Average order value (AOV) measures the average dollar amount a customer spends every time they place an order on a website or mobile app. It is a key performance indicator (KPI) used to understand customer purchasing habits and evaluate the effectiveness of pricing and marketing strategies. Increasing this metric allows a business to drive direct revenue and increase profits without necessarily increasing the cost of acquiring new traffic.
What is Average Order Value (AOV)?
Average order value tracks the average amount spent per transaction rather than per customer. You calculate it by dividing the total revenue by the number of orders placed within a specific timeframe.
While many businesses monitor a moving monthly average, others analyze it weekly or daily to react to the competitive e-commerce landscape. For example, if a store generates $31,000 in sales from 1,000 orders in September, the AOV for that month is $31.
Why Average Order Value matters
AOV provides insights into customer behavior and the long-term value of individual customers. It serves as a benchmark for setting goals and measuring the success of business strategies.
- Profitability growth: Increasing average order value is often more profitable than increasing traffic, as increasing traffic typically costs money while increasing AOV does not.
- Marketing efficiency: It helps determine if your upselling and cross-selling efforts are successful. A positive upward trend year-over-year indicates that these tactics are working.
- Ad spend planning: Knowing your AOV helps you set limits for advertising. Ideally, AOV should be at least 2X higher than your cost of customer acquisition to ensure you are not losing revenue on every sale.
- Inventory and business investment: Accurate AOV data allows for better sales forecasting, which is necessary for proper inventory management and making investment decisions.
Benchmarks by industry
A "good" AOV varies significantly across different verticals. Comparison against industry standards helps determine if a business is underperforming or meeting market expectations.
- Global Benchmark: Across all industries, the global AOV is approximately $145.
- E-commerce General: Other sources suggest an average e-commerce AOV of $133.77.
- Luxury and Jewelry: These sectors see the highest values, often exceeding $300 per order.
- Apparel and Accessories: Typical ranges fall between $40 and $170.
- Beauty and Personal Care: These brands usually see lower values, ranging from $15 to $90.
How to calculate Average Order Value
The basic formula for AOV is: Total Revenue ÷ Number of Orders = Average Order Value
Understanding statistical distributions
Relying solely on the mean (average) can be misleading because a few high-value orders can skew the result. Marketers should consider three measures of central tendency:
- Mean: The standard AOV (Total Revenue / Total Orders).
- Median: The middle value of all orders.
- Mode: The most frequently occurring order value (the "modal" order).
Focusing on the modal order value is often more effective. If the most common order is $15 but the mean is $24, strategies should focus on nudging the $15 customers to add one more small item, rather than chasing the occasional big spender.
Best practices to increase AOV
Increasing order value involves encouraging customers to buy more products or more expensive versions of what they already intended to purchase.
- Set free shipping thresholds: Incentivize customers to reach a minimum spend. For example, if your most common order is $35, offering free shipping on orders over $50 can nudge them upward.
- Create product bundles: Group complementary items together at a slightly lower price than if bought individually. This increases perceived value and moves more inventory.
- Use cross-selling and upselling: Suggest related products (socks with shoes) or higher-end alternatives ($10 more for a premium version) during the checkout process.
- Implement personalization: Use data to recommend products. Companies using highly personalized interactions outperform others by 30% in conversion and revenue.
- Offer volume discounts: Provide a percentage off when customers buy multiples of the same item, such as "30% off when you buy 3 or more."
- Deploy post-purchase upsells: Present offers immediately after the customer completes their order. This does not risk the initial conversion but captures additional revenue when intent is high.
Common mistakes
- Mistake: Focusing only on AOV while ignoring conversion rates. Fix: Monitor Conversion Rate alongside AOV to ensure that higher price thresholds aren't driving customers away.
- Mistake: Setting free shipping thresholds too high. Fix: Aim for a threshold roughly 30% higher than your current AOV or modal order value to keep it attainable.
- Mistake: Using generic pop-up discounts that immediately lower AOV. Fix: Use targeted offers based on customer behavior rather than blanket discounts for every visitor.
- Mistake: Ignoring shipping and fulfillment costs. Fix: Ensure the increased revenue from a higher AOV still covers the costs of shipping and warehousing, especially when offering "free" shipping.
Examples
- Example scenario (Bundling): A camping store bundles a stove, fuel, and a pot as an "Eco-friendly Starter Kit." This moves three items in one transaction instead of one, raising the order value from $40 to $110.
- Example scenario (Thresholds): A pillow brand offers free shipping only on orders over $100. This encourages customers to buy two pillows at $60 each instead of just one.
- Example scenario (Post-purchase): An apparel brand shows a "one-time offer" for a $15 cleaning kit immediately after a customer buys $120 leather boots.
FAQ
What is a good Average Order Value?
A good AOV depends on your industry and product type. Luxury goods naturally have higher AOVs (over $300), while beauty or consumable products may have lower values ($15 to $90). The best benchmark is your own historical data; strive for a positive trend line year-over-year.
How does AOV differ from Customer Lifetime Value (LTV)?
AOV measures the value of a single transaction. Customer Lifetime Value (LTV) measures the total amount a customer spends over their entire relationship with your brand. If you have a high repeat purchase rate or a subscription model, you can afford a lower AOV because the LTV remains high.
Can raising prices increase AOV?
Yes, raising prices is the most direct way to increase AOV. However, it may discourage some customers from buying at all. It is important to evaluate your brand's perception; luxury brands can often raise prices more easily than discount-oriented brands.
Why is the "Mode" important for AOV strategy?
The mode represents the most common order value. If your AOV is $25 but your mode is $15, it means a few very large orders are inflating your average. Focusing your marketing on moving those $15 customers to $20 will have a much larger impact on total revenue than trying to increase the already high-value orders.
How does site friction affect AOV?
High friction, especially during checkout, often leads to cart abandonment. With an average cart abandonment rate of 70%, improving the checkout flow and providing live chat support can help customers feel confident enough to complete larger purchases.
