Understanding Average Order Value (AOV) and Your Sales Model

Average order value (AOV) is the mean dollar value of each checkout that occurs in your online store. It is computed by getting the revenue and dividing it by the total number of orders (AOV = Revenue / Total Number of Orders).


AVO is one of the core metrics for analysing the financial performance of your e-commerce store. Together with Gross Profit Margin and Customer Acquisition Cost (CAC), it helps you determine the profitability of your eCommerce business.


Understanding the Value of Average Order Value (AOV)


A higher AOV can bring many benefits to your eCommerce store. You want to aim for higher AOV values because it translates to higher revenues for your business.


To make a decent profit, it’s necessary to maintain a high amount of consistent and repeat orders. This means you have to strengthen your lead generation strategies and marketing campaigns. Higher revenue means you will have more capital to spend on customer acquisition strategies, perpetuating a profitable cycle for your business.


Letting your AOV slip is one of the most common eCommerce mistakes. However, while it is important to optimise for a higher AOV, keep in mind that it is not the “holy grail” of eCommerce finances. You have to consider your store’s financial situation in its totality and see how it affects your business’s financial health.


Increasing Your Average Order Value (AOV) Indirectly


There are indirect ways to improve average order value instead of upscaling prices or cross-selling related products. Sometimes, the best way to increase your AOV is by restructuring your sales model.


Listed below are some strategies you can use to boost your AOV values without compromising your product prices:


1. Implement Accommodating Return Policies – Consumers want to feel assured about their purchases, especially when dealing with their first transaction with your company. There’s a level of risk involved when subscribing to an online retailer, so you must mitigate this unwillingness by offering flexible returns. Doing so encourages customers to shop without any worries since they can get refunds or replacements if they’re unsatisfied with their orders.


2. Provide Occasional Discounts – eCommerce stores thrive on frequent engagement and repeat transactions with their customers. This is why you need to develop different strategies to make them buy more, especially during peak seasons. Use holidays or your loyalty program to provide occasional vouchers for discounts. Doing so will compel your customers to get great bargains!


3. Offer Free Shipping Thanks to the internet’s reach, you have the benefit of servicing customers across regions and even waters. For this reason, you can offer customers with free shipping to make your service more inviting to use. Remember to indicate a threshold value to incentivise your buyers to spend a lot with their purchases.


4. Streamline Product Recommendations – By having a platform curating your customers’ online behaviour, you can create target suggestions based on their purchases and browsing history. This lets you recommend complementary products that can lead to greater revenue for your eCommerce business.


Conclusion


Getting a high enough AOV can lead to improved revenue, cash flow, and overall store profitability, if you know how to create the right sales model. However, you shouldn’t implement the strategies above if you haven’t checked the numbers and how they’ll impact your company. For this reason, you should consult with accountants to work with the most optimum cash flow model possible.


At The ECommerce Accountant, we help online entrepreneurs minimise tax and increase profit. Aside from increasing your AVO, we take your business and address its needs holistically through various eCommerce solutions that can boost your ROI. We have top-notch accountants for online businesses who are well-trained in the Australian ECommerce Industry. We are passionate about eCommerce and can help your business develop. Call us now!



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