What is AOV? 6 ways to improve AOV to optimize revenue

November 29, 2022

XDIGI

When improving the AOV (Average Order Value) index, businesses can optimize the effectiveness of business strategies, sell more products and thereby increase sales. The AOV index, also known as the average value of an order in a transaction, is an important indicator that helps businesses evaluate the effectiveness of marketing and sales campaigns. customers, thereby building more effective strategies to encourage customers to buy more products in the future. The improvement of the AOV index is also very important because this index directly affects the sales revenue of the business. As the average value of an order increases, so will sales revenue.

What is AOV?

AOV stands for Average Order Value, which means the average value per order. More specifically, AOV is an indicator that measures the average amount of money that customers pay in each transaction with a business.

If a business’s AOV increases, it means that customers are buying more expensive products or they’re buying more of your products in one transaction. Therefore, improving the AOV index is an important thing that businesses need to do because this index has a direct impact on boosting sales.

Why do businesses need to measure AOV?

In general, measuring the AOV index helps businesses to assess the overall effectiveness of their marketing campaigns and product pricing strategies. If the AOV is high, the marketing campaigns of the business can attract potential customers effectively and they are convinced by the marketing messages that the business conveys, thereby increasing the conversion rate and sales revenue.

An increase in AOV also means that the business has priced its products appropriately, the cost that customers invest to use the product is worth the value they receive. Measuring the AOV index also helps businesses set marketing goals and strategies as well as sales strategies in line with the purpose of increasing sales.

When measuring the average value of each order, businesses can identify their strengths and weaknesses. If the AOV is low, the business will need to have a plan to rebuild its goals, marketing and sales strategies more feasible to improve the AOV. On the other hand, if the AOV is high, the business has can leverage and promote effective marketing and sales strategies to continue to increase the average value of each order when dealing with customers.

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Formula for calculating AOV

When measuring AOV, businesses can use the following formula: Average Order Value = Total Sales / Number of Orders

Formula to calculate average value of each order

The AOV is determined by calculating sales per order, not sales per customer. Although a customer can return multiple times to purchase, each order will have a unique AOV value.

Example of how to calculate AOV: Suppose a business operating in the field of e-commerce specializing in providing products such as household appliances and electronic components has 100 orders with a total value of VND 100,000,000. , then the AOV of this enterprise will be 100,000,000 / 100 = 1,000,000 VND.

6 ways to improve AOV

1. Improve AOV by offering sales discount

Sales discount is a percentage of the discount that a seller gives a buyer that is often applied to promote the purchase of potential customers. Sales discount is usually accompanied by conditions such as: payment in cash, how much quantity to buy, discount or prepayment, etc., which are agreed upon in an economic contract or commitment to buy and sell. row.

Improve AOV by offering sales discount

The purposes of discounting can depend on many circumstances but are usually to compete, entice customers, introduce new products, retain customer loyalty, or even to clear old stock quickly. .

Applying sales discounts will encourage customers to buy more products, thereby increasing the average value of each order when customers transact with the business. Especially, with short-term discount programs, businesses can take advantage of the psychological effect of Fear of Missing Out (FOMO), which can be understood as “Fear of missing something”.

This is the fear of missing out on the interesting, interesting things in life that other people are having the opportunity to experience. This effect also makes them feel anxious when everyone around them is having more joyful and happy experiences than themselves. When implementing discount programs, businesses can take advantage of the FOMO effect and psychological leverage to create buying demand for new products and services such as:

Emphasize missed opportunities such as discounts on new items and products for a limited period of time.
Use the “buying” status feature on the sales page by creating pop-ups like “Customer x is buying this product” to attract attention and motivate to buy.
Create “limited” opportunities and set expiration dates for discounted products and services.
Emphasize that: “The sale period for this product is about to end”. That way, customers will make faster purchasing decisions to enjoy incentives and promotions.

Businesses can effectively improve their AOV by taking advantage of attractive sales discounts and encouraging customers to buy the products they supply in bulk.

2. Improve AOV by setting a free shipping threshold

This method is quite common for e-commerce sites like Shopee, Tiki and Lazada. When making purchases on these e-commerce sites, customers need to purchase items up to a certain value threshold in order to enjoy the free shipping offer.

Improve your AOV by setting a free shipping threshold

For example, a customer’s order value in a single purchase needs to reach a minimum threshold of VND 50,000 to be eligible for free shipping. With the current online shopping trend, free shipping is an effective way to encourage customers to increase the value of their orders.

Applying free shipping also helps to reduce the Cart Abandonment Rate (Cart Abandonment Rate) significantly (According to Business Insider author Cooper Smith). However, free shipping can lead to costs. High packing and delivery charges. Not charging shipping will hurt your business if you’re running a low profit, or if shipping costs aren’t included in the product price.

Before applying free shipping, make sure your business has carefully calculated how it will affect your profit margin per order. Also, think about how many products a business needs to sell to be profitable when implementing free shipping.

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3. Improve your AOV by offering package discounts

For bundle discounts, instead of a discount on a single product or service, a business can encourage customers to buy more products by offering a discount on a bundle of products or products. products come together.

Applying product bundle discounts will increase the number of products a business can sell. When businesses sell several products in just one order, they will sell more products, thereby improving AOV and increasing sales.

Improve your AOV by offering package discounts

Besides, this type of discount also helps businesses to bundle more prominent and less prominent products together. That way, businesses can “free up” products that are less prominent, not attracting many customers when selling them individually.

However, for this discount method, businesses need to carefully study which types of products should be combined into a product package. If the products aren’t related, customers may think the package is just a sales ploy. Therefore, when planning for this type of discount, businesses need to consider and classify the products that customers often buy together.

4. Improve AOV by upselling & cross-selling

Upsell and cross-sell is a form of increasing revenue and sales for businesses through activities that encourage customers to buy more products and services with higher value or buy other related products. (also known as upselling) is an activity that encourages customers to buy an equivalent product of greater value than the original product. For example, instead of buying a size M water cup, the salesperson suggested buying a size L because of a discount; or instead of buying an old car, the consultant buys a newer model with much superior value compared to the price paid…

Improve AOV by upselling and cross-selling

Cross selling is the activity of encouraging customers to buy other related products and services based on the evaluation of the seller and derived from the needs of the buyer. For example, when customers purchase auto insurance, they may be invited to purchase life insurance to increase the value of protection for both people and property.

When implementing upsell programs, businesses can encourage customers to buy more similar or related products to products that customers are interested in but at a greater value, thereby increasing the average value of the customer. Cross-selling also helps businesses effectively improve AOV by recommending a product that matches customer needs to encourage them to buy more products. company’s products or services.

5. Improve AOV by offering loyalty card

Loyalty cards are a form of incentive for a specific group of customers. Normally, customer cards will be issued in the following forms: discount cards, points cards, prepaid cards… in any form, these cards bring incentives for loyal customers to the service. .

For this type of card, customers will enjoy incentives if they accumulate a certain number of points. The mechanism for accruing points can be based on the number of purchases, order value, or a combination of both… When a customer’s order is close to reaching the threshold for adding points or redeeming gifts, businesses will often encourage or suggest Suggest that customers buy more to be able to accumulate points for future purchases to receive discounts or exchange gifts…

Improve AOV by offering loyalty card

By encouraging customers to buy many products to accumulate more points and enjoy promotions for future purchases, or buy enough products to accumulate points for redemption, businesses can take advantage of their membership cards. and loyalty card effectively to improve your AOV.

6. Improve AOV with decoy effect

With the decoy effect, customers can spend money to buy a more expensive product without them knowing. When faced with only two choices, customers often spend a lot of time thinking before making a decision. Decide between better product/service quality at a higher price and poorer product/service quality but can save money. Usually, with the above two choices, the customer will pay for the product. cheaper products to save costs. However, the average value of an order to the business will decrease.

Improve AOV with decoy effect

To improve AOV, businesses can take advantage of the decoy effect. Instead of only 2 choices, the appearance of a third “decoy” will overturn the customer’s decision in favor of the business. We can take the following example: A movie theater wanted to improve their AOV by selling as much popcorn as possible. However, when selling small popcorn for 35,000 VND and large popcorn for 55,000 VND, customers will surely choose to buy small popcorn to save costs.

To encourage customers to buy large-sized popcorn, this cinema has offered a third option, which is medium-sized popcorn for 50,000 VND. This choice is called the “decoy” selection. The cost of this third option will be nearly as high as the cost of the product that the business encourages customers to buy.

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With medium-sized popcorn for 50,000 VND and large popcorn for 55,000 VND, customers will surely choose to buy large popcorn because this product is just over 5,000 VND, insignificant but the volume of popcorn is much. Another example is also extremely close in reality: the price of a box of cookies is 15,000, while the price of a combo of 3 boxes is only 25,000. The seller has hit the customer’s often-chosen psychology of cheap goods. Customers will feel happy because they are buying bargains, but sellers also benefit from improving the average value of an order and increasing sales.