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What AOV is and how to help increase it for your 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 learn more about:
What is average order value (AOV)?
AOV, or average order value, represents the average amount a customer spends in a single transaction. A higher AOV means more revenue per sale, letting you grow revenue with each transaction rather than focusing solely on customer acquisition. If you have 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 determine 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 bookstore 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 equal only 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-over-year (YoY) comparison.
Gather total revenue and total order numbers
Because the owner wants to calculate the AOV of her brick-and-mortar store 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 bookstore’s in-person transactions 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 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 bookstore owner, this is game-changing: She now 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 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 emphasise higher AOV strategies can increase revenue without increasing your workload.
It’s helpful to view AOV alongside other key customer metrics for a fuller picture. For example:
- Conversion rate: The owner reviews her website analytics and sees that one out of every 50 visitors to her online store will make a purchase, giving her a 2% conversion rate. Using her Average Order Value (AOV), she estimates that every 50 visitors bring in $20 in revenue, resulting in $0.40 per visitor. Based on this revenue per visitor, she now knows she shouldn’t spend more than $0.40 per new visitor in marketing to ensure she turns 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, they came back to visit the store later.
Additionally, metrics like the mode, or most common order value, can reveal opportunities for upselling. In the bookstore owner’s example, if the most frequent purchase is a $9.99 paperback, promoting a discount on a hardcover with two paperback purchases can potentially increase AOV without extra marketing spending.
5 strategies to help increase average order value
Once you know your AOV, it’s time to optimise your strategies. Consider these tactics below to incentivise customers to add more when it’s time to check out.
1. Segment customers by their previous orders
Grouping customers based on their buying patterns allows for targeted promotions that resonate with specific segments. For instance:
- Frequent shoppers: Offer discounts or a Buy One Get One (BOGO) deal to encourage additional purchases.
- High spenders: Suggest premium add-ons or bundle offers, as they may be more inclined to spend on additional value.
2. Cross-sell and upsell popular products
Cross-selling and upselling are classic methods to increase AOV. For example, a retail store might suggest a matching accessory to complement a high-value item. Similarly, online platforms can recommend related products using phrases like ‘Customers who bought this also liked …’. Cross-selling can add value by showing customers relevant products they may not have considered.
3. Use strategic discounts with minimum cart values
Encourage customers to meet minimum cart thresholds by offering discounts or free shipping for orders over a set amount. For instance, offering a 10% discount on purchases above $50 can incentivise customers with lower cart values to add more to their order to qualify for savings.
4. Offer bundles and kits
Bundles combine complementary products into one package, offering a discount on the total. For example, a bookstore could bundle a popular book series at a slight discount, encouraging customers to purchase all books rather than just one. Bundling is a proven method for maximising revenue, as it simplifies decision-making and appeals to a customer’s sense of value.
5. Introduce a loyalty program
Loyalty programs reward customers for repeat purchases and may encourage them to increase their order value to reach rewards faster. For example, if customers earn points for every dollar spent, they may spend a bit more to earn rewards quickly. This strategy increases both AOV and CLTV by promoting ongoing engagement.
How Uber can help you increase your AOV
On-demand delivery reduces friction for the customer, and that 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 carts. Considering that 72% of customers report that they’ll likely continue to order from a company that offers express delivery (within 2 hours), 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 delivery people in the Uber network to get orders to your customers quickly and efficiently.
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 storefront 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 reach up to 91% more new customers than without using ads; offers, which are special saving opportunities for customers, can result in up to 94% more orders.* Even more, by combining these strategies (what we call the ‘better together’ approach), you have 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? Learn 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.
Monitoring your AOV for ongoing success
To boost AOV effectively, you may try tracking the impact of each strategy consistently. Periodically checking your AOV metrics can help you spot what’s driving results and where there might be room for fine-tuning.
Frequently asked questions
- What is AOV, and why is it important for online businesses?
AOV, or average order value, is the average amount customers spend per transaction. It’s crucial because it allows businesses to grow revenue without increasing their customer base. Tracking AOV supports more effective budgeting, marketing and revenue forecasting.
- What’s the difference between AOV and CLTV?
AOV measures the average customer spending per order, while CLTV (customer lifetime value) measures the total revenue a business can expect from a customer over the duration of their relationship. AOV focuses on individual transactions, while CLTV provides insight into the long-term value of customer relationships.
- How do I calculate AOV for different sales channels?
You can divide the revenue from each channel by the number of orders for that channel. Comparing AOV across channels (such as in-store versus online) can reveal valuable insights, such as which channel drives higher order values.
*Small and medium 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 running only ads, merchants running only 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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