Increasing your average order value by enticing shoppers to spend more means you reap bigger profits. We show you how with five easy, affordable steps.
Many small e-tailers confine their marketing efforts to attracting more prospects to their site, and that's it, but there's so much more to be done. Unless you are just starting out, you should focus your efforts on:
- Increasing the dollar amount of the average order.
- Increasing the frequency of purchase.
If your business generated $5,000 in sales two months ago on 50 orders, the average amount of each of those orders the Average Order Value, or AOV for that period was $100 ($5,000 in revenue divided by 50 orders). Stated very simply, if orders for two months ago averaged $100 each, and last month's orders averaged $120 each, you would have made more bottom-line profit last month than in the month prior, correct? Generally, yes. And that is the basic premise: increasing the AOV usually equates to an increase in profit. Note, when figuring out your AOV, always exclude from the revenue amount any sales taxes and shipping costs, unless shipping is a profit-maker for you. Taxes and shipping are not merchandise for sale, so, do not include those in your totals. Increasing the AOV Builds the Business
There are a few relatively easy, cost-effective ways to entice shoppers to spend more than they initially intended, which means an increased AOV, and thus more profit, for you. Here are some examples:
- Limited-Time Discounts
One small e-commerce business, selling women's clothing, has an AOV of $117.45. The company e-mailed a limited-time offer of 15 percent off any order to its customer list, and the sales generated from the promotion averaged $208.75, an AOV increase of nearly 78 percent. Note that the list totaled just 765 e-mail addresses, a relatively small amount. The point being that, regardless of size, any e-commerce business can use big-time marketing techniques to increase profit.
- Site Re-Design & Increased Product Selection
A very small e-commerce business had an AOV of $74.12 after two years of operation. To push her sales to the next level, the owner was advised to increase the AOV. The recommended strategy for accomplishing this was to re-design the site and increase product selection in the most popular category. The primary purpose of the site-redesign was to incorporate trust-building elements, while a quick survey of past customers verified that lack of selection was also a key issue. The business owner, however, was extremely skeptical. It took six months of coaxing to convince her to go ahead with the re-design, which was very basic, as opposed to a total overhaul. Finally, she conceded. The make-over, by the way, was done by an art director who had a marketing background, not a Web developer. She also added more products in the most popular category. The result? T he AOV doubled to $148.44. Overnight. And, it has continued in that range, sometimes a little more, sometimes a little less, for seven months now. And there's more good news: Not only was there a significant increase in the AOV, but she realized a seven-fold increase in the number of orders, too. The one-two combo of trust and selection raised the average number of items purchased from one to two, thus increasing the AOV. In addition, it produced an increase in the buy-rate because a far greater percentage of visitors are now being converted to buyers.
The fifth largest e-retailer of musical instruments decided to ask its customers "Would you like fries with that?" For example, buyers of electric guitars were presented at checkout with related products such as extra strings, extra picks, a selection of amplifiers, sheet music, etc. This resulted in an increased AOV, and it helped the business to earn the ranking of second-largest in one-year's time. Each order on average became larger, which trickled down to the bottom line, which sped up the company's growth. This can be done with any size business.
- Gift With Purchase
A seller of unique automotive tools and supplies had an online AOV of $69. The company had a history of testing and pushing the envelope in terms of finding cost-effective ways to drive up its AOV. Traditionally, it had used offers tied to a minimum purchase amount. For example, $10 off, 10 percent off or a free gift with an order of $100. The minimum order amount was always much greater than the average order, naturally, which of course is the whole point. Initially against the idea, the president was ultimately convinced to test a give-away with each order, but with no required minimum purchase amount, something never before done by this company. The recommended premium was a handy tool that retailed for $7 and cost the company just 99 cents. The offer was promoted by e-mail to both the house list and a rented list. It was a huge success orders poured in so fast that the tool supply quickly ran out. It didn't help that a skeptical product manager ignored a request to have on-hand additional supplies. The AOV on all those orders? It nearly doubled to $120.
- Discount With Related Purchase
Another way to increase AOV is to offer a bargain price exclusive to related purchases. A manufacturer of powered hauling equipment (electric motor wheelbarrows and garden carts) that sells direct-to-consumers is planning to increase its $750 AOV by offering a spare battery at the time of purchase at 20 percent off the retail price. The battery will not be made available for less than retail price any other way, a powerful incentive.
To implement these strategies, you need to begin by calculating your AOV. You may need to set up a spreadsheet and enter each individual order by hand, but don't fret. My firm has to do it this way, arduous as it may be, for some small clients because the third-party, Web-based shopping cart software providers they are using are not set up for even basic reporting. For example, Monster Commerce is one of the leading shopping cart software providers available. With nearly 6,000 merchants using that system, you would think that basic reporting features would be a given. Wrong. Unfortunately, the reporting Monster Commerce provides is relegated to areas like Shipping Cost By Date, Sales By Customer and reports such as Products Sold By Item So, if you want to know how many orders you had last month and the resulting revenue, sorry, you'll need to figure it out by hand. Another example is Merchandiser. It delivers basic shopping cart functionality, but doesn't even have a section within its administration panel for reports. This lack of basic reporting order amounts and revenue generated in a give time period in many third-party shopping cart providers may explain why so many e-commerce business people do not know their AOV. Fortunately, there's always QuickBooks and PeachTree, which make it easy to get the information. Make Raising your AOV A Priority
Even if you have to obtain the data to determine your AOV by doing a report manually, by all means, do it. You should make knowing your AOV a top priority, in addition to simply trying to attract more prospects to your site. While you're at it, answer the question, "What can I do to increase the size of my average order?" Adding these efforts to your marketing mix will definitely grow your business. Steve DiPietro is president of DiPietro Marketing group and a regular contributor to ECommerce-Guide.com.
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