How can Amazon sellers increase their average order value?

Average order value (AOV) is one of the most important metrics for Amazon sellers and a key factor in optimizing e-commerce business. How is average order value calculated? What is its important impact on sellers? How can it be improved? The following will answer your questions one by one.

What is Average Order Value?

Average order value (AOV) is a very important e-commerce metric that refers to the average amount of money spent on each order. It is a metric that every seller should pay attention to and can help evaluate product sales results.

Average order value plays a great role in determining advertising spending, product pricing, store layout, etc.

What Average Order Value Means to Sellers

Increasing average order value is an important goal for every seller, as it can offset customer acquisition costs, shorten payback period, and improve ROI.

An increase in average order value means higher profits for sellers, allowing them to invest more in product development and advertising.

Average order value can help you understand:

• Consumer shopping behavior

• How many consumers are searching for your product?

• Customer spending on products

By understanding how much customers spend on each order, you can tailor your product pricing and marketing strategies accordingly.

As customer acquisition costs continue to increase and competition grows, a higher average order value is what will keep you relevant on the Amazon platform.

Knowing your store’s average order value can help you evaluate your pricing and marketing strategies. Some marketers focus more on increasing website traffic, but that costs money, while increasing average order value does not.

Increasing your average order value is one of the most effective ways to increase revenue and profits.

How to calculate Average Order Value (AOV)?

Calculating average order value is simple. You only need two pieces of data:

• Total income (for a period)

• Total number of orders (in a period)

The formula for calculating average order value is: Average order value = total revenue ÷ number of orders.

Assume that your store’s revenue last month was $2,000 and the total number of orders was 200, then your average order value last month was $10.

It should be noted that the average order value refers to the average amount of each order, not the consumption amount of each customer. That is, if a customer makes multiple purchases, the average amount will also be calculated for each order.

Although average order value does not clearly reflect profit margins or gross profits, it does reflect consumer trends. For example, a clothing seller sells three types of shoes, priced at $20, $25, and $30, and the average order value is $18, which reflects two consumer behavior trends:

• Customers rarely buy multiple pairs of shoes

• Low-priced shoes account for the majority of sales

Assuming that higher-priced shoes have greater profit margins, marketers can then conduct targeted marketing based on the above information.

Like other metrics, sellers need to monitor average order value closely, such as daily or weekly. If the average order value spikes or drops, it is important to carefully examine all aspects of the business to understand the factors driving the change. Shopping seasons, new ads, or changes to the store can all affect fluctuations in average order value.

There are two more metrics to consider when evaluating average order value:

• Customer Lifetime Value : This is the total revenue that a customer may bring to the seller in the future, and it also shows the average order amount of this customer. If this value is too low, it means that the customer does not make many purchases.

• Cost per conversion : This needs to be deducted from the average order value to reflect the actual profit per order.

  
  

How does average order value affect your decision making?

Average order value can help you understand your customers’ behavior patterns, develop pricing strategies, and make advertising investments. Average order value is fundamental to Amazon business growth and can help you generate healthier cash flow.

1. It reflects shopping trends

Average order value can reflect the sales time that sellers should pay attention to. Which advertisements or holidays can arouse consumers' shopping enthusiasm? For example, on Valentine's Day, candle sellers will receive more orders. Then sellers can highlight free shipping thresholds, implement bundled sales, and launch advertisements at this time to attract more repeat customers and new customers.

If a seller is not reaching their revenue target, they can check the average order value to see if it has increased or decreased. If it has decreased, it means:

• Your product price is too low

• Ads didn't work

Maybe a different ad or a different product would work better. In this case, average order value can help you better understand your target audience and optimize your ads.

2. Customer acquisition cost

If your customer acquisition cost is high and your average order value is low, you will lose revenue. If your conversion cost is $100 and your average order value is $100 or less, your business is in trouble. Your average order value must be twice your customer acquisition cost.

3. Advertising expenditure

Ask yourself a question: How much is the advertising expenditure? Does the advertising expenditure actually convert into order value? If the advertising expenditure is equal to or exceeds the average order value, it means that there is a problem with the business.

4. Pricing strategy

Average order value can influence your pricing strategy. Based on the average order value, sellers can increase or decrease prices accordingly to increase order volume.

How to increase average order value?

How can you increase your average order value? There are many techniques to achieve this goal, including:

1. Bundling products

If you want customers to buy more products from you, you can try some eye-catching product combinations. Bundling products can increase the amount of purchases made by consumers, and it is best to solve all the problems of customers in one stop.

For example, cosmetics sellers can bundle products that customers use every day and sell them in bundles. This not only increases order amounts, but also creates more value for buyers.

Alternatively, you can also allow customers to customize the bundled products and let them combine them according to their tastes and preferences, which can also greatly increase the average order value.

2. Cross-selling and up-selling

Upselling : refers to offering customers a higher-level product. Upselling is an attempt to get consumers to purchase a higher-level version of a similar product, but with better quality and a higher price.

Cross-selling : refers to offering customers products that go with the products they are buying. For example, "frequently bought together" on Amazon is an example of cross-selling. If a consumer is looking for a phone case, you can recommend headphones or chargers.

Upselling and cross-selling are strategies that Amazon executes very successfully. When upselling, you can:

• Provide a better product version

• Or offer a limited discount

3. Set up a loyalty program

If you sell products that customers are more likely to repurchase, such as diapers, sanitary napkins, shaving cream, etc., you can consider setting up a loyalty program, such as higher discounts for more purchases, etc. This can also greatly increase your average order value.

Most sellers reported that after setting up a loyalty program, the average order value of customers who joined the program was at least 13.71% higher than those who did not join the program.

In addition, a study by Stitch Labs showed that loyal customers spend 120% more per year than new customers.

4. Set a free delivery threshold

Free shipping is the number one factor that influences customers to buy. If shipping costs are too high, consider setting a free shipping threshold, which can increase your average order value because consumers are willing to buy extra products for free shipping, especially when consumers are purchasing more products.

Consumers tend to choose sellers that offer free shipping because they don’t want to have to pay extra.

5. Offer discount coupons

Another way to increase your average order value is to offer discount coupons when customers add products to their carts to entice them to place an order.

6. Offer limited edition products at a high price

This method can also increase your average order value, showing that the product belongs to a high-end brand and you are not just selling the product but also its value.

7. Provide product recommendations

Sellers can recommend some products on the product details page or checkout page, which can also provide average order value. For example, recommend hot-selling products, items that other buyers often buy. Sellers can also recommend some products with slow inventory turnover.

8. Build strong social proof

Social proof is one of the most effective ways for marketers to build credibility with customers. Other customer recommendations, behaviors, UGC content, customer reviews, etc. can all contribute to an increase in average order value. Social proof is so influential that 84% of people believe that recommendations from others have an impact on their purchases.

9. Convenient returns

One of the biggest concerns for consumers when shopping online is returns. If buyers think that returns will cost extra shipping or work, they may only buy a few items, which is not conducive to increasing the average order value.

What is a good average order value?

Increasing your average order value is all about getting customers to buy more products from you, and at a higher price. So what does a good average order value look like?

There is no standard here. The average order value standard you set is only a reference. When setting the average order value indicator, pay attention to the following points:

• There are huge differences between industries . According to a report by IRP Commerce, a British data company, the average order value of online stores selling agricultural products in November 2018 was £63.95, while the average order value of pet care was £80.11. Therefore, when formulating indicators, it is necessary to take into account the differences between industries and not generalize.

• Set indicators based on devices . When setting the KPI for average order value, set different targets for different devices. For example, the average order value on the PC side will be lower.

• Peak season factors . During peak seasons, the average order value will be higher, such as Christmas, Halloween, etc. This factor should also be taken into account when setting standards.

Text ✎ Mary/