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What is AOV? And how can I increase it for my business?
If you want to grow your business, the intuitive solution is to look for more customers. But expanding your customer base potentially introduces problems of scale. More customers can mean more foot traffic, an overloaded business and stressed-out employees.
Another option is to increase the average order value (AOV) of each customer. Like total sales or order volume, AOV is a measurement of the growth and popularity of your business. The higher your AOV, the more value you're getting from each customer. But what is AOV, how do you calculate it and, most importantly, how do you increase it so you can scale your business? We'll cover those topics, and more, in this article. Read on to find out more about:
What is average order value (AOV)?
AOV stands for average order value, referring to the amount each customer spends per transaction. If you've got 100 customers at an average order value of $100, your revenue will be $10,000. Double that AOV, and you'll have $20,000 – but the same number of customers.
AOV formula
To calculate AOV, divide your total revenue by the total orders required to reach that revenue. Typically, this requires selecting a sample of transactions from a business period with a round number, such as 30 days. Here's what the formula looks like in practice:
How to calculate AOV
To look at AOV in action, let's consider an example. The owner of a brick-and-mortar bookshop with a growing digital presence wants to determine whether she should invest more in her e-commerce offerings.
She knows that looking at total revenue between in-person and e-commerce sales isn't a true one-to-one comparison. After all, her online customers only equal about 10% of the customers she helps in person. So she decides to plug in the numbers for each and determine AOV. Here's what her calculations look like, below.
Select a consistent range of sales dates
The owner starts by looking at her total in-person and online sales for the entire year. If she wants, she can also run the numbers for the previous year, to get a year-on-year (YoY) comparison.
Gather total revenue and total order numbers
In this case, the owner wants to calculate the AOV of her brick-and-mortar shop and her e-commerce business. She'll need total revenue numbers for both. She'll also need a tally of how many orders it took to achieve both numbers. Let's say the owner totals $110,000 for her bookshop's in-person shop and $10,000 for her online sales across 7,300 and 500 orders, respectively.
Divide total revenue by total orders
When she divides her revenue numbers by the total orders, something interesting pops up: The AOV for brick-and-mortar is $15, but for e-commerce it's $20. Now she knows that every customer she attracts online drives approximately 33% more in value with every purchase. For the bookshop owner, this is game-changing: Now she knows e-commerce is a viable option. She adjusts her marketing plans accordingly.
Why AOV is important
When you know your AOV, you know more than where to prioritise your marketing spend. 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 spend to emphasise 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 out of your AOV. For example:
- Conversion rate: The owner reviews her website analytics and sees that one out of 50 visitors to her online shop 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 emphasise 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 that they came back to visit the shop 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 example of the bookshop owner, maybe her $9.99 paperback books on sale are the most frequently sold items at her brick-and-mortar shop. 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 hardback'. Knowing her mode allows the owner to increase AOV before spending a penny on additional marketing. Looking at AOV alone doesn't tell you about upsell opportunities like that.
How to increase average order value
Once you know your AOV, it's time to optimise your strategies. Consider these tactics below to incentivise customers to choose Add more when it's time to check out.
1. Segment customers by their previous orders
Segmenting customers on their purchase history lets you cater to buying habits. This is one advantage of the e-commerce approach: You can gather customer data for highly targeted messaging. For instance, advertise price discounts and 'buy one, get one free' (BOGOF) deals with low-budget, frequent purchasers.
2. Cross-sell popular products
Maximise a customer's order with a last-minute recommendation. Many popular online retailers are particularly effective at this by using copy like "Customers who purchased X were also interested in Y..."
3. Use strategic discounts with minimum basket values
Free shipping, BOGOF deals, discounts with a minimum $50 purchase – have any of these ever worked on you when you were in the customer's seat? If your customer adds $47 in items to their basket and would save 10% by adding 3 more dollars, they may be tempted to increase their order.
How Uber can help you increase your AOV
On-demand delivery reduces friction for the customer, which has the potential to increase AOV. The easier it is for a customer to get their favourite items delivered, the more tempted they'll be to add to their baskets. Considering that 72% of customers report that they'll likely continue to order from a company that offers express delivery, you can use Uber's delivery services to pump up your CLTV.
There are 2 ways to add on-demand delivery with Uber:
Uber Direct
A white-label delivery solution to add on-demand delivery to your existing sales channels, such as a company website or app. Connect with couriers in the Uber network to get orders to your customers fast and reliably.
Uber Eats marketplace
Expand your reach and attract new customers by listing your business on the Uber Eats platform. Customers browsing the app for local, on-demand delivery will see your shopfront pop up.
If you choose to list your business on the Uber Eats marketplace, you can tap into a pair of powerful in-app marketing tools – ads and offers – to stand out to customers and drive orders. We've found that ads, which improve your visibility in the Uber Eats app feed, can drive up to 91% of new customers; offers, which are special saving opportunities for customers, can boost up to 94% more orders.* Even more, by combining these strategies (what we call the "better together" approach), you've got the potential of joining businesses that have seen a 200% increase in sales.**
Here's a quick look at some of the offer types you can run based on your goals. For any of these offers, you have the option of targeting new or returning customers (or testing both):
Even if you're running customised offers on your own channels, the added perk of using Uber Direct for on-demand delivery means more convenience with every order.
Ready to start? Find out more about signing up for the service that's right for you. If you're already listing your business on the Uber Eats marketplace, sign in to Uber Eats Manager and navigate to the Marketing tab to start building a higher AOV today.
*Small- and medium-sized businesses (SMBs) in the US and Canada that ran ads in their first month reached 91% more unique customers than average data. Those that ran offers in their first month saw a 94% lift in incremental sales. Data is from July 2022 to December 2022. Actual results may vary.
**This metric compares merchants that have been running ads and offers together with merchants only running ads, merchants only running offers, and merchants who were not running marketing campaigns for more than 7 days between 1 January 2023 and 1 August 2023. It compares their sales and orders during active campaign days versus days when no campaigns were running. Sales and orders showed growth by more than 200% across all regions and segments when both ads and offers were running. Actual results may vary.
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