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Today we're talking about your website's average order value (AOV). Why it's important, how to increase it, and why it must factor into your ecommerce plan. We'll share some of the ways to simplify the checkout process and advice on how to nudge customers towards adding more to their carts.
Today's Topics
Today, we're talking about the value of increasing average order value and more specifically why it's important to know it, increase it and factor it into your planning from the very beginning. We'll share some of the ways to simplify the checkout process that have worked best for us and nudge customers towards adding more to their carts.
So, Andy, today we're talking to average order value. First, what is it? I mean, it's pretty basic. It's just the average dollar amount of an order that you get. Easy. Done. So it's your revenue divided by the number of orders. So why are we making this an entire topic? That's a very straightforward thing.
I think it's an important metric for all ecommerce. It's a basic fundamental 101 metric that anyone who operates an ecommerce site, big or small, really needs to know and pay attention to. In your experience, do we have people come to us without even knowing what their average order value is? Yes. Every day. That seems weird. It does seem weird. That's why we're talking about it. So it's a pretty important number because tuning that can make a huge impact, right? Correct. And we use it partially for, it's a performance metric for sure, we also use it to help calculate, especially for new online advertisers or companies that are coming to us, that we're going to start managing their online marketing dollars, we use average order value frequently to figure out their margin, so their average margin, average order value. We know roughly what their profit per order is so that we can then say, we know cost per conversion can't exceed this number or we're going to be in trouble.
And in the first season we talked about overall marketing strategy and how to start putting that together for new ecommerce. And this is fundamental to that, right? You can't really have a marketing strategy without knowing what your average order value is. Absolutely. But it's not the only thing. So, with average order value you, one thing that comes into play is how much volume you have, right? So if you are a high transaction volume, it's easier to calculate that with some accuracy, if you're a smaller ... So we have clients that, they're not doing 100 orders a day, they're doing five or six, but they're big. They have big AOVs. So their average dollar amount of their orders are large. But your average gets thrown off with volume. Easily. One or two anomalies can really throw that number off.
So, if you're typically selling $50 worth of stuff to people, and then all of a sudden you get this oddball order and we used to see this with Cooper Safety, when we would calculate it like, wow, our average order value's way up month over month. And then you go back and you look at the transactions, we were at 70 ish dollars, AOV, but one month it jumped to 120. We're like, holy cow, what happened? Transaction volume wasn't up. We had a huge ... a massive order. So our average order was 70, 80 bucks, we got a $12000 order.
That probably means that we need, instead of average order value, it's mean or median. I forget which, I should know, because I have a fifth-grader who's learning all this right now, but taking out those statistical anomalies. And that brings me to my point, so AOV is important, which is easy to calculate, but we also like to look at mode. So mode is your most common order value. So what is your most commonly received order?
So if your average order value ... because averages are easy to play with, but it's also important to look at mode. So what is the mode of your site? And almost nobody we work with initially knows their mode. So, that's something we like to look at. I think you can easily get distracted one way or another, if you aren't looking at that as well. You said something earlier about that high volume, I think it's really easy to feel like that number can't change if you have high volume that's very consistent and kind of feel stuck in that average that you have. And so, one of the things that we like to do is help clients think ahead to what ... if we tick up that average order value ... Can we say AOV now? Yeah, let's go.
We said average order ... So if you're ticking up that AOV, especially with high volume, you can make a big impact on your bottom line, right? Because you're maybe paying the same amount to acquire that customer, but you're making more money off of them. So even a few dollars can make a big difference.
Absolutely. If you're doing 10000 transactions and you increase that average, three, four bucks month over month, that's huge dollars. Do math on the fly, do it. No.
I'm kidding. I'm not going to make you. But often what we'll do when we're planning for the year, let's say we have an ongoing client, we do a couple different models where maybe we're ticking that average order value up a little bit to see what it could be. And that might be part then of the marketing strategy is really focusing on increasing that. So maybe then that's worth investing in a change on the site to encourage people.
And we also look at it and it's important because a lot of people will put ... and we do this too, sometimes it's fun to do, but you get to the fourth quarter, you start planning next year and you're like, okay, we're going to double our revenue. And then you look at your average order value and you're like, oh, we've got to double our number of transactions. And it's like, where's that growth going to come from? So it's kind of a truth teller. I think it keeps you honest and it's important to know.
You can easily get into wishful thinking, but the numbers don't lie. Would you say quick, which would you rather do get more customers or increase average order value? I would want to do both, but working on- Sophie's Choice, you have to pick one. Is that where I have to throw it off the boat? Is that what Sophie's Choice is? I don't like Sophie. I'm going to throw ... You have to pick now. Bilberry West, we're two years in, we're selling chairs. What are you going to do? AOV.
I would've said the same thing. Although, I would say if you have a lifetime value to consider, maybe then that answer changes. So, it gets complicated, right? It gets complicated. I can't think of a reason why you wouldn't want to increase AOV. That's always going to be a metric that you would want to tick up. The only exception of that is you don't want to sell people's stuff they don't need. Of course. I mean, I think that's like- If that's the only way you can do it then ... Would you like some garbage? Kind of.
I think we can assume that we're not selling people garbage that they don't want, but I'd like to talk about, we've talked about the value of AOV, now, how can you impact it? So I have three ways. We have three ways that we go about it typically, initially I should say. And typically, initially, initially, typically? Whatever. They mean different things. I know. But we'll go with it.
So, lots of people offer free shipping. You can tick up your minimum order value requirements to get free shipping. We like to play with that quite a bit. So if you're at 100, maybe you go to $125 to earn free shipping. That's an easy way to do it. You've got to be careful because you got to watch conversion rates, and that's true with anything, any lever you pull, you have to watch all these other metrics, right? Absolutely. Sometimes on paper it would look like, oh, if we just put free shipping at 200 versus 100, our average order value will go up because blah, blah, blah. And then your conversion rate plummets, right? But it is a good way of ... it's a good starting point.
And I'd say that's another benefit of doing it that way is we've had clients in the past who are hesitant to offer free shipping at all. And so kind of factoring that in with AOV helps them understand the value of it. So I think it's an easier pill to swallow, but you also have to look at how does that impact your bottom line? Are you losing your shirt on shipping? Then, you have to always make sure that it's worth it, but that's such a ... I think free shipping is always something that we want as often as possible because that's a barrier.
I mean Amazon, and I love it, I love that they did it, they obviously changed the world with ... Customer expectations have shifted because of that. And so shipping always feel ... I saw there was this joke that was like, somebody had a $3000 watch in their cart and then they saw the $15 shipping and they were like ... People don't value shipping. So, being aware that is a barrier for someone matters. I'm getting into a totally different topic, but it's an easy way to increase… On the Bilberry side, so we're starting to get material to actually manufacture. The supplier of our material provides free freight. So everything comes in and this is freight, not UPS, USPS but they offer free freight at a certain weight limit.
So if we order enough raw materials that exceeds a certain weight threshold, which is fairly large, not crazy, it's free. And it's a significant savings for us to get over that weight. It's worth it. Hundreds of dollars in cost. So immediately, I'm like, our orders need to exceed this weight.
That's a factor for you. So sometimes what we see too, and Shopify makes this really easy, is displaying what products will bump you up to that next shipping tier. Yes. The free shipping tier. Or, I've even liked, and it's been valuable for some of our clients to have a progress bar that shows, only X number of dollars till you hit free shipping. Yes.
So that can be a really nice, if you do it right, you don't want to interrupt somebody in their process, that can be a really nice way to incentivize putting a couple more things in your cart. It's sort of making it a little bit of a game. So, that's a good one. Easy to work on, experiment with. So we recommend doing that. So that's number one.
Number two would be, in my opinion, probably a loyalty program. So, offering spend level rewards is I guess how I would better describe it. So, if you're a business that has repeat customer base or a product that is likely that people will order from me repeatedly, giving them rewards based on how much they spend, they're going to be more likely to spend more each time because they want to ... It's almost putting a game, it's gamifying it a little bit. Like, oh, I'm only 200 bucks away from hitting this next perk or this next discount. And we've seen that dramatically increase average order values. All right.
So the that's one loyalty program. That's a whole thing, right? We could probably have a conversation, separate conversation about implementing your loyalty program, put that on the list, Stacy.
And then for me, the third one is add-on accessories. So, we have a client that had a decent average order value and we were looking at ways, we were re-platforming them. To Kentico, right? That was when we moved them to Kentico. Yeah. We moved them to Kentico and one thing we did when we launched that site is we built a way for them to have intelligent add-ons. So when you put a product in your cart, we now show accessories and add-ons specific to the products that you have in your cart.
Relevant accessories. Which seems super obvious, but lots of people don't do that. They'll just randomly show- It takes a little bit more effort to map those to each other. Correct. And to do the programming involved in making that not just randomized. And that was a big undertaking because, right to your point, we have to go through and figure out, what accessories make sense for this product? And we're only going to show two or three. So if there's seven or eight, which ones should we show? Make it count.
So the way we did it so that we could get the ball rolling is we set it up with the capability that we can tailor those accessories per product, but then we also have a default group. Yes. So it was a little bit of both where if we didn't get around to this product and setting up those accessories yet, it'll show a random group. So we're always showing something. And what we saw, two benefits from this is it absolutely increased average order value. Their accessory sales grew by 200% the first year, it was wild. And the other cool thing is those are typically higher margin products. It's just like going to the grocery store and you're in the checkout and they've got the gum and they've got all this crap that you don't need. Those are all accessories just to get their average order value up. Your grocery accessories.
But that's why it's there, right? I mean, that's why it's there to pump up average order value. Would you consider those accessories an impulse buy? I absolutely think they're impulse buy, but again, we're not trying to sell ... I think grocery stores are trying to sell you crap you don't need at the checkout. I just ran out of gum. I don't know. Anyway. But the accessory, I think, to your point, it could have been a default of a whole category or just anything in a price range. I think a lot of shops do that, but by tuning it to these products that are very specific and the accessories have to match to be valuable, we were turning an impulse by into a value add. So I think that's a great example of where it was absolutely worth it to do that extra work and the numbers proved it. Absolutely.
Now did they come to us, I wasn't really involved in that project, I know about it, but did they say we want to increase our sales of accessories or did- Yes. So, that kind of did... It kind of was perfect timing because we came to them and said, we want to keep increasing your average order value. Part of that was, that's a metric we always focus on, part of that was paid search costs were going up. So we knew we had some pressure on us to ... We wanted to keep spending at a certain percentage. And they came to us and said, hey, we want to keep increasing our sales on accessories. They had some incentives on their end as to why they wanted to do that. So it kind of all kind of mixed together. And we came up with that program because honestly, there's nothing worse when you're looking at a product or in your cart, and they're like, you might also like, and it's something totally bizarre. It's like, you don't know me at all.
I won't want something like that. You're lying. I'm buying a pair of men's shoes. You may also like a toddler onesie. It's weird. I've seen it. I thought you were just going to say, you may also like a toddler.
I do not condone the sale of children. Stop. Zach Morris timeout. So what you did on- To common sense. Obvious stuff but often overlooked. Incredibly often. Incredibly common.
Can you think of any ways that people try to increase AOV and it's not a good idea? So I think that your example of just random, you may also like, without any relevance, actual relevance is kind of ... You could change that label and probably have a better experience of check out these other products instead of you may also like. But bundles, is that- Bundles is a big one. Packages where either ... Costco's mastered this, right? You buy bulk and their average order value's way higher than a Target.
Even a discount. I think that, that's a great incentive too. Like, buy so many, get one free. I guess you could consider that a bundle. I don't know the technical definition of bundle, but a discount over a certain volume, buy 12 and you get a 10% discount, volume pricing is huge. That's another one that ... So many of these things that we've mentioned, Shopify, it's two clicks and you got it, which is one of the things I love is that, that configuration in the backend is so tuned to what's going to increase your AOV and the power of your dollar. Do you think there's ever too much push for increasing AOV? Can someone go overboard? Yeah.
If you're interrupting and I think we're going to be talking about kind of streamlining that process in a later episode, but getting in people's way when they're checking out, there's a balance, right? Yes. You don't want to- GoDaddy is ... It's worth it to them. I know they don't sell physical product. I know, but it got so bad. People get confused. Their checkout process was 42 steps long. It's like, do you also want email addresses, do you want this? Do you want this? Do you want a website? It was like, I just need this domain. Well, the reason they're doing that though, is that they're not making money off of that domain. So they're trying to sell you the stuff that they're going to make money off of.
But they figured it out, I think it's a lot better now, but back in the days. I mean, I have a little bit of trust that GoDaddy probably knew what they were doing in that process. Sure. But they're not doing it anymore. Bt you can definitely interrupt. So if you were to say, have a model come up when I click, check out and a model gets in my way, that says you may also like, on top of what I'm trying to do, I would strongly argue against doing something like that. That isn't worth it to interrupt someone's process. I think the other thing too, we've tried it with some success, there's a lot of sites that you go to, you hit their homepage and they immediately offer you a discount. What happens if you don't give that discount? I mean, I get it, they want your email address so they can ... But you actually be able to increase your average order value by just turning stuff off. Not offering the discount. All right. Let's wrap this conversation up.
All right. I think we've got three takeaways here. For sure. And number one is ... You've got to know your average order value. Just know it, just be aware. Number two. You should always be working on maximizing that average order value and optimizing that order value. Look for that low-hanging fruit of things that you can do to tick it up. And number three. It's only one number. So you can't throw away all the other analytics that you have and just focus on average order value. It's one of a number of things that you need to be looking at.
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Beyond the Cart is produced by Lightburn. Our episode today was produced and edited by our very own Staci Tischer and it was recorded in person for the very first time with our pal Ray Fister at 5th Floor Recording Company.
Our music is the song Let's Go Go Go by Tigerblood Jewel. Be sure to subscribe on Apple Podcasts or wherever you consume your audio, and you can always learn more about ecommerce at lightburn.co.
And we'll see you next time on Beyond the Cart.