Which is easier: to sell something for $20 to 1,000 customers, or to sell something for $1,000 to 20 customers? Obviously, it depends on the product. But the idea behind this question is that if you can increase the amount of money you make per order, you don’t need to make as many sales to generate the same profit.
If you can keep your order count constant while increasing your average order value, your profits will soar.
What is average order value?
Average order value, or AOV, pertains to gross revenue. It doesn’t take expenses into consideration. If you make $10,000 in sales from 76 orders, your average order value is $131.58. The formula is:
Gross sales divided by # of orders = average order value
Now, one thing to keep in mind is the price variation among your products. If most of your products hover within a similar range, then just use the formula.
But suppose you sell one line of products at typical prices, and then a luxury, boutique, or customized line of products at much higher prices. Since you’ll likely employ different tactics for each line of products, you might consider calculating an average order value for each one. You can then more accurately measure the impact of your efforts.
Why is average order value important?
More money is better for business. But beyond that, consider the other ways a higher average order size helps your business:
- Higher profits. Assuming your expenses remain fairly constant, every dollar you increase your average order value by is basically pure profit.
- Higher inventory churn. Selling more inventory faster is always good for business. You want a healthy outflow of products to keep your inventory from piling up.
- Faster profitability. If you have business debts, or spent heavily on a marketing campaign, you’ll reach a positive return on investment much faster with a higher AOV.
Nine ways to increase average order value
1. Raise your prices
This is the most overlooked but simplest way to make more money per sale. Of course, you have to be careful. Put some thought into which products to increase, and by how much. Depending on the business, if you have a group of loyal customers who buy the same products over and over, they’ll notice the price uptick and may not be thrilled.
But consider this: Suppose you sell a product for $20, and you sell about 100 per month. That’s $2,000 in revenue. Suppose you raise the price to $22.95. Then, a few customers get annoyed and go elsewhere, and you only sell 90 per month after that. Your revenue has still gone up to $2,065 while you barely broke a sweat.
When you consider expenses such as packaging and shipping, having fewer orders at higher prices will also result in lower expenses. So, don’t overlook this suggestion. Most customers will stick with you if they’re happy with your products and service.
2. Upsell in effective ways
Upselling can be done in several ways, but the idea is to capitalize on the positive experience your customer had, and get them to spend a little more on something else.
Some good upselling strategies include:
- Upsell a higher-quality version of the same product — the luxurious model, the deluxe edition
- Upsell with a membership — get them to buy a monthly subscription and you’ll reap monthly revenue
- Upsell on the thank you page with a special discount offer
You can offer upsells while customers are shopping, during checkout, after payment on the thank you page, or even in a follow-up email. All are worth trying out to see what works best for you. See seven upsell-related extensions to help grow your average order size.
3. Recommend add-ons
With many products, there are small add-ons you can offer on the checkout page for just a few dollars more. Or, even if your products are mostly standalone, you can offer add-ons like gift wrapping or discounted gift cards.
In many cases, small upgrades like customization, color preferences, and extra features are easy and quick purchase decisions that your customers will appreciate. These add-ons only have to cost a couple dollars more to be good business.
If your average order value is $25, and you sell 500 items per month, that’s $12,500 per month. If you can increase that average to $27 — just two dollars more — you’re now making $13,500.
With the Product Add-Ons extension, you can easily add customization fields, checkboxes, drop-downs, and more to your product pages. Customers can quickly choose how they’d like to customize their order, and the price will automatically change based on your settings.
4. Use product bundles
Many businesses sell products that are naturally related to each other. Whether you sell outdoor equipment, health supplements, books, or online courses, you probably sell products that are complementary.
So, create some product bundles, and offer them for a slightly lower price than the customer would pay if they bought them all individually. The customer is getting a deal, and you’re making a bigger sale and moving more inventory. If you have a product you’ve had trouble selling on its own, bundling it with some popular items is a great way to offload some backlog.
With the Product Bundles extension, you can offer everything from personalized, pick-and-mix boxes (like mixed packs of chocolates) to assembled products (like a drum kit that includes multiple items). Or, add “frequently bought together” recommendations for an extra simple way to increase order values.
5. Sell personalized collections
These are similar to product bundles, but here, you let customers pick and choose the items they want in their collection. Usually, what you’ll do is set a minimum purchase price or a minimum number of items.
This approach often has a natural alignment for businesses that use a subscription model. Combining strategies, you could offer the subscription as an upsell after the customer has selected the items they want in their collection for that initial purchase. This is just another setup that you can add to your site with the Product Bundles extension.
6. Sell products as kits
Similar in form to personalized collections, a kit would involve various individual products that are combined to create the final version. Think something like a build-your-own shed.
By allowing for customization within these kits, you can increase the order total by offering pieces that go beyond the basic components.
Check out the Composite Products extension to make selling kits much easier and simpler. While similar to the Product Bundles extension, this is a better choice if you want customers to combine multiple products that each have several variations. So, in our example, someone buying a shed might pick a roof, a style of door, and a wood finish for the body.
7. Offer free shipping above a set value
Shipping is expensive, and no one — including you — likes paying for it. So instead of offering free shipping to everyone, offer it only for order sizes above a certain value. The best strategy here is to set that amount above your average order value. Consider what you expect to pay for shipping, and set the baseline value above that extra amount.
For example, suppose your average order size is $50, and shipping costs around $10 on average. Offer to make shipping free for all orders above $75. With that, you will motivate some people to spend a little more to get over that hump, and you’ll still be increasing profits even after having to pay for shipping.
8. Offer discounts at higher thresholds
Similar to the free shipping idea, offer a discount for all purchases above a certain amount. Again, make this amount higher than your average order value. For instance, offer a discount of $20 if the purchase price is over $100.
For someone planning to spend $60, they’ll like the idea of spending just $20 more, but getting $100 worth of product. Like many other strategies on this list, everyone is happy, and therefore everyone wins.
And, you can layer this approach. Offer a $30 discount for orders above $250. Then a $50 discount for orders above $500.
9. Offer a payment plan for a higher price
Some people may opt for higher-priced, premium versions of your products if they’re able to pay for them over time. PayPal offers several buy now, pay later options that take care of all the heavy lifting. Let customers pay in four equal payments or finance larger purchases with PayPal credit. Either way, store owners get the full amount upfront, which takes away your risk and encourages customers to add more to their cart.
Use the PayPal checkout extension to set this up.
Increase revenue without finding new customers
The easiest way to increase your store’s revenue is not to introduce new products or embark on a fancy new marketing campaign. You can grow income without adding a single extra customer when you increase the average order value of each sale.
The great news? There are many winning combinations that benefit both you and the customer. Keep a great experience top of mind and you’ll not only increase profit today, but gain a new, loyal customer who’ll return again and again.