What is AOV? Formula and How to Optimize Effectively

AOV is one of the important metrics that helps businesses evaluate how much customers are spending per order. But what is AOV, how is it calculated, and how can this metric be improved? This article will help you understand everything from the concept and calculation formula to ways to optimize AOV in online business.

1. Understanding AOV

1.1. What is AOV?

AOV – Average Order Value is the average value per order. This is a metric that measures the average amount of money each customer has spent to purchase goods through a business’s e-commerce channels. Simply put, an increase in the AOV metric means that customers have spent more money with the business.

Why do businesses need to measure the AOV metric?

The AOV metric helps businesses evaluate the overall effectiveness of their business and marketing strategies. An increasing AOV reflects that customers are willing to spend more with the business, which indicates that the business has done a good job in planning and executing its business strategies. Conversely, if AOV decreases, the business needs to change its business policies to suit the market.

Based on the AOV metric, businesses can identify their strengths and weaknesses. From there, they can get a general overview of the business itself and the market to set appropriate business goals and strategies.

2. Formula for calculating Average Order Value (AOV)

The AOV metric is calculated by dividing the business’s total revenue by the number of orders sold.

Example: Suppose in November, an electronics business has an online revenue of $100,000 and 500 orders. The business’s AOV would be:

$100,000 / 500 = $200

3. Considerations when calculating the AOV metric

Many people mistakenly believe that AOV also depends on the number of customers. In reality, this metric is calculated only by the business’s total revenue and the number of online orders sold. This means that every order, including multiple orders from the same customer, is counted individually.

The AOV metric can be measured over any period, and businesses should evaluate this metric regularly to ensure timely updates. However, AOV is not the most reliable metric for businesses that sell a wide variety of products, as it can be influenced by many uncertain factors such as customer loyalty, market trends, etc.

For example, the AOV metric can be inflated compared to reality if the business’s customer retention is low and the loyal customer rate is low. Conversely, a sudden surge in customers at a particular time can cause this metric to be unusually low.

Therefore, to devise the most accurate strategies for their business, managers need to measure and consult other metrics to get a clearer picture of what is happening with their company.

4. Other metrics to consider alongside Average Order Value

As mentioned above, if managers rely solely on the AOV metric to set a direction for their business, it can lead to mistakes. Below are some important metrics that should be considered in parallel with AOV.

• Customer Lifetime Value: This metric reflects the value of each customer through the average amount of money they will spend over a long period. If this value is too low, it means that customers tend to reduce the number of purchases.
• Cost per conversion (CPC): This metric is often used for reference when analyzing online advertisements. CPC is the ratio between the number of times a customer is exposed to an ad and the number of times a customer actually purchases from that ad. This value will be subtracted from the average order value to show the actual profit per order.

See more: What is Cost per acquisition? How to optimize CPA to double your conversion rate

5. 7 ways to increase the AOV metric

5.1. Cross-sell complementary products

Cross-selling is a method that helps businesses increase revenue by encouraging customers to purchase other products or services related to the main product they are interested in.

For example: When you want to buy an iPhone 14 Pro Max, the manufacturer will encourage you to buy genuine charging accessories to ensure the long-term quality of the product.

To learn more about this method, read the following article:

5.2. Upselling

Upselling is quite similar to cross-selling. However, instead of encouraging you to buy related products, this method encourages customers to buy a similar product but with a higher value than the one they initially intended to purchase.

For example: Instead of buying a used phone, you should buy a new model to experience more features and get a manufacturer’s warranty.

To learn more about how to apply upselling and the benefits this method brings, follow the article below:

5.3. Using the Decoy Effect

The decoy effect is an effect that makes customers willing to spend more money on a more expensive product without realizing it. Typically, customers will hesitate between two options: a low-priced product or service that saves money, and a high-priced product or service that offers better quality. In this case, the appearance of a third option (the decoy) will change the customer’s decision in a way that benefits the business.

For example: A coffee shop wants to sell as many large-sized cups as possible. However, customers seem more willing to spend 35,000 VND for a small cup than 60,000 VND for a large one. So, the shop introduces another option: a medium-sized cup for 55,000 VND. Faced with these three choices, customers will often be psychologically inclined to spend an extra 5,000 VND to buy the large cup, which has a much larger volume than the medium one.

5.4. Promotions and Offers

This is a method to encourage customers to buy in larger quantities or at a higher value by creating bundled offers. This strategy benefits both customers and the business, as it increases value for the customer while boosting revenue for the company.

5.5. Loyalty Programs

A loyalty program is a system where a business provides more benefits to a specific group of customers. This group typically consists of frequent buyers or those who make high-value purchases. This method not only encourages customers to buy more often but also helps the business build a base of loyal customers.

5.6. Invest in Customer Service

Customer service is a crucial factor influencing purchasing behavior that businesses sometimes overlook. Providing professional customer service helps create a more comfortable and pleasant shopping experience, which in turn encourages customers to buy and spend more.

5.7. Use CRM Software to Improve AOV and Triple Your Sales

Today, CRM sales management software has become popular, with many businesses applying it to their operations, leading to breakthrough growth, increased sales, and significant improvements in their AOV.

1Office is the leading business management platform on the market today. Its CRM module is one of the key tools that effectively helps businesses boost sales, creating a foundation for long-term, sustainable development.

Key Features of the CRM Module

• A tool to manage all customer data, automatically aggregated from various sources, for easy classification and searching
• Allows for the classification and filtering of customer data to develop suitable care scenarios, optimizing the customer experience at every touchpoint
• Automatically compiles reports on the company’s sales situation, such as revenue, customer conversion rates, and closing rates, giving managers an intuitive overview to make appropriate sales promotion decisions
• A Marketing Automation tool that optimizes the effectiveness of marketing campaigns, follows customers throughout their buying journey, and helps shorten the sales cycle

The above article from 1Office has provided you with a comprehensive overview of what AOV is, as well as suggested methods to improve the AOV metric to enhance business efficiency. It also introduced an optimal sales management solution with the 1Office CRM module. Register to experience 1Office CRM today!

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