Understanding Average Order Value (AOV)
I Gather everyone seems to think average order value is just the total sales divided by the number of orders. Which, of course, is technically correct. But it's also the most simplistic way to view AOV.
For most online businesses, those few numbers alone don't even begin to show you the full picture. If you only ever look at AOV from a macro perspective, you're missing out on all the juicy data that can sometimes truly help you grow. Comparing the AOVs of different channels, different customer personas, and different products is an important next step after you've reviewed the overall average.
Because by then you've already seen what's working and what isn't - now you can see where it's working and where it's not working. It's not just about seeing which channel is performing and what you're doing right. It's also about examining underperformance and tweaking your approach to shore up the holes.
And then there's time. Your AOV isn't always going to be consistent month on month - your metrics for say, November, might be far better than anything you achieve in say, April. Or maybe your metrics are seldom most healthy in June rather than December because your products are more suited for hot weather rather than gift giving. Using historic data to analyse year-on-year AOV averages for specific months or seasons can occasionally help you set realistic growth targets too.
All of this makes it seem like AOV is a lot more difficult to calculate than it actually is but that's mostly because we're conditioned to believe that a single surface-level metric is enough. But knowing how people are shopping and spending tells you more about them (and your business) than any bottom line profit ever will.
The Psychology Behind Bigger Carts
There's a notion that people spend more when they feel particularly rational, that price is the main driver of why and how we shop. But emotional triggers like impulse, nostalgia, and even guilt have far more to do with our spending than we'd ever admit. I Suppose the feeling of scoring a discount makes us reach for our wallets but so does frustration at missing out on something we've been meaning to buy for a while.
That said, cart abandonment rates can be terribly unpredictable - especially online. People drop off after just two or three steps into the purchase journey, which means that their experience at each point must be highly tailored to them. A big reason shoppers abandon carts is that they're not happy with either the total price or with having found everything they wanted to in one place.
More or less. But there's something that can be said for a user experience that's as close to in-person shopping as possible. We rarely leave behind shopping trolleys in physical stores because we're able to actively see the items go into them. It helps add up costs so we know what we're working with, and it lets us make swaps if something seems too expensive - something many online retailers just don't get right yet.
It also pays to remember that it can be hard to put ourselves in our customers' shoes when designing their experience of our brand. While they'll spend more when they're happier and looking to indulge, it's impossible to predict precisely how much value each customer will attach to our brand and what they're willing to pay for it. All we can do is ensure we're being as transparent as possible about all things price while offering the kinds of things people look for in a personalised shopping experience - custom discounts, new launches, friendly customer support, and loyalty perks.
Tactic 1: Bundling Products for Value
Strikes Me As bundling can sound like the sales equivalent of handing someone a supermarket basket and telling them “just put everything in there. ” That’s why many brands get it wrong by shoving unrelated or even incompatible items together. When you think about it, what are the odds someone looking for prebiotic coffee is also going to pick up an unflavoured protein powder.
The way I see it, the reality is that most customers won’t appreciate being forced into buying a bundle. And that can backfire, taking all your other product and business metrics down with it.
True product bundling is about adding actual value to the shopper's experience. Sure, you could sell a sipper bottle at a discount with every 500g of protein powder but, at some point, you're going to run out of water bottles. Or even customers who need a new one. The way I see it, successful bundling is almost always driven by data.
What are your customers looking for. How does this align with what they’ve previously bought. What sort of buyer personas are we talking about here.
More or less. It can get quite tricky if you've only got limited data on shoppers. Sometimes, brands end up creating bundles that seem very compelling but fail to meet customer expectations.
Maybe they're assuming someone's interested in cycling simply because they've bought more than 2kg of protein powder and have thrown in a packet of bike gloves for good measure. This seems like it should work but doesn't. Bundling is quite a bit at its best when it's built around customer needs instead of assumptions about their identity or personality - especially if you're working with thin audience data. In these cases, I think it's better to play around with discounts on different products based on what's in a cart and what's lying unsold in your stock room rather than try to build bundles yourself.
The fact is that you can't always create compelling offers based on what you want people to buy, sometimes you have to let them show you what works for them.
Tactic 2: Implementing Upsell and Cross-Sell Strategies
You know what most people get wrong about upselling and cross-selling. They come at it like a used car salesperson on a sugar high. I think shoppers can sense when you’re more interested in squeezing the last dollar out of them than helping them find something delightful.
Sure, those marketers might get a spike in their cart sizes for a week or two, but the results don’t last long. Instead, the best cross-selling and upselling pitches are those that focus on helping buyers find what they like – rather than what’s convenient for you to recommend. It’s not always about pitching add-on products. Sometimes, it’s as simple as offering free next-day delivery for purchases above $150.
Or introducing complementary merchandise at the checkout page with minimal effort or pressure. The best brands have been doing this forever – think McDonald’s soft drink ‘upsizing’ as an example. It takes time to strike the right balance between pushy sales tactics and gentle nudges at checkout, but it can pay off eventually. The relationship between upselling/cross-selling efforts and increased AOV is well-documented, but it can take time to realise these benefits for your online store.
And not every checkout journey needs an upsell/cross-sell pitch either – so choose carefully based on your understanding of customers’ motivations and preferences. Being customer-centric is incredibly important for sustainable growth and will likely lead to compounding gains down the road.
Tactic 3: Offering Free Shipping Thresholds
I suppose offering free shipping has become sort of like putting your own face on a flyer - everyone is doing it. Yet, most brands are missing the point and failing to wield it strategically. Free shipping is powerful but most stores don't use it as a lever to dial up order sizes.
They're just offering it because everyone else is and they aren't thinking about it in terms of their own AOV or bottom line. What works for one brand won't necessarily work for yours. Many fashion retailers, usually small businesses, end up matching their free shipping thresholds to what their competitors are offering without actually analysing their past order data, profit margins, or costs.
And if they aren't getting this wrong already by offering free shipping on all orders regardless of cart size, they end up making things worse by offering products that are priced well below the minimum threshold - which means customers end up buying one item anyway. There's no perfect science here - well, there is possibly but if you're in fashion retail it's an art form more than anything else at this point. For instance, setting your minimum to match your highest selling product encourages customers who want that product (and nothing else) to buy just enough to qualify for free shipping with a less expensive (lower margin) add on thrown in.
This often means you make less money per order while getting stuck paying for shipping. Often the best way forward is by keeping your threshold slightly above your current AOV or above two lower price items. If you've got lots of accessories to throw into the mix here, you're golden so definitely consider this as a way to push those lower ticket items along with your best sellers which might make qualifying for free delivery easier for more of your customers.
Tactic 4: Creating Limited-Time Offers and Promotions
Limited-time offers. I Assume they’re meant to be used by merchants to create a sense of urgency and exclusivity, driving customers to make purchases while the offer is still available.
But most people get this wrong. The way I see it, it’s pretty common for online stores to have a “perpetual sale”, which is basically a sale that never ends. That sort of defeats the whole point of a limited-time offer, doesn’t it. If you’re running sales all year round, customers will eventually catch on and know that the discounted price is the real price of your products.
And they’ll only buy during these sales - you’ll almost never see full priced purchases in your store again. The best way to avoid this trap is by being authentic with your offers. If you’re running an end-of-season sale, start it when the season’s ending and end it after a week or two at max - give customers enough time to decide but not too much that they procrastinate.
When you’re running promotions and offers for special events like birthdays, Mother’s Day or Christmas, use them as opportunities to really showcase what makes your brand unique and give customers a meaningful offer (not something random). If it ever seems like there are too many holidays in the year and you feel like your store’s been in sale mode all year long, that could be true. Marketing calendars have become increasingly complex over time. Brands from every industry need visibility all year round and that means there’s always a holiday coming up every few weeks.
But you don’t have to keep up with them all - pick ones that are relevant to your brand and make sense for your audience instead of trying to take advantage of every holiday possible.