Average Order Value: What It Is, How to Calculate It, and Why It’s Important

The average odrer value is a useful metric for evaluating the effectiveness of a marketing strategy. It is calculated by dividing the total revenue from all purchases by the number of purchases.

Let’s take a closer look at what an average order value is. Suppose you run a bookstore and your monthly income is 1,400,000 rubles. Over the month, customers made 4,000 book purchases. In this case, you can calculate the average order value by dividing 1,400,000 by 4,000. Here, the average order value is 350 rubles.

Analyzing this metric allows you to assess the business's performance, the effectiveness of advertising initiatives, and the efforts of employees.

Why it’s important to track the average order value

Tracking the average amount customers spend is important for several compelling reasons:

1. It helps you understand if your brand image aligns with what customers are willing to pay. If you position yourself as a high-end company but find that customers spend less than expected, it indicates a mismatch between brand perception and customer expectations. This may require a strategy review.

2. You can gauge the financial capabilities of your target customers. This is necessary for making informed pricing decisions. Analyzing the average amount customers are willing to pay provides valuable data for adjusting your strategy.

3. You can study spending patterns based on seasons. Understanding how customer spending changes throughout the year helps you plan promotions and sales better. You can choose the best time intervals for introducing discounts to maximize sales and avoid periods of decline.

4. You can assess how effectively your retail locations are performing. This is another crucial reason to monitor how much money customers spend. Comparing average order values across different locations helps identify stores that earn the most and understand why they perform well. This information can be used to make improvements in underperforming locations.

5. You can evaluate how well your advertising ideas are working. Without this, you won't reap the benefits. If special offers or loyalty programs don't make people spend more, it means they don't suit your target audience or business. If certain types of advertising don't yield the desired results, try something different.

How to calculate the average order value

Average order value formula:

Average Order Value = Revenue / Number of Sales

It seems simple, but there are some details to consider:

• There's no point in calculating the average order value just once. Try to monitor this metric monthly, and if you have many customers, then weekly. Only then can you accurately adjust your strategy.

• For stores with a diverse assortment, it's recommended to calculate the average order value by categories. Take, for example, a pet store that offers food, toys, and accessories.

Suppose you analyzed the average order value and found that customers mainly buy food, but the average order value in this category is the lowest. To improve this metric, consider expanding the mid-range price category of pet foods or offer a cashback bonus for such purchases.

• Analyzing the average order value separately for mass-market products and premium-class products is valuable for understanding audience behavior. This is important for small stores where even one purchase of an expensive item can affect the average order value.

How to increase the average order value

Here are eleven of the most common strategies for increasing the average order value:

1. Apply the technique of upselling. Here, you encourage customers to choose higher-priced items within the same product range, such as newer model smartphones. This is typically used by online stores, where more expensive products are shown in recommendations.

2. Use cross-selling. Here, you offer customers additional products. For example, if you sell clothes, you can suggest some other items that fit with the chosen one. This can be done automatically when adding items to the cart or at the checkout.

3. Stock new products. Most people want to try something new—different flavors, colors, features. This motivates people to spend more.

4. Offer bundles. This method is often used in cosmetics stores. For example, buying one jar of cream might cost 500 rubles, but if you additionally take a toner and micellar water, the total cost is reduced.

5. Try offering different payment options, such as installments, card payments, or through an app.

6. Optimize merchandising strategies. Arrange products so that their placement makes sense. Monitor the work of employees who display the products. If sales at a certain point are lower than at others, it might be necessary to replace the merchandisers.

7. Offer loyalty programs, for example, if customers earn points for purchases, this motivates them to spend and come back to you again.

8. Train your staff. Educate your salespeople and consultants on upselling and cross-selling strategies. Try to motivate employees with bonuses and incentives.

9. Try promotions. The most obvious technique here is to sell five items for the price of four. Even if a customer initially wanted to buy only three units, they are likely to take advantage of the deal and purchase four to save money.

10. Offer gifts for orders above a certain amount. For example, when ordering food, you can offer free delivery or a complimentary dish. This technique is often used to increase the average order value in restaurants.

11. And the last option is to raise prices. However, you risk losing customers, so proceed with caution, especially if you have high competition.

How cross-selling works

Cross-selling involves offering additional products or services to customers who have already made a choice and are ready to make a purchase. This increases the average ticket size, which boosts the revenue of the store.

The process here is much simpler than traditional sales because customers are more inclined to buy something extra from the place where they have already made the primary purchase. Your task is to simplify the customers' lives. For example, if you sell burgers, offer them a soda or fries. People will want to buy something additional precisely because it is useful to them.

Effective cross-selling requires a systematic approach rather than one-time efforts.

Analyzing statistics, such as online cash register data, reveals patterns of peak and low activity periods. For a successful strategy, it is recommended to:

1. Study the average order value over several months to identify patterns, such as an increase in the check size from six to nine in the evening.

2. Investigate the reasons for increased sales during specific periods. For example, if an event or holiday is regularly held nearby.

3. Set a clear and measurable goal, avoiding abstract tasks like "I want to increase sales," and calculate the necessary growth in the average ticket.

4. Add additional products to the menu, tailoring offers to customers' preferences. For example, if an event for elementary school children is held nearby, add sweets to the menu.

To implement cross-selling, follow these steps:

1. Identify frequently purchased products or services. Selling something in addition to popular items will be the most profitable.

2. Create sets for at least the top 10 products or services, focusing on mutually complementary elements. Prepare cheat sheets for sellers so they do not get confused if you have a large assortment.

3. Use marketing techniques, such as asking customers about their preferences rather than just pushing additional purchases.

4. Implement a motivational system: offer bonuses to sellers for successful cross-selling results. If an employee meets the plan, reward them with a bonus or additional days off.

Analyzing the success of cross-selling is recommended to be done monthly or quarterly. Pay attention to key metrics:

1. Average order value per seller. This metric indicates individual efficiency. This way, you will know who is motivated and who is not delivering results.

2. Timing. This will help you identify patterns and compare data with previous periods.

Conclusion

The average order value (AOV), or average ticket, is a key indicator showing the average amount customers spend at a retail point. It is calculated by dividing the total revenue by the number of orders.

The average ticket per customer serves as an important tool for assessing business efficiency and employee performance. Moreover, it plays a crucial role in identifying seasonal sales trends.

Most brands strive to increase the average ticket size, as this raises revenue without attracting new customers. To achieve this goal, businesses use various strategies, such as loyalty programs to retain customers, cross-selling, upselling, and staff training. Additionally, installment payments are used to encourage larger purchases and increase the overall AOV.