When you start getting pressure from the top to increase revenue, maybe your first thought as a marketer is to go out and try to win new customers. But there are other ways to boost sales.
Instead of investing heavily in trying to acquire new customers, you can maximise the value of the customers you already have by increasing Average Order Value (AOV), sometimes called Average Basket Value (ABV). This approach can help you grow your business without proportional increases in marketing, advertising, and other costs.
In this article, Omnia takes a look at strategies to increase AOV, external factors that can impact the metric, and how to handle fluctuations over time.
Strategies to increase Average Order Value for e-commerce
Boosting AOV over time should be a focus point for all types of e-commerce retailers. Why is this metric so important? A higher AOV means increased revenue from the same number of customers, enabling revenue growth without proportionate increases in marketing and sales costs. So, optimising AOV can be a high-impact lever for marketers to drive business growth.
There are a variety of strategies that can be employed to increase the AOV for an e-commerce business, including:
1. Upselling and cross-selling
One of the most common and effective ways to increase AOV is to upsell or cross-sell the customer, either at the time of purchase or after the purchase has been completed. One McKinsey study found that cross-selling and other techniques for category penetration can boost sales by 20% and profits by 30%.
Upselling is the act of inviting customers to buy a comparable, higher-end (i.e. more expensive) item than the one they initially were considering. Cross-selling is the practice of encouraging customers to purchase related or complementary products or accessories.
For example, if a customer is buying a camera in your e-commerce store:
- You could upsell them to a higher-end model or the newest edition.
- You could cross-sell an additional lens or tripod to accompany the camera.
2. Bundling products or offering discounts on packages
Consider creating product bundles or packages that offer multiple items at a discounted price. When a bundle includes items that are i) of interest to the customer and ii) represent a great value, it can increase AOV while also encouraging customers to purchase additional items they may not have otherwise considered.
For example, UK beauty retailer LOOKFANTASTIC has a number of versions of “The Box”, bundles for different types of beauty products and special editions like Mother’s Day.
A great time to utilise bundles and increase AOV is to create an “all-in-one” package – something that includes everything they would need or want for their desired experience. For example, a food and beverage retailer could sell bundles themed around holidays or events: the Super Bowl bundle, New Years Eve bundle, etc.
3. Implementing minimum order thresholds
As customers, we’ve all been there: the online store says you need to spend €8,79 more to get free shipping, so you add something to your cart. Or, maybe you have to spend a certain amount to qualify for a discount on offer.
Minimum-order thresholds are a proven way to boost AOV for e-commerce. Offering free shipping or discounts on orders that exceed a certain amount will incentivise customers to add more items to their cart to meet that threshold, and often the amount they end up spending will exceed the minimum you set.
Not sure where to start? Digital ads expert Aaron Zakowski suggests setting the minimum threshold at 30% higher than your AOV. That way it feels attainable to the greatest number of customers possible. If you set the threshold too high, there may be an increase in abandoned carts. Extra costs like shipping contribute to nearly half (48%) of abandoned carts, so a properly set threshold is a win-win for both seller and consumer.
4) Creating loyalty programs
One strategy to increase AOV while also improving customer retention is to offer rewards or discounts for customers who spend a certain amount or make repeat purchases. This encourages continued business and incentivises customers to increase their order size.
All the key metrics – from AOV to retention to profit – are connected, too: One study by Bain & Company found that a 5% increase in customer retention can increase profitability by 75%.
Source: Shopify | Data: COLLOQUY
5) Announcing time-limited offers
Creating a sense of urgency with time-limited promotions or flash sales can encourage customers to buy more items at once. This can be especially impactful during a low season if such a time exists.
For example, if you sell seasonal items like swimsuits, you could offer a winter sale. While swimsuit sales are typically lower during the colder months, a time-limited promotion encouraging customers to stock up before the spring and summer rush might boost AOV during a historically slower period.
6) Personalising the customer experience
Personalisation can produce higher AOV as well. 40% of US consumers say that a personalised customer experience led to them making a more expensive purchase than originally planned.
The most effective way to personalise e-commerce experiences is through data. Leverage customer data and analytics to personalise product recommendations and marketing campaigns based on a customer's purchase history, browsing behaviour, and preferences. First-party data – the data you collect directly from your customers, like Nike with its membership program – is especially impactful. It enables you to make informed decisions and personalise the customer experience based on things they told you directly.
Personalising with first-party data pays off, too. Brands utilising first-party data in key marketing functions achieved a 2.9-times increase in revenue lift and a 1.5-times increase in cost savings.
External factors that affect Average Order Value
Shifts in AOV are driven by more than the tactics marketers employ to encourage customer spending. The most obvious external factor that impacts AOV is seasonality. This applies both to products with a seasonal element (e.g. swimwear or ski equipment) but also any business impacted by buying seasons (e.g. Black Friday and pre-winter holidays, back-to-school season, etc).
Economic disruptions can impact AOV as well. For example, the first COVID-19 lockdowns created drastic shifts in AOV in the EU over the course of just a few weeks. Prior to the spreading of the pandemic, AOV hovered between €90.37 and €82.84. By February 17th, that number had increased by over 25% from the week before to €103.81 per order. AOV then dropped off dramatically following the first European lockdown announcements on March 9th.
Another economic factor impacting AOV is inflation. With rising prices, AOV actually increases assuming sellers pass added costs on to consumers – even if total sales take a hit. The chart below illustrates changes in AOV and inflation in Europe from Q4 2021 until Q3 2022. Seasonality can be seen in the drop-off in December 2021, after the peak of Black Friday and the holiday shopping high season. March 2022 shows another drop after a strong February, likely due to the start of the war in Ukraine, consumer uncertainty, and inflation. By April, brands and retailers were already adjusting prices, after which we see AOV increase in following months.
Your AOV increased or decreased – what now?
For many e-commerce companies, AOV is a fairly steady and predictable metric. However, because of AOV’s potential impact on revenue without proportional increases to marketing and sales spend, it’s a KPI e-commerce companies should continue focusing on.
If your AOV has decreased – suddenly or over a period of time – it’s crucial to figure out why, and quickly. Analyse the current tactics being used and why they may not be working. Are your customers no longer responding to tactical nudges that worked in the past? Do you need to update target customer profiles to improve personalisation efforts? Perhaps your loyalty programmes and discount offers are no longer appealing to your target demographic?
Trying out new or updated tactics, such as the ones discussed in this article,
is a helpful way to shake things up.
If the issue is not down to marketing tactics but a product assortment problem, or another major factor like a new competitor entering the market, that will require a deeper analysis and discussion across the company.
If your AOV is increasing, great! That means something is working. Analyse which tactics are having the biggest impact, and double down on those. If some techniques are not contributing to the increase, switch them out for others to see if you can boost AOV even more.
Increase sales to people with existing purchase intent
By concentrating on Average Order Value, you are able to capitalise on customers that have already expressed purchase intent. These visitors have already shown that they want to buy, and may even have products in their shopping cart. It is then easier for you to help them discover additional or higher priced items that are relevant to their needs. The loyal customers will continue to boost AOV over time, as 57% of consumers say they spend more with brands they’re loyal to.
Optimising for Average Order Value is about increasing the value for those who already spend with you, a helpful complement to any new customer acquisition strategy. This way, customers who spend more money on your site will get more in return.
Lauren is a copy and content writer based in Berlin, Germany with a focus on SaaS, tech, e-commerce, and the future of work. She graduated from the Kelley School of Business with a degree in marketing and has been publishing thought leadership articles and research reports for companies in Europe, North America, and Africa since 2016.