What is AOV? And how can I increase it for my business?

When you know your AOV, you know more than where to prioritize your marketing dollars. You also know how much you can spend to grow your business. The higher your AOV, the more revenue you can generate—even if you don’t change how many orders you receive every week. Reallocating your marketing dollars to emphasize higher AOV strategies can increase revenue without increasing your workload.

It’s important to note that you shouldn’t evaluate your AOV in isolation. You’ll also want to understand other key customer metrics that can expand the insights you can squeeze from your AOV. For example:

• Conversion rate: The owner reviews her website analytics and sees that one out of 50 visitors to her online store will make a purchase. Based on this conversion rate, she can use her e-commerce AOV to estimate that every 50 new visits on her website earns $20 in revenue, or $2.50 per visitor. She now knows she shouldn’t spend more than $2 per new visitor in marketing to turn a profit.

• Cost per conversion: Suppose the owner were to run marketing campaigns with a goal of driving 100 visitors to her website per campaign. She experiments with a pay-per-click (PPC) marketing campaign and a paid social media campaign. The PPC campaign costs $2.50 per visitor. That’s $250 for 100 visitors. But only 10% of the visitors convert into buyers. At $20 in AOV, that’s only $200, meaning the owner took a loss of $50. But at a similar conversion rate and AOV, the social media campaign costs just $1.50 a visitor, yielding a $50 profit. Now she knows which advertising campaigns would be best to emphasize in the future.

• Customer lifetime value (CLTV): What if a customer buys one $9.99 book now but is so pleased with the owner’s service that they order $100 worth of books 2 weeks later? That adds to the CLTV. Look at customer data over time to find where CLTV might be hiding. Divide CLTV by AOV. If there’s a particularly high ratio, it means that customers who were initially bargain hunting (as measured by AOV on their first purchase) loved the experience so much, they came back to visit the store later.

In addition to the customer-centric metrics above, consider looking into statistics like your “mode,” or the order value that appears in your sales reports most often. In the bookstore owner’s example, maybe her $9.99 paperback books on sale are the most frequently sold items at her brick-and-mortar store. An effective strategy would be to add upsells to these paperbacks, such as buy 2 paperbacks at that price and get a discount on a new hardcover. Knowing her mode allows the owner to increase AOV before spending one cent on additional marketing. Looking at AOV alone doesn’t tell you about upsell opportunities like that.