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Mobile Marketing

Average Order Value: The Underappreciated Metric of Success

Berkem Peker
November 28, 2022

Running a successful retail app is not about how much buzz you can generate. It is not even just about how many customers you can get to check out your products. Forget revenues, product development, and endorsements. It is all about the bottom line. How much profit is your store really generating? To enhance that profit you not only need to have a steady stream of customers, but you need to have customers who are making significant purchases. After all, almost any store can sell some product to a new customer, but only the best stores can sell significant shopping carts worth of products to each customer. The amount that a customer truly spends when they shop with you is known as their "average order value" (AOV), and it is the metric that we will zero in on today. 

The Importance of Average Order Value

It is difficult to imagine today, but take a time machine trip back to the year 2004, and only about 60% of McDonald's restaurants in the United States were accepting credit card transactions. It wouldn't take long for the burger chain to get all of its stores on board with accepting credit cards when the company realized two critical things: 

What McDonald's had uncovered was that it could greatly increase its average order value by allowing customers to pay the way that they wanted to pay. Their customers didn't need to dig in their pockets for loose change to pay their tab. Instead, they could use a simple swipe of a piece of plastic to make the transaction. Now, instead of thinking with their stomachs, customers could think with their eyes. In the past, they might have forgone the ice cream sundae, apple pie, or an upsized order of french fries, but now the capacity to place those outsized orders was easier than ever. 

You might be wondering what this has to do with your online retail store. Obviously, you accept credit and debit card payments for your transactions. However, the value of this story is in understanding that even the largest companies in the world put an extreme value on their average order value. They will change an entire established payment system if they have to in order to get increased average order value from their customers. That should tell you something about how you structure your business as well. We will look at some of the techniques that an online business can use to follow in the footsteps of McDonald's and increase its Average Order Value. 

Order Size Minimums

Have you ever noticed in the fine print of an advertisement that it will sometimes say that there is a minimum required order size for shipping? Companies frequently do this because they want to ensure that customers spend at least a certain amount of money before they ship items out to that customer. Not only is shipping an expensive practice, but the cost of shipping could outweigh the profit that a company can make if they ship only a small amount of product. Most companies have no choice but to charge their customers for the shipping costs if those customers are only going to order a small amount of product. 

One approach to take is to offer free shipping for customers who place orders above a certain dollar amount. This strategy is quite common and works something like this: 

...you could offer free shipping for orders over $50. This is a common strategy that many online retailers use to increase their average order value. 

If you decide to offer free shipping with a minimum purchase amount, be sure to display this offer throughout your website: on the homepage, on product pages, and at checkout.  

Customers will often do what they have to in order to get free shipping. After all, it hurts psychologically to spend money on shipping. Many customers feel as though they are spending money and getting nothing of value in return. Instead, they would rather load their carts a bit higher and avoid the shipping cost altogether. 

Product Bundling

Products that are alike or that complement one another can be bundled together to create deals for customers and enhance average order value at the same time. This practice is quite common in the video game industry. For example, a current bundle on offer at Wal-Mart includes the following for $999: 

  • Sony Playstation 5 Disc Version
  • 2 white controllers
  • Headset
  • Media remote
  • Call of Duty: Vanguard game
  • Microfiber cleaning cloth

The customer gets all of those products for that price. It enhances the customer's experience because they now have many additional tools that they may use when they play their video games. However, Wal-Mart is happy to offer this deal because they receive a larger payment from the customer who makes the purchase. Had the customer only purchased the gaming console by itself, they might have spent just $749 or so instead. The bundle added an extra $250 to the average order value for that customer. 

Any type of retailer in any industry can do this. The bundles that you create for your online store do not need to be massive, and they don't have to involve as much money as the example above. As long as you are providing value to your customers, they will likely appreciate this and go ahead with a purchase that they might not have otherwise made. As you might imagine, this can be a boon for your business as you increase the AOV on nearly every order when you convince people to purchase bundled products. 

Loyalty Programs

Loyalty Program

The purpose of loyalty programs is both to reward customers who consistently do business with you, and also to try to encourage those same customers to increase their average order value when they make purchases. 

You can structure your loyalty program in such a way that customers earn additional points (and thus rewards) when they make larger purchases. If they hit certain milestones with their points, then they may receive special discounts or even free giveaway items for having done that much business with you. Chasing those rewards is something that customers are known to do, and they may intentionally increase the amount that they purchase from you just to get to the next level of the loyalty program. 

There are a lot of upsides to offering these types of loyalty rewards, and you shouldn't take that for granted. Make sure you offer your customers the kind of benefits that they are most interested in and watch your AOV soar. 

Consider Payment Plan Options

Buy Now Pay Later

"Buy it now, pay for it later!" is the mantra of virtually every credit card company in existence. They understand that people are more likely to spring for a large purchase if they do not have to put up all of the money for it right now. Furniture companies, electronics companies, car dealers, and more have all understood this concept and exploited it for years. Databox.com explains:

Lars Lofgren of Quick Sprout noted what credit card companies have known for decades: customers are willing to spend more when they don't have to pay it all upfront. That's why Lofgren recommends, "For high ticket items, offer a payment plan at a higher total price than your pay-in-full price."

If you can show a customer a reasonable monthly payment that they feel that they can afford, then they are more likely to agree to do business with you and purchase a product from you today even if they don't have the full purchase price readily available to them right now. 

When structuring your payment plan, you should ensure that you get two things out of it:

  • A highly total amount for the item you are selling when all of the payments have been made
  • A consistent stream of income from the payments on that plan

This means that you will ideally only offer these plans to buyers who have a reasonable credit score. You don't want to necessarily get into the business of trying to chase down people whose credit scores are less than stellar. If they are unable to pay you back in a reasonable amount of time, then it is not worthwhile to offer this plan to them. Just make sure your eligibility criteria are reasonably strict before structuring such a deal.


Personalize the Experience

Marketers are constantly reminding us that we need to personalize the experiences that our customers have when they enter our e-Commerce stores, but that is because personalization matters enormously when it comes to how much a customer will ultimately spend.

One of the surefire ways to increase AOV is to look at a customer's past history of purchases with you to attempt to determine what they might want to purchase next. You will need to rely on algorithms to actually do this work as the data is far too dense for any single human being to shift through it all by themselves. However, the algorithms are getting better and better, and it is often the case that those algorithms know what a consumer may like almost better than the consumer knows themselves. 

With the data in hand, it is possible to start to pitch those customers the kind of products that they have shown a genuine interest in purchasing. When that is done correctly, the customer may start to see item after item that they simply must have right now. They load up their carts with those items, and then they hit the submit button on their purchase. Ka-Ching! You just increased the AOV for that given customer. 

Offer Something Free With a Purchase

Purchase rewards

Offering something like a gift card with a small amount of money on it when a customer adds to their purchase is a great way of getting them into the habit of buying just a little more than what they had originally planned on buying. The item presented to them does not need to have an extreme value attached to it in order to encourage them to make a purchase. Rather, they just need to see that you are making an effort to try to enhance their lives in a tangible way. Most people will be quite pleased with that and may return to do business with you time and time again as a result. 

The free item that they receive should be something that they can use quickly. The reason for this is because they will form a deeper connection between the gift that you provided to them and the purchase that they made with you if they notice the immediate reward that they received for having done business with you. 

Track AOV Very Precisely

Tracking AOV very carefully and tweaking strategies to improve AOV is extremely important. The amount that your customers spend in your stores depends on you working to constantly improve this statistic. The strategies above will help you make a lot of progress on that front, but you need to monitor how you are doing each step of the way. It is possible that a strategy that has worked for you in the past won't quite hold up as well going forward. If you need to make some changes to see the kind of progress that you want to see, then the only way to know how to do that is to track these statistics and understand where improvements can be made. 

The data doesn't lie, and we here at Storyly want to help you figure out how to make that data work in your favor. If you are willing to give us a chance, we can show you how we have used tried and true techniques to help our previous clients improve their AOV and show significant improvements to their profits as a result. We believe that we have the power to help you make it happen.

Berkem Peker

Berkem is master of none, jack of all trades. Happens to be a Growth Strategist at Storyly. Knows/writes about growth frameworks and user behavior.

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