AOV is a critical metric that helps businesses measure the success of their sales and marketing strategies, understand customer behavior, and ultimately increase profitability. There is an excellent article on this topic; follow the link to read: AOV marketing.
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Average order value. Definition
Average order value or AOV, in online advertising, is how much an order from each customer costs on average.
This metric is important for advertising, online commerce, and marketing because it helps to determine how profitable investments in a business are in the context of the number of orders, not just products. For example, one order can have several products, and with the help of AOV, you can find out the average purchase receipt.
Although this indicator is important, “average check” is a conventional concept. Western marketers divide online store customers into three categories: low, medium, and high AOV. The main task of the business owner is to understand which category has more buyers and adjust the marketing policy to the majority.
The average check is a complex concept that shows the audience’s purchasing power, the effectiveness of the company’s marketing, the loyalty of visitors, and even the psychological portrait of the average consumer. In any case, an online business should aim for an increased AOV to be considered successful.
How does the average order value affect income?
The relationship between AOV (average order value) and a company’s profit in the online retail industry is direct: an increase in the average check leads to an increase in revenue. We already wrote above that AOV works with the number of orders, not products. Therefore, the ability to sell more in each order positively affects income.
A business owner needs to determine which group of buyers brings the most benefits and develop it.
How to calculate AOV?
To calculate the average check, data on the number and amount of all purchases in the online store over a certain period of time must be obtained.
The formula is [AOV result] = [Total sales for the period] / [Total orders for the period].
For example, an online store sold 20 items worth $3,000 weekly. Average check = 3,000 / 20 = $150.
The formula is simple, but some circumstances can easily spoil the calculations:
- Seasonality. If your online business is subject to seasonal fluctuations in sales, it is recommended that you average the check over short periods.
- Product matrix, range of services. Calculating the average check is more difficult the larger the store or company. You need to divide the products into groups and calculate the AOV for each group.
- Different segments of the client audience. Customers can be from different groups regarding wealth, purchasing power, and online shopping activity. Accordingly, the average check is calculated separately for each segment.
Ways to increase the average check
There are many methods to increase the average check-in online commerce. Let’s consider the most popular and effective options.
- Additional sales. The essence of the method is to gradually increase the depth of the check through the sale of related goods and services. It is profitable to sell several goods at once—this increases the turnover of goods and increases profit. This technique is used by all online stores. For example, when a buyer adds a product to the cart, the system offers him the option to buy something else useful in addition to the already purchased products. Various accessories sell well.
- An increase in the value of the product in the average check. This method is a kind of “warming up” of buying activity. For example, the user bought an inexpensive product, after which he was offered not to stop at products of this price category but to look at more expensive offers and, accordingly, more prestigious ones. Thus, the store makes an Upsell and increases the average value of the check.
- Sales, promotions. Surprisingly, the average check goes up even during sales. The secret is that the buyer compares the old price with the new discounted price, and psychologically, it seems more profitable to him. However, he does not know how much the product’s value was initially increased – the trade mark-up. As a result, the visitor is more willing to make purchases, which increases the average store check.
Various payment options. It’s banal but providing customers with the most convenient ways to pay for purchases or services can increase the average check. For example, a store that does not accept bank cards for payment will look strange now. Without any analytics, you can immediately predict that the average check at such an online store will be low. It also increases purchasing activity and the granting of installments and loans.