AOV is an acronym that stands for Average Order Value.  AOV is used in the world of eCommerce to determine the average amount of every order purchased through a specific website, online marketplace, or mobile app.

How To Calculate AOV:

To calculate AOV, one must take the amount of revenue a company has and divide it by the number of orders.  One can calculate AOV over the entire life of a business or a specific period depending on the needs of the business owner.

Why is AOV important?

AOV is beneficial to companies for many reasons.  The average order value over a specific period can be used to determine how many items customers are purchasing in every visit as well as which products are most popular among customers.

In general, the higher a company’s AOV, the higher the value of every customer. Because AOV can help identify customer value, businesses can use AOV to determine how much they can afford to spend per customer.

AOV can be raised using specific sales strategies:

• Upselling
  Upselling is a sales strategy used to increase the cost margin of products customers purchase.
• Cross-selling
  A sales strategy used to sell additional or alternative products to current customers.
• Discounts
  A sales strategy used to sell a higher volume of products to customers.
• Customer Incentives
  A sales strategy used to encourage customers to purchase more products or become return customers.
• Company Policies
  Processes used to increase customer satisfaction and increase the likelihood of customers making purchases.

Businesses interested in raising their AOV should also examine their marketing methods and eCommerce platform processes.

AOV can also help businesses to determine other important metrics:

Cost per Conversion:

Cost per conversion is how much it costs for a company to acquire a new, paying customer. Cost per conversion is significant because it helps to determine a company’s financial success.  Cost of conversion can be subtracted from AOV to determine the profit margin of a customer.

Lifetime Revenue per Customer:

Lifetime revenue per customer is used to determine how much value a customer has for a company over time.  The value of lifetime revenue per customer can be calculated by taking the AOV and multiplying it by the average number of transactions a customer makes.  If customers have a low lifetime value, companies can use that information to determine strategies to increase both the AOV and the average number of orders.

Businesses that pay attention to Average Order Value are more likely to experience an increase in gross profit over time because they have a better understanding of their customers’ behavior and purchasing patterns.