Average Order Value (AOV): Definition, formula and the importance of it for your ecommerce business.

If you're running an online business, you’ll know there’s a wide array of metrics that can help measure your success. One incredibly valuable, but often overlooked, metric how much your customers spend on your website. This is known as your Average Order Value (AOV).

Understanding your AOV can help you make smarter decisions about marketing, promotions, and products – ultimately improving your bottom line. It also helps you keep on top of how your business is doing – whether customer spending is going up or down over time and how you match up against the competition.

We explain what AOV is and why it matters, how to calculate average order value, track it effectively, and use it to grow your business.

What is Average Order Value?

So, what is average order value? AOV tells you the average amount of money your customers spend per purchase. Calculating AOV is easy. Simply divide your total revenue by the number of orders over a specific period. For example, if you made £10,000 from 200 orders in a month, your AOV would be £50.

This snapshot gives you a clear picture of your customers’ buying behaviour, helping you make informed decisions about your marketing, products, and overall strategy.

For more strategic insights, read our how to create an e-commerce strategy and 10 ways to strengthen your ecommerce strategy.

Why is AOV important for businesses?

A strong AOV can bring your business a range of benefits, including:

Understanding customer behaviour

AOV can tell you a lot about your customers. A high AOV suggests people buy higher-priced items or in bulk. A low AOV could mean they’re choosing one or two items at a time. These insights help you tailor your business strategies to better meet your customers’ needs and preferences and grow sales.

Reduced acquisition costs

We all know it costs more to attract new customers than keep the ones we have.There’s advertising, social media campaigns, and other expenses involved. And that’s before even thinking about the everyday costs of running a business. However, the higher your average order value, the bigger your profit and budget to offset the costs.

Improved cash flow

A higher AOV equals more money per transaction. This is especially helpful for smaller businesses relying on a fluid cash flow to reinvest in stock, marketing, or other growth initiatives.

Increasing the average amount spent per order can boost revenue without needing a massive influx of new customers, freeing up time and money for marketing or product development. Regularly monitoring your AOV also allows you to check the effectiveness of your marketing and sales strategies, and identify areas for improving customer service and operational efficiency.

Calculating and measuring AOV

What is AOV? Simply, it measures what your customers typically spend per sale with an easy AOV calculation.

For example, if your sales brought in $10,000 from 200 orders in a month, the AOV would be:

AOV = $10,000 divided by 200 = $50

Regularly monitoring your AOV helps you check that your sales strategies and marketing campaigns are hitting the right note with your customers so you can tweak them accordingly.

For more strategic insights, check out 10 ways to strengthen your ecommerce strategy.

What impacts AOV?

Several factors can influence your AOV, so look out for:

Device

What device customers use to shop can make a difference to their experience and your AOV. While websites are usually set up for PCs, smartphones and tablets can sometimes be forgotten. Making sure your site is mobile-friendly so customers can search quickly, navigate easily, and checkout smoothly can tip the balance as to whether they stay to shop or go elsewhere.

Time of day

How much people spend can depend on whether it’s working hours, weekends, or public holidays. The key is to find out when your site is busy and when it slows down, so you can match incentives to customers’ shopping patterns to increase sales.

Seasonality

As well as impacting AOV, seasonality can be a great opportunity. Summer holidays may see a downturn, while peak shopping times like Black Friday and Christmas can see sales soar. For an extra Black Friday boost, see our marketing tips for SMEs.

Promotions

It’s hardly rocket science, but discounts, special offers and campaigns will encourage your customers to spend more money and raise your AOV. Think personalised offers, limited-time discounts, free shipping etc.

How to track and measure AOV effectively

Your AOV will change from month to month or day to day, even if you do nothing. So it’s essential to monitor it regularly for a clear overview. However, a sudden drop in your AOV suggests a problem needing quick investigation. On a brighter note, a sudden increase gives you the opportunity to see which winning formula worked so well.

Analytics tools

Most website analytics platforms, such as Google Analytics, Adobe Analytics HubSpot, Hotjar, Shopify and more will track key KPIs, including your AOV so you can see trends and identify where you need to make improvements.

Depending on your analytics tool or version, your menu may not have a direct option to choose AOV. However, your provider will be able to guide you if you’re unsure, and there’s plenty of online help available, including 1-2-1 support from our V-Hub advisers.

Discover more analytics worth tracking in our 10 key website analytics to measure.

Dig deeper

Drilling down further into your analytics data can give you lots of extra valuable information about your AOV. Just a few examples include:

Customer demographics

Find out your customers’ age, location, or gender to identify spending patterns.

Traffic sources

See how your customers are finding you, such as through social media, organic searches or banner ads to see which ones work the best.

Marketing

Which marketing campaigns are hitting the mark? Find which are working well – and which aren’t – so you can maximise your marketing time and money.

Use spreadsheet formulas

If you don't have access to robust analytics tools, you can still calculate AOV manually using a spreadsheet.

Set goals and track progress

Industry reports and competitor analysis can provide a good starting benchmark for your AOV. Track and analyse your AOV over time to make sure you’re moving in the right direction.

Strategies for boosting average order value

Let’s look at how to increase average order value in some more detail.

Upselling and cross-selling

Highlight the superior features and benefits of premium versions of items customers are browsing, and complementary products that add value. This could be anything from a case and screen protector for a new phone to printer cartridges and extra storage for a laptop.

Remember, the aim is to enhance your customer’s experience and encourage them to add to their basket without being pushy.

Pricing models

By getting more creative with your pricing, you can nudge customers to buy more without resorting to pressure tactics.

Bundle popular items together and offer them at a discounted price instead of buying them individually, giving customers extra value for money. Another option is tiered pricing, where the price per unit drops the more the customer buys. You can also offer tiered discounts that give your customers a higher percentage off or a gift above a specific spending threshold.

Volume discounts

By offering a discount for buying certain items in bulk, you can encourage people to spend more while helping to clear stock faster. This strategy can be particularly effective if your business has products with a long shelf life or expensive storage costs.

Free shipping

Free shipping can be a powerful motivator for customers. The key is to set a minimum order value that's achievable for most customers while making sure you keep a healthy profit margin for a win-win.

Minimum order

While this may only be suitable for some businesses, a minimum order requirement can help raise your average order value. However, it could put off potential customers looking for a single item, so always carefully consider your target audience and strike a balance between encouraging larger buys and staying attractive to budget-conscious customers.

Understanding your AOV is a powerful tool for any e-commerce business, and isn't just about increasing profits, it's about unlocking a treasure trove of customer insights. By tracking AOV, identifying what affects it, and using strategies to increase it, you can improve your customers’ experience and your bottom line to help your business thrive.

Want to know more about AOV? Chat with our helpful V-Hub Digital Advisers for 1-2-1 support.