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What Does AOV Mean in Marketing? A Comprehensive Guide From Calculation to Optimization
November 22, 2024
20 mins
Driving more traffic and inquiries to your eCommerce doorstep requires proper comprehension of essential performance marketing metrics like an average order value (AOV).
Along with the AOV meaning, Promodo marketers will explain the nuts and bolts of an average order value in layman’s terms. But before we hit the ground running, let’s start with the AOV essentials.
One of the primary questions you should ask yourself is: “What does AOV stand for?” The average order value definition sounds as follows:
Average Order Value (AOV) is a key eCommerce metric that measures the average transaction cost on your site or app. It helps marketers understand spending habits, assess customer engagement, and identify opportunities to increase revenue by encouraging higher spending per order.
So now, that you know what is AOV, it’s high time we moved to calculation specifics.
Beyond the AOV definition, one frequently asked question we answer at Promodo is: “How to calculate AOV?”
To calculate AOV, divide your total revenue by the number of orders over a certain period:
If you had 1,000 orders and your sales hit $34,000 in October, your AOV is $34 = $34,000 ÷ 1,000.
If your AOV is lower than your customer acquisition cost (CAC), you're in the red, which means your business is operating at a loss. To stay profitable, aim for an AOV that's at least twice your CAC. This will help you cover customer acquisition costs with each sale and ensure long-term profitability.
The red flag is waving when your CAC exceeds your customer lifetime value (CLV). This means you spend more than you earn and it's time you thought of how to find AOV. And, there’s more to come for the AOV meaning marketing.
However, there is much more to AOV marketing. Understanding core performance marketing metrics will help you grasp the entire sense of AOV as part of a customer lifetime value (CLV) metric:
The following formulas will help you calculate and manage CLV for your business:
Let’s say, you offer a yearly SaaS subscription for $1,000 and your average customer uses the product for three years. Your CLV will be $1,000 x 3 = $3,000.
More often than not, eCommerce retailers experience revenue drop-outs because conversions are dipping among high-paying customers. While AOV displays the total number of checkouts, the best-fit scenario in turbulent times is to track your average order value as a direct indicator of your gross profit.
Another way to track profits on each order is to compare AOV against cost per order (CPO). Considering the cost per order, i.e. shipping costs, will give you an idea of the average marketing spend you need to drive purchases from new and returning customers:
Providing your CPO is $1 and AOV is $10, you’ll earn $9 per order. If you increase your AOV by 10%, you’ll make an additional profit of $1 per order and earn $11 accordingly.
Revenue per visitor (RPV) is an aligned metric of conversions and AOV. The metric shows the revenue driven by every unique visitor on your website.
Increasing the minimum order value for free shipping may raise your AOV, but it could also reduce the number of customers completing purchases, which may hurt your revenue. If a company merely tracks AOV, it risks overlooking the impact on conversion rates, leading to misleading revenue reports.
To get a clearer picture, calculate RPV as follows:
Increasing revenue necessitates two key strategies:
To prevent blind spots and avoid RPV drops, it is pivotal to consider the following:
Drops in conversion rate are due to surging low-intent visitors from unqualified traffic via recent marketing efforts). Your task here is to spot high-quality channels through segmentation.
Drops in AOV are because customers are buying cheaper items. Your task here is to encourage higher-value purchases.
In due context, there’s a related notion known as the average item value (AIV). To get an average monetary value per item, you should divide the total value of all items sold by the total number of items sold within a given period.
Our in-depth advice:
Now, you see that AOV calculation is a serious business beyond the pretty easy average order value formula.
Every time you increase your average order value, you boost profitability for your eCommerce store. Say, your eCommerce store sells for $3,500 monthly from 175 orders, the AOV will equal $20.
To prevent low AOV, consider the following strategies we’ve derived from our hands-on expertise.
The interesting point about AOV is that the metric measures how much your current customers spend per transaction. Once you manage to raise AOV, you’ll maintain profitability owing to your current customer base without the need to attract new traffic.
A well-tailored AOV strategy will help you profit more from each sale. Here are a few time-tested tips showing you how to increase average order value.
One of the simplest ways of bumping up your AOV is to arrange free shipping on purchases that slightly exceed your AOV. At the heart of free shipping is the idea of encouraging customers to increase their cart value to get free shipping offers.
The absence of a free shipping option is among the largest reasons behind the cart abandonment rate, which reaches 70% across eCommerce.
We recommend setting a 30% threshold above your current AOV. This will make customers add more items to the cart. However, beware of the trick underway. Most retailers end up increasing the AOV, though the extra shipping charge cuts the total number of transactions.
The win-win pricing strategy here is to perform A/B testing between a free shipping offer under no terms and the free offer after a minimum order value. Herewith, your strategic task is to track the essential metrics:
Once your AOV is $30, the customers who spend $40 or more will qualify for free shipping.
PPC advertising is not just about driving traffic to your website; it’s a powerful tool for increasing your Average Order Value. By targeting the right audience and optimizing your ad campaigns, you’ll encourage customers to spend more per transaction. Here’s how:
In our PPC case study, discover how Promodo experts doubled the AOV and boosted transactions by 75% for a premium audio equipment retailer based in the United Kingdom.
Upselling is among the proven ways of increasing AOV. The technique is about offering a similar but more expensive option to the customer. However, this does not mean you should maximize every transaction through upselling. Do not overwhelm your customers with random products. The practice is considered aggressive marketing while retailers attempt to to sell all they have to customers who haven’t purchased anything yet.
Cross-selling is about offering extra items to the main purchase, like a bag or USB drive to a laptop. The idea here is to offer complementary items.
PPC campaigns are beneficial for upselling and cross-selling as they can highlight premium product options or complementary items that match the user’s purchase intent. For instance, if someone is searching for a smartphone, your ad can promote a bundle that includes a phone case, charger, and screen protector, encouraging a higher overall purchase value.
Another point to consider is cross-selling during checkouts. Display supplementary items at the checkout stage or on product pages. This way customers will add them to the cart. Instead of being intrusive, offer last-minute suggestions and personalized recommendations to grow AOV on your sales pages.
For a long time now bundles and packages indicate better deals compared to purchasing individual items. With a perceived value at the core, bundles encourage customers to buy more items all at once.
Offering package deals is a combo strategy to sell related products at a lower price. Eventually, your customers buy more even though they consider the option as money-efficient. Adding your least popular items to bundles will help you grow AOV.
Well-targeted bundle offers let your target audience purchase all the stuff quickly.
Leverage product quizzes to promote complementary products, bundles, and high-end alternatives. Discounts and free shipping offers for more expensive orders will further motivate your customers to spend more.
Customer loyalty programs and discounts are encouraging more purchases. Your job here is to give more to your customers, and you’ll benefit a hundredfold:
All these are sound ways to foster customer satisfaction and repeat purchases.
Many of your competitors are diving even deeper:
Limited period offers. Often, shoppers delay their purchase decisions; whenever that’s the case, add limited offer duration to special discounts on a minimum purchase. The approach will create a sense of urgency among customers and encourage them to buy more items at a go.
Volume discounts. The option entails offering discounts on bulk purchases of the same product. Here, it is pivotal to determine the right discount value to acquire new customers without lowering profit margins.
Tiered discounts: The option encourages customers to buy more while “Spend $50, get 10% off” boosts upselling by rewarding higher-value purchases.
Loyalty programs: well-designed loyalty programs encourage repeat purchases. Reward your customers with points or discounts for loyalty based on their spending. Pursuing higher reward tiers will make them spend more per order.
Back to the question of what does AOV mean in marketing, every time you increase AOV, you drive higher revenue from your current customer base, meaning that your business is less reliant on acquiring new customers. Experiment with multiple AOV strategies without overwhelming your customers.
While AOV measures the average revenue generated per order in eCommerce and retail, the AOV advancement strategies in these two areas differ due to their distinct environments and customer experiences.
Our last chapter highlights the core differences between eCommerce and retail AOV strategies and suggests A/B testing and customer segmentation to improve AOV in retail.
To better understand what is AOV in eCommerce and what is AOV in retail, you should consider the differences between eCommerce and retail regarding:
1. Sales Environment
eCommerce AOV: In an online store, AOV strategies are often driven by digital marketing tactics like upselling and cross-selling, personalized recommendations, and time-sensitive discounts. Since customers are shopping from home, they have the flexibility to compare prices, browse products, and apply coupon codes.
Retail AOV: in physical stores, AOV strategies are focused on in-store experiences. This includes strategically placing complementary products near popular items, using loyalty programs, and leveraging store associates for upselling. While shopping experiences are more immediate, customers tend to make impulsive (irrational) purchases. That’s what does AOV mean in retail.
2. Personalization:
eCommerce: to boost AOV, online stores leverage data like browsing history and user preferences to offer their customers the most relevant and related products.
Retail: While retail stores personalize the shopping experience through customer services and loyalty programs, the level of customization is lower compared to online stores. Retailers may offer bundle deals or use signage to highlight complementary items, but they can't replicate the same level of data-driven personalization.
3. Discounts and Promotions
eCommerce: online retailers quickly implement targeted discounts, dynamic pricing, and promotional codes to make customers increase their cart value. In this pursuit, online stores often offer high frequency shoppers free shipping incentives for orders over a certain amount.
Retail: in physical stores, discounts are typically limited to sales events or limited-time offers. Retailers use loyalty points to encourage customers to increase their AOV, but the effect is usually slower and less immediate than in eCommerce.
Now, you know how to increase AOV in retail and eCommerce.
A/B testing is a sound way to compare two versions of a retail strategy to see which one better drives AOV. The approach will certainly help you increase AOV eCommerce and physical retail.
Retailers often A/B test in-store product placements by bundling complementary items or selling items separately. Tracking the increase in purchases from each group helps to determine the most effective way to increase AOV.
Another popular approach is to apply the A/B method in loyalty programs by testing loyalty points for purchases over $50 versus a small discount on the next purchase. The data gathered from A/B testing helps to refine the most efficient strategies to boost AOV.
Customer segmentation based on spending habits, demographics, or product preferences allows retailers to tailor customized AOV strategies.
AOV retail entails that retailers approach high-value customers with personalized offers like exclusive product bundles or premium services. This is a proven way to encourage the high-end segment to spend more per visit. Alternatively, targeting first-time buyers with introductory bundle offers boosts initial AOV and increases customer lifetime value (LTV).
Overall, AOV in eCommerce and retail depends on how far businesses fine-tune deeply customized strategies for their target audience. Leveraging A/B testing and customer segmentation leads to a more personalized and effective way to boost AOV.
AOV is an essential KPI that helps retailers and eCommerce businesses enhance revenue by increasing the amount spent per order.
Revenue insights: AOV helps businesses understand how much each customer is spending on average per transaction, providing insight into customer purchasing behavior.
Profitability: increasing AOV is a key strategy for improving profitability while it suggests that customers are purchasing more during each visit, either by adding more items or opting for higher-priced products.
Marketing and sales strategy: AOV tracking helps businesses assess the effectiveness of promotional campaigns, discounts, upselling, and cross-selling strategies.
Benchmarking: physical and online retailers apply AOV to benchmark their performance over time. Comparing AOV across different periods, customer segments, or geographic regions helps businesses follow trends and optimize their sales strategies.
eCommerce is a permanently changing landscape shaped by the trends in diverse sectors and consumer behaviors.
According to DynamicYield, in November 2024 the average order value for eCommerce has hit $133. The AOV peaked in September at $163 and increased by $27 over a year from $106 in November 2023 respectively.
Shedding a cross-industry light on AOV entails an in-depth exploration of an average order size and an average cart value.
Source: DooFinder & Oberlo, October 2024
Regardless of the industry or niche your business is in, achieve high AOV for your store by setting a minimum checkout amount for free shipping and offering bundle deals.
Now, you are empowered with the hands-on expertise of what is AOV in marketing.
AOV is among the essential metrics to better understand your target customer base and their purchasing patterns. Beyond a pretty easy AOV formula, we’ve covered other valuable metrics to give you a wider picture of performance marketing.
At Promodo, we prioritize customized client-centered strategies that involve unique solutions in every case.
If you lack an in-house marketing team or would like to save on your performance marketing budget, arrange a free session with our experienced digital marketing experts.
Content Marketing Manager at Promodo
Taras has 16 years of hands-on copywriting experience overseas with 3000+ unique copies.
Accredited with Certificate of Proficiency in English (C2 level) by Cambridge University. Studied at Writing Launch Academy (United States) and owns an Academic Writing Certificate from Oregon University. Author of 12 dictionaries with Apriori Publishers.
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