E-commerce is an exciting and relatively less explored avenue for business. Before we venture out to make discoveries, it is good to look at your existing setup and find ways to improve it.
Everyone has a different opinion about how they want to grow their business. You can increase customers, explore new markets or increase your average order value (AOV). If you just did a double-take when you read AOV, don’t worry. We will take you through what it is.
What Is Average Order Value?
Average order value, as the name implies, is the average revenue you earn per order. It is a very straightforward concept and helps you understand the price range of products customers are purchasing.
How Is it Calculated?
The formula for AOV is Total Revenue/Total Number of Orders. For example, let’s assume you sell earphones for $10, liter juice bottles for $12, fruity jellies for $3 per pack, and a 9-piece toolbox for $40. For this month, you sold 200 earphones, 300 juice bottles, 2000 packs of fruit jellies, and 100 toolboxes.
Your revenue will be:
Keeping the formula in mind, AOV = T. Rev/T. Units sold. Therefore:
AOV = 18,000/2,800 = $6.4
Why Is Average Order Value Important?
The earlier example shows that despite having a sizeable range in the value of offerings, the average customer is choosing to spend under $10 at your store. Furthermore, you sold 2000 packs of jellies, the only product to cross the 1,000-mark. These numbers provide insight into consumer behaviors.
If you manage to increase the average order value, your total revenue will increase drastically.
Tips for Boosting Average Order Value
We want to help you increase the average order value of your e-commerce business and have mentioned our tips for boosting it below:
1. Pay Attention to What Your Customers Want
You should pay close attention to what your customers want. In the example, juice and jellies sold the highest number of units and earned $6,000 each. This information shows that your customers focus on the food section, and it is time to add more items to it.
2. Cross-Sell Products
Cross-selling has always been a successful strategy. Offer cross-selling promotions for complementary products will increase your AOV drastically. If your offer of a free packet of jelly with a juice bottle makes a customer buy two more bottles of juice than they would have, you will successfully earn $18 more than you would have earned (+$24 juice - $6 free jelly).
3. Highlight Upscale Versions of Popular Product Categories
Your e-commerce business is a digital platform, and you should use digital marketing to promote it. Stock upscale versions of popular products and promote them on your website and through Google and Facebook ads. If you can get even half of your jelly customers to buy the $6 jelly instead of the $3 jelly, you will earn an additional $3,000, pushing your AOV to $7.5.
To sum up, if you increase your average value order, you will be increasing your overall revenue extensively. This strategy will help you improve your business operations without needing to make extensive changes to its model.
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