10 Ways to Increase Your Average Order Value
by Geoff Hineman
Ecommerce sites are in a unique position in that average order value (AOV) is a metric that rarely gets attention, but can have a significant impact on overall revenue. In general, the focus on generating more revenue is placed on new customer acquisition. It doesn't need to be that way, though. In reality, there are a good number of ways to drive up AOV without needing to place the focus of revenue goals on new customers. Instead of just trying to increase the number of transactions on your site, you can incorporate tactics to increase the AOV from the traffic you are currently getting. Let's be clear, gaining new customers and boosting the number of transactions are positives for a business. There are, however, other ways to increase revenue.
Techniques to increase AOV are worth exploring for another reason: they work just as well with existing customers as they do with new customers. So these techniques are scalable. And, really, it just comes down to the way you show information on your site. Even if you think your current AOV is good enough, you owe it to yourself to always be exploring new options. When it comes to AOV, there will always be ways to increase it.
The goal of this post is to act as a guide for increasing your AOV. As you begin to implement the strategies that make the most sense for your business, you will start to see your AOV increase. The ripple effect of this change, then, will be seen in your total revenue.
That said, let's get started.
Establish a Minimum Order Size for Free Delivery
In recent years, more and more sites have begun offering free shipping. As such, it has become an expectation for many shoppers. Indeed, a full 60% of shoppers will abandon their cart during checkout if they see free shipping is not an option.
We feel that if you don't have to charge shipping to your customers, you shouldn't. Still, you don't have to offer free shipping on every order. Let's explain.
The bottom line when it comes to shipping costs is that that somebody is going to have to pay for the shipping on an order. This is going to be one of two people: you or your customer. You can fold the cost of shipping into your product pricing, though. When you do this, customers see it as free shipping and you won't be on the hook to cover the shipping costs.
To increase the AOV, establish a minimum order amount to qualify for free shipping.
Let's say the minimum order amount for free shipping is $200, but a customer only has $178 worth of goods in their cart. Obviously, that is short of the free shipping eligibility requirement. In the cart, then, you should remind users of how much more they need to spend to earn free shipping. In this case, it would be $22. In many cases, customers will place additional items in their carts to reach the free shipping threshold.
The idea that resonates with customers is that they have a choice of whether they want to pay for shipping or not. If given that choice, would you want to pay for shipping? In the above example, assume that someone adds the necessary items to get free shipping. In this case, you would have increased the AOV for that order by 11%.
Upselling at Checkout
Another way to bump up AOV is to find ways to upsell your customers at checkout, ideally right before they complete the purchase. Some caution needs to be exercised with this strategy. And there is a good reason for that.
Upsells should append the initial purchase intent, not detract from it. When customers make it to checkout, they have already added the items they wish to purchase and they are on the verge of converting. The right upsell should not act as a distraction that interferes with the purchase completion. The checkout process still needs to be as seamless as possible. The upsell should not require an additional step in the checkout process.
There are third-party options that can help. Further, some carts have this function built in.
For instance, when a customer adds an item to the cart, the technology can auto-populate and upsell product based upon other products that are often purchased with the one added to the cart. If the customer chooses the upsell, all they need to do is click it and it goes right into the basket. For instance, for shoe retailers, when someone purchases a $145 pair of suede shoes, at checkout, an upsell for a $35 suede shoe care kit would appear, taking the order value from $145 to $180. That's nearly a 25% increase in AOV.
Again, you want to ensure that the upsell doesn't distract the customer. You still want the conversion, even if the upsell isn't part of it.
Offer Discounts on Bundles or Packages
Bundled discounts aren't just for insurance companies. They often coax your customers to spend more.
The idea behind bundling is actually quite simple.
If you place more emphasis on your pricing strategy, you can gain more revenue. In most cases, prices are set in a way that makes products more expensive if only one product is ordered. For that reason, if a customer purchases larger quantities of a certain product, you can afford to extend a discount based upon just how much they would be willing to spend.
This technique is essentially the ages-old model of buying in bulk. That said, customers don't always have to buy a large number of each item for you to be able to extend a discount.
For instance, if you are selling designer socks for $15 a pair, you can also offer those socks in a 3-pack for $40, a 5-pack for $60, or a 10-pack for $100. For every choice a customer makes that is less than the 10-pack, you can remind them of the deal at checkout. The benefit to the customer is that with each increase in bulk, the price drops per pair from $15, to $13.34, to $12, to $10.
This tactic works because it is putting emphasis on what customers are saving versus what they are spending.
Buying a 10-pack instead of 1 pair means the customer is getting a 33% discount. For a retailer, the average order value just went up from $15 to $100.
Every Season is Gift Wrap Season
Discounted pricing isn't the only way to increase AOV. Enhancing the value of your product is another option.
Ask yourself what you can do to add value to a product, rather than detract from the pricing. People will pay more if they see the value in doing so. One evergreen strategy is offering gift wrapping.
During the holiday season, 82% of shoppers will purchase at least one gift online. That number, along with online purchasing at other times of the year, has continued to increase annually for 10+ years. The holidays, though, are far from being the only time of the year when people purchase gifts for others. A short list of other occasions includes: birthdays, weddings, new babies, graduations, promotions, graduations, etc. For that reason, you can cash in on gift wrapping all year long, not just during the holidays.
This strategy is can be very easy for users to opt in to.
For each item in the cart, the user can check a box to show that the item is a gift and requires gift wrapping.
Set a price for the gift wrapping; $7 for instance. If you have an order with two gifts, that's a $14 increase in the total purchase price. If even one percent of customers take advantage of this option, that is enough to move the needle on your AOV.
In this case, the value for the customer is simple convenience. When this option is not available, the customer has to ship said gift to his or her own residence, wrap it, then deliver or, in many cases, re-ship it to another location. For many shoppers, the $7 for gift wrapping would be a deal that is way too good to pass up.
Offer Personalization for a Fee
Piggybacking on the idea of increasing value, we come to the very real option of personalizing products.
A consumer review from Deloitte shows that consumers would be willing to pay as much as 20% more to have a product customized. Naturally, some business models are more suited to customization than others, but it is worth reviewing your inventory and making a list that includes items that could be a good fit for such a strategy.
For example, a clothing store that sells, say, big fluffy bathrobes has an opportunity with monogramming. If the bathrobe retails for $80, many customers would spend an additional $20 to have it monogrammed. That's a 25% increase in average order value.
Customers are not put off by paying extra for personalization, because it is seen as a premium feature and customers expect to pay more for such a service.
Offer Discounts for Minimum Order Sizes
We touched on this concept earlier when discussing minimum order values for free shipping eligibility. Free shipping, however, is just one way to execute this strategy. You can also establish discounts based on spending targets.
For instance, say you are offering a 25% discount. This is certainly enough to get a buyer's attention. To get that discount, though, a buyer has to purchase at least $50 worth of merchandise. The discount and spending threshold should be based on your current AOV for this to work. The number listed here would be beneficial if the current AOV is $32. If a user thinks they can get an additional $18 worth of merchandise for what works out to just $8 more, they often will. They feel like savvy shoppers and your AOV has just risen for each user who takes advantage of this offer.
A secondary technique that can be paired with the spending threshold is a classic sales technique: For a Limited Time Only! If the offer is set to expire, this creates a sense of urgency in the buyer. You could even have a countdown clock on your site to foster an even greater sense of urgency. Together, you can increase AOV and conversion rates. What's not to love about that?
All About That BOGO
The idea of BOGO has been around for quite a while now. In short, BOGO means “Buy One, Get One.” You can make up the terms of the deal from there. It could stand for buy one, get one free or buy one, get one half off. You could even do a BOGO wherein a customer buys one product and gets a complimentary product with it.
At its core, BOGO is all about getting consumers to spend more money. With deals that good, they'd be fools not to, right?
If a customer buys two items, they get two free. If they buy four items, they get four free. The only limit to how many free items they get is how many paid items they are willing to purchase.
You also need not get hung up on a one-to-one equivalency. You can run promotions where customers buy two and get one free. A common practice for guitar strings, for example, is to buy three packs and get a fourth pack free.
You can get really creative with a promotion like this. Just be sure that the numbers are structured with an increase in AOV in mind.
Cash Back? Yes, Please.
By implementing a cash back program on your site, you give buyers an incentive to spend more, because the more money they spend, they more cash back they receive for future purchases. In addition promoting higher AOV, it also encourages repeat customers.
Kohl's is, perhaps, the most recognized promotor of this strategy.
For years, their policy has been that buyers get $5 in Kohl's cash for every $25 they spend.
The Kohl's cash comes in the form of coupons or is stored in user accounts. This approach is very scalable. As the price of goods changes, a 20% cash back reward scales with it, so it is evergreen.
For this reason, you don't need to cap the spending. In Kohl's case, if a buyers spends $500, they will get $100 in Kohl's cash.
So the big question is this: If someone redeems their cash, won't those orders lower the AOV? Maybe, but maybe not. As with gift cards, it is very unusual for buyers to not spend more than the amount they have. They often apply that to a larger purchase they were already considering. Beyond that, you can set expiration dates. This accomplishes two goals: it encourages future conversions and... there is always going to be a certain percentage of users who miss the redemption deadline.
A study by Everglade suggests that buyers are nearly 60% more inclined to purchase from retailers that offer them recommendations based on their previous purchases.
Beyond purchase history, you can also mine your customers' browsing history for additional product recommendations.
As you might assume, this technique really works best if you can get your customers to create user profiles. It is also easier to track individual user behavior if you have a mobile app.
This strategy works because your customers feel like you are listening to them when you make suggestions based upon their already established interests. We touched on this concept earlier when we were discussing upselling. You don't have to wait until checkout to make a product recommendation, though. You can actually make recommendations in multiple places.
Further, you can couch recommendations so they are not so obvious.
Some sites have a section that recommends trending/bestsellers and pairs that with recommendations just for the current user.
Like upsells, good recommendations don't derail the user's original intent. Ideally, they lead to additional, auxiliary purchases.
A Spending-Based Loyalty Program
Time and time again, the analytics bear out that returning customers deliver a higher AOV than new customers.
A 2014 study by TechnologyAdvice shows that consumers are more than 80% more likely to purchase from retailers who offer loyalty programs. That makes loyalty programs a great way to leverage your current customers as a way to increase AOV. There are, however, different types of loyalty programs from which to choose. For our purposes, we are going to focus on a loyalty program that is built around spending tiers.
As your customers spend more money, over time, they get access to benefits that other users do not. For instance, if a user spends more than $500, they can get first access to new products. If they pass $1,000, they can shop exclusive deals that other users cannot. If they pass $2,000 they can start earning cash back on purchases.
Naturally, you can choose the tier values and rewards that make the most sense for your business.
People likely won't spend enough to climb tiers with each purchase, but they will be more likely to spend more with each purchase so they can move from tier to tier more quickly. And that means an increase in AOV.
New customer acquisition is one way to create revenue growth, but it is not the only way. Rather than placing full priority on growing the customer base, there are some strategies for increasing AOV among both current and new customers that could improve the bottom line even more.
At Lett Direct, we regularly monitor AOV and make it a key metric in our reporting. Whatever your current AOV may be, the techniques listed above—used individually or in tandem—can help increase that number.