Dec 10, 2024

Shopify tips

What is Average Order Value (AOV) and How To Increase It?

Andrey Gadashevich

CEO | Conversion expert

As your Shopify store grows, you'll come across a variety of metrics that help you understand how your business is performing. One key metric is the Average Order Value (AOV). For Shopify merchants, AOV provides insights into customers' buying behavior and the effectiveness of pricing strategies.

But what exactly is average order value?

In this post, we'll explore what AOV means, how to calculate it, and how you can use this metric to your advantage.

What is average order value?

Average Order Value (AOV) tells you how much, on average, a customer spends each time they place an order in your store. For example, a shopper buying 3 products priced at $20, $40, and $60 would have an order value of $120, which contributes to the store’s Average Order Value.

AOV gives you helpful insights into how your customers shop, which products are frequently bought together, and can guide you in finding smart ways to encourage them to spend a little more each time.

How to calculate average order value?

Here's the formula for calculating Average Order Value (AOV):

Average Order Value = Total Revenue ÷ Number of Orders

You calculate AOV by dividing total revenue by the number of orders.

Example:

If your store made $2,000 from 100 orders:

AOV=2000 ÷ 100

So, your Average Order Value is $20.

AOV Examples: Two stores with the same revenue

Let’s say you have two clothing stores, Store A and Store B.

Both stores made the same amount of revenue in a month, $10,000. But these stores didn’t have the same amount of orders: Store A had 50 orders, while Store B had 25 orders.

By calculating AOV, you get:

Store A has an AOV of $200, while Store B’s AOV is $400.

That means customers at Store B are spending twice as much per order compared to those at Store A.

This difference can say a lot. Store B might be doing a better job at upselling or cross-selling, or they could be offering higher-priced products. Either way, it’s a helpful insight when you're thinking about how to improve your sales and marketing strategy.

AOV vs. Customer Lifetime Value (CLV)

While Average Order Value (AOV) and Customer Lifetime Value (CLV) both offer insights into customer spending, they focus on different aspects of the customer experience. AOV measures the average amount spent per order, providing a snapshot of transaction habits. In contrast, CLV calculates the total revenue you can expect from a customer over their entire relationship with your store.

Understanding both metrics is important for a comprehensive view of your store's performance. While AOV helps you optimize individual transactions, CLV focuses on long-term customer relationships. By using both metrics, you can better tailor your marketing and sales strategies, balancing immediate gains with long-term growth.

How to increase average order value in Shopify?

To increase average order value, you should implement strategies in your Shopify store that encourages customers simply to spend more.

Here are on-site widgets you can display in your store that encourage customers to add more items to their cart and spend more in one transaction:

1. Upselling and Cross-selling

With upselling and cross-selling techniques, you can encourage shoppers to purchase or spend more by suggesting complementary products (cross-selling) or higher-end versions of items they're considering (upselling).

Upselling is when you encourage a shopper to buy a more expensive or upgraded version of a product they are already considering.

Cross-selling is when you suggest related or complementary products to go along with their purchase. For example, upselling could mean offering a laptop with more storage, while cross-selling could mean suggesting a laptop bag or mouse.

Upsell & cross-selling helps grow revenue from a single transaction.

💡 Shopify app recommendations:

⭐️ Learn how to create upsell popups with MBC Bundles.

📖 You might also like to read: What are Upsell & Cross Sell? Best Methods to Use Them

2. Product Bundling

Product bundling is another sales strategy that helps increasing average order value. Product bundling is where multiple products are packaged and sold together as a single combined offer, often at a discounted price. For example, a skincare brand might sell a cleanser, toner, and moisturizer together as a bundle.

Create bundles of related products at a slightly discounted rate to encourage shoppers to buy more items in a single order.

💡 Shopify app recommendation:

⭐️ Read more about the product bundling types you can create with MBC Bundles for free: Types of product bundles

📖 CASE STUDY: How Mix & Match offers increased sales by 10% and resulted in higher AOV

3. Loyalty Program

A loyalty program is one of the most effective marketing strategies. Loyalty programs reward customers for repeat purchases or continued engagement with a brand: Customers earn points, discounts, or special perks for their loyalty, which encourages them to return and buy more.

Reward customers with points or discounts for higher spending, encouraging them to add more to their cart to reach the next reward tier.

4. Volume Discount

A volume discount is when a business lowers the price per unit if a customer buys more items at once. For example, instead of paying $10 each, a buyer might pay $8 each when ordering 3 or more.

⭐️ Learn how to create volume or quantity discounts with MBC Bundles

💡 Shopify app recommendations:

Why is AOV important for Shopify merchants?

1. Provides Insights into Customer Behavior

AOV helps you understand how much, on average, customers are willing to spend per transaction. This information can guide your pricing and product bundling strategies.

2. Identifies Opportunities for Growth

By analyzing AOV, you can identify opportunities to encourage customers to spend more, such as upselling higher-priced items or cross-selling related products.

3. Helps in Personalizing Marketing Strategies

AOV data can inform personalized marketing strategies, such as recommending products based on past purchases, which can enhance the customer experience and increase sales.

4. Optimizes Pricing Strategies

Understanding your store’s AOV can help you decide on effective pricing strategies, such as tiered pricing or volume discounts, to maximize revenue.

5. Complements Other Key Performance Indicators (KPIs)

AOV should be considered alongside other metrics like Customer Lifetime Value (CLV) and conversion rate to get a comprehensive view of your store’s performance.

📖 You might also like to read: Essential Product Bundle Metrics You Should Track in Shopify

Wrap Up

Average Order Value (AOV) is a crucial metric for Shopify store owners, providing valuable insights into customer spending habits. By understanding and focusing on AOV, you can implement strategies like upselling, cross-selling, and product bundling to encourage higher spending per transaction. These efforts not only boost individual order values but also contribute to overall revenue growth, making AOV an essential part of any successful eCommerce strategy.