shipping for a shopping cart value of 45 EUR or above.
The results? 7.81% increase in the transaction conversion rate, and a 7% boost in the AOV. All thanks to a thought-out delivery upsell offer.
Pretty impressive, right? If you’re still skeptical, you can start small — A/B test your delivery checkout alternatives and offer different delivery options and prices based on what margin you have on the product. For example, a high-profit margin item could have a lower delivery cost, and vice versa.
Whatever you decide, don't be afraid to start charging customers for deliveries. Use Ingrid to experiment with your delivery strategy, set a free shipping threshold, and display a progress bar in the checkout. The results might truly surprise you, despite the current economic climate.
Book a demo to find out more about increasing your Average Order Value with Ingrid.
Pay attention to the after-sales experience
As can be seen, when customers show up to your website with the intention to buy, it provides a great opportunity to boost the Average Order Value. By suggesting additional items that are relevant to what interests them, you can help them find what they are looking for and make a larger purchase. Plus, if they already have items in their cart, it's even easier to guide them toward complementary products.
However, increasing the Average Order Value shouldn’t end with the click of a 'Complete the purchase' button. The post-purchase experience, even though often neglected, also provides an opportunity (or two) to still add some more items to the initial order.
To start with, the order confirmation page is a valuable asset that many online retailers don't use effectively. At best, there’s a note saying “Thanks for the order, now please leave”.
Instead of just thanking your existing customers for the order — or not saying anything at all — why not show them a detailed receipt of their purchase to help them double-check the provided information, and give them the ability to still add some items to their order?
After all, the order has not been fully processed and fulfilled yet, so there’s no harm in trying to drive "more" purchases! In fact, featuring different add-ons and cross-selling options at this stage might work even better since you’re not interrupting the checkout process.
Instead of having the recommended products and services pop out on a screen every few minutes or so (which can easily annoy your customers and make them abandon the cart eventually), try moving them to the order confirmation page and see what happens.
Then, if you actually allow buying more items after the initial purchase and shipping everything at once, why not use it as an “excuse” to email your customers post-purchase?
When a customer finalizes a transaction online, they generally go through the following steps:
- Purchase (yay!)
- Order confirmation page that we’ve already covered
- Payment confirmation message from the store
- Shipping confirmation email from the delivery company (which usually isn’t on-brand, but that’s a different story…)
That's mostly it. They may at times receive a message with a feedback request, or an awkward marketing email (who doesn’t love those?).
Now, here’s your chance to turn the awkwardness into an increased AOV:
Polish clothing brand NAGO does it brilliantly. You might have seen similar cart abandonment emails that motivate shoppers to go back to the store and finish the transaction, but it’s pretty rare to receive such communication post-purchase.
When dealing with customers who abandon their carts, it's generally a good idea to reach out to them shortly after they leave, while their interest is still high. However, it's best to avoid offering discounts right away in order to protect your profit margins.
Similar rules apply to post-purchase incentives. You can also try offering an upsell that requires a minimum purchase amount, such as spending 300 EUR to receive a 10% discount. This can help increase the Average Order Value, as well as provide your customers with a better deal.
That being said: If you can still encourage customers to add more to the initial order, it’s definitely worth making the most out of this opportunity.
Rethink your return policy
When increasing Average Order Value, there's one more thing to consider: your return & shipping policy.
On the one hand, returns encourage customers to buy more since there are almost no strings attached — they can send the items and get the money back. On the other, excessive returns don't exactly contribute to sustainable e-commerce.
To minimize the chances of products being returned and address any concerns customers may have about your offering, use your product pages to provide detailed information. This can include relevant images, product measurements, care instructions, and customer reviews, among other things.
The more detailed your product pages are, the less likely customers are to be disappointed and return what they purchased. Still, it's impossible to completely eliminate product returns.
Having a generous return policy doesn't necessarily mean you'll experience more returns. Instead, it can provide comfort to customers who are hesitant to make a purchase without guarantees regarding product quality or customer satisfaction.
Just give your return policy some thought — for starters, you can minimize their impact on your business and the environment by using innovative services like Turnr. Once you agree on the details, make sure to communicate the policy to your customers.
Ready to increase your Average Order Value?
All in all, focusing on improving the Average Order Value can bring your e-commerce business multiple benefits. By using relatively simple techniques like upselling, free shipping, and post-purchase communication you’re able to increase overall sales and profitability while also reducing your environmental impact. In this case, bigger orders will always beat repetitive orders!
No matter which tactic you choose, though, relevancy is key. Always strive to offer relevant add-ons, bundle deals, discounts, and upselling or cross-selling options. Showing off desired delivery options — including free shipping — also won’t hurt when trying to improve your Average Order Value.
If you need any help once you’re at it, let’s discuss how a proper delivery strategy can help with the AOV in your online store. Book a demo for more details.