Average Order Value Definition: In eCommerce, Average Order Value (AOV) measures the amount that is spent every time a customer places an order on a website or app. AOV can help you understand whether customers tend to order more expensive or less expensive products, the amount of products they typically order, and how much each transaction costs in relation to the transaction itself.
The formula to calculate average order value is as follows, and is usually assessed per month:
Average Order Value = Total Sales Revenue / Number of Orders Taken
To illustrate, let’s say you sell luxury handbags. Last month your total sales were $230,000 and you had 116 total orders. $230,000 divided by 108 = $1,983, so your AOV was $1,983.
eCommerce marketers need to keep in mind that AOV is determined using sales per order, not sales per customer. That is, the same customer can initiate multiple transactions but each order would be factored into AOV separately.
How to Increase Average Order Value
Marketers and retailers can increase Average Order Value by segmenting their most high-valued customers, and delivering them personalized experiences that encourage them to buy more and increase their average order values. Personalized product recommendations allow exactly that. Product recommendations are an integral part of the shopping experience, and visitors who engage with product recommendations generate 280% higher revenue per visit compared to all users. By using multiple recommendation strategies in a single unit, marketers can maximize revenue and Average Order Value.
Understanding your average value is critical, but it is not the only means of understanding the impact of your customers on revenue. Metrics such as Customer Lifetime Value and Cost Per Conversion should always be considered alongside any AOV consideration.