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6 Reasons Your Business Needs Average Order Value

What is Average Order Value?

As a business owner, you aim to increase profits over time. What if I told you that there was a way to achieve this without spending any more money than you already do right now. This article explores AOV meaning, how it's derived, and highlights an AOV tier list explaining why your business needs it.

AOV meaning Average Order Value is a performance metric used by business owners and sellers to analyze customer purchasing habits and overall brand engagement. In layman's terms, an average order value tries to determine the mean monetary equivalent a customer spends when he or she makes an order. Tracking this value can be carried out at any particular time and fashion, be it weekly, monthly, or quarterly. It is common among many companies to ascertain their average order value at the end of each month.

As a business owner, the benefits of tracking your average order value are huge and can be of tremendous advantage to your business in the long run.

Analyzing the Value of Each Order is Simplier Than You Thought

How to Calculate Your Average Order Value

This simple formula can determine an Average Order Value:

AOV = (Total Revenue) / (Total Number of Orders)

Calculation of your AOV involves dividing your revenue for a particular period by the number of orders made within this time. AOV does not account for the number of purchases made per customer, but the overall sales are recorded per each order. So, it is merely a metric that allows you to gauge your business's performance over a specific time frame.

Customer engagement is not without use when determining an Average Order Value. There are instances where a particular customer makes subsequent purchases within a specific period. These individual purchases will, however, be considered separately into the average order value.

Other factors, such as gross profits, are also not contained in the average order value. All they do is offer some understanding of how the average order value comes about. For instance: an online shoe retailer might sell three pairs of shoes at the rate of $85, $110, and $122, respectively but have an AOV of $95. This low AOV shows that the most purchase of shoes belongs to those of lower price range.

Making Data Driven Decision = Success, Profits, and Growth

Reasons Your Business Needs AOV

Both are important when it comes to securing a good ranking on the search engine result pages. However, there are a few instances where it is wise to focus on one over the other

Understanding Customer Habits

AOV offers some form of a performance metric to measure your customers' purchasing habits. You can quickly determine your customers' buying power with AOV, meaning easy determination of what customers spend more, which products are purchased the most, and which channels your customers buy from the most.

Customers who buy goods from your online store tend to reduce individual operational costs, which ultimately is beneficial. So, understanding your customers' behavior is vital for your business strategy as it gives you knowledge that'll help improve AOV, reduce unnecessary costs, and increase net profit as you journey along.

Evaluate Your Pricing Strategy

One of the great benefits of calculating your business' average order value is that it makes it easy to evaluate pricing over an estimated period. You can know what products and services have the most engagement while gaining insight into tailoring your marketing strategies to fit your customers' preferences in the long term.

Methods may include asking for customer feedback on best pricing, tweaking your design to offer customers better deals, discounts, and loyalty programs, or ultimately channeling your focus to what works best for the business.

Customer Segmentation

Your AOV gives you more in-depth knowledge of your type of customers who visit your site, helping you organize your site in a way that suits a cross-section of visitors. You can employ personalization tools that consider things like what a visitor clicks when on your site, what device or browser they are using, what location they are, and the gender of the visitor.

Personalization tools can equip you with full knowledge of segmenting your eCommerce site to best serve your products and services to a unique customized base, which is especially common in gender-based cases.

Understanding the Seasons

Calculating your average order value helps you monitor market trends. You can know the peak seasons for a particular product as well as unavoidable lows within the market. Learning every aspect of the market gives you a more in-depth insight into channeling your marketing efforts. To understand these trends, it is always best to determine your AOV weekly or bi-monthly. This way, you are consistently in the know of every single change that takes place in the market.

Allows for Rapid Experimentation

Knowing your average order value benefits your campaign efforts. Regardless of how many methods you employ to improve your revenue, you must be willing to take that extra leap through experimentation as a businessperson. The good thing is that your AOC reduces the risk associated with doing these experiments. For instance, you can simultaneously run a test on different versions of your eCommerce site to see which produces the most desirable outcome. This way, you not only reduce run time, but you can maximize your AOV on a large scale.

Customer Browsing History and Product Recommendation

Such information can have a big boost on your average order value. Working with your customers' browsing history puts you in a unique position to understand what each customer likes and purchases the most. Based on these preferences, you can offer individual product recommendations anytime your customers visit your website in the future. This feature is prevalent on successful eCommerce sites such as eBay and Amazon.

The more your customers engage with your site, the better informed your site algorithms are about what products and services to recommend. Even when they are skeptical about committing to a purchase, they still have the opportunity to add the item to their shopping cart until they are ready to buy. This system across the board shows conversion to higher sales and increasing average order value in the long term.

With the widespread utilization of the internet in recent years, it is no surprise that most business owners are rapidly incorporating eCommerce. If you have decided to make this switch, you should understand AOV meaning and increase your ROI.