Average Order Value (AOV) helps you understand how much your customers spend, on average, each time they purchase on your site.
By tracking AOV, you can gain valuable insights into your pricing strategies, marketing effectiveness, and overall revenue potential.
What is Average Order Value (AOV)?
Average Order Value (AOV) is the average amount your customers spend per transaction. It’s an important metric because it gives you a snapshot of consumer behavior and helps you assess whether your pricing and product bundling strategies are working effectively.
A higher AOV usually means your customers are buying more items or higher-priced products per transaction, helping you grow your revenue without having to attract new customers.
How to Calculate Average Order Value (AOV)? Formula Included
Here’s how you can calculate AOV:
AOV = Total Revenue ÷ Number of Transactions
To break this down:
First, determine the total revenue you’ve generated over a specific period (like a month or a quarter).
Next, count the total number of transactions during the same period.
Finally, divide the total revenue by the number of transactions.
For example, if you generated $20,000 in revenue from 500 transactions, your AOV would be:
AOV = $20,000 ÷ 500 = $40
Make sure to account for refunds and chargebacks in your calculations, as these can affect the accuracy of your AOV. Platforms like Shopify offer real-time data on AOV at checkout, while Google Analytics allows you to break it down by source, medium, and landing page for more detailed analysis .
Should Average Order Value (AOV) include shipping?
When calculating Average Order Value (AOV), there are two schools of thought. From a marketing perspective , it’s beneficial to include shipping costs because that’s the price the customer sees and acts upon.
Including shipping provides a more accurate reflection of the total amount a customer spends, especially in industries where shipping is significant (e.g., premium or temperature-sensitive products).
On the other hand, from a financial perspective , some argue to exclude shipping since it is an operational cost rather than a direct product value. Ultimately, AOV should include shipping if you're focusing on customer behavior and optimizing revenue, but it’s important to clarify your goal when calculating this metric.
VIDEO
Average Order Value (AOV) Ecommerce Examples
Let's take a look at how AOV works across different ecommerce platforms:
Google Analytics 4 (GA4)
With GA4 , you can break down AOV by traffic source, medium, or landing page. For example, suppose your paid ads (CPC) generate an AOV of $169, while organic traffic brings in an AOV of $58. In that case, this tells you that customers coming from paid channels are more likely to purchase higher-ticket items or larger quantities than those coming through organic channels.
You can also track how AOV changes over time. For example, during the holiday season, your AOV might drop because you’re selling more lower-cost promotional items, but after the holidays, you may see it rise as customers make higher-priced purchases.
Shopify
Shopify provides a clear, real-time snapshot of your AOV during checkout. It also helps you factor in refunds, ensuring your AOV is accurate. Shopify’s platform allows you to see how promotional campaigns or sales events like Black Friday impact AOV. For example, while AOV might drop during a major discount event, it could rise again after the holidays as shoppers return to regular buying patterns.
How to Improve Average Order Value (AOV)?
Increasing your AOV can lead to higher profits and improve your ability to acquire customers efficiently. Here are some strategies to help boost AOV:
Bundles: Offer discounts when customers purchase multiple products together.Upsells: Suggest higher-value or premium versions of the product they’re about to buy.Cross-sells: Recommend related products during checkout that complement what they’re purchasing.Free Shipping Thresholds: Encourage customers to spend more by offering free shipping on orders over a certain amount.Loyalty Programs: Reward customers for making higher-value purchases with discounts or points.
These tactics can motivate customers to increase their cart value, directly boosting your AOV.
Benchmarks: What's a Good Average Order Value (AOV) in Ecommerce?
What’s considered a “good” AOV can vary depending on your industry and the types of products you sell. If you know which category you are in you will be relative 20% give or take to that category.
If your AOV is significantly lower than the average for your industry, you might want to reevaluate your pricing strategies, bundling offers, or upsell tactics. Keep in mind that the nature of your products and target audience will also influence your AOV.
Why is Average Order Value (AOV) Important to Marketers?
AOV is crucial for you as a marketer because it directly impacts your business’s profitability and customer acquisition strategy. A higher AOV means that you’re earning more from each customer, which can offset your customer acquisition costs (CAC) and improve your return on ad spend (ROAS).
For example, if your AOV is $100, you can afford to spend more on acquiring a customer than if your AOV is only $50. By analyzing AOV, you can understand which sources (like paid ads, email, or organic traffic) are driving higher-value transactions, identify trends over time, compare performance across different periods, and assess the impact of various campaigns on revenue.
Average Order Value (AOV) vs. Lifetime Value (LTV)
AOV tells you the average spend per transaction, while Lifetime Value (LTV) focuses on the total revenue a customer generates throughout their entire relationship with your business. LTV takes into account repeat purchases, making it a broader, long-term metric compared to AOV.
Both metrics are essential for your business’s success:
AOV helps you optimize each transaction’s value.LTV ensures long-term profitability by focusing on customer retention and repeat purchases .
By improving your AOV through strategies like upselling and bundling, you can also boost LTV.
FAQs
Does AOV differ by marketing channel? Yes, AOV often varies depending on how you acquire your customers. Paid channels like Google Ads typically have a higher AOV than organic traffic because they tend to attract customers who are ready to spend more.
How often should I track AOV? It’s a good idea to track AOV regularly, especially after running marketing campaigns or during seasonal sales. Monitoring your AOV weekly or monthly can help you spot trends and make data-driven decisions.
How do refunds impact AOV? Refunds reduce total revenue, which lowers your AOV. Ensure you include refunds and chargebacks in your AOV calculation to avoid skewed results.
What influences AOV? Your product type, pricing strategy, promotional offers (such as bundling or free shipping), and customer segments can all influence your AOV.
How does AOV affect profitability? A higher AOV allows you to spend more on marketing and customer acquisition, ultimately increasing your profitability. It also enables you to offer more value to your customers through premium products or larger orders.
By keeping a close eye on your AOV and implementing strategies to boost it, you can significantly enhance your marketing efforts and overall business performance.