AOV - Average Order Value
AOV (average order value) is used to measure the average amount customers spend per order. It's calculated by dividing the total revenue by the number of orders. For example, let’s say you wanted to calculate AOV for your Tasting Room for August. In August, the Tasting Room generated $100,000 in revenue from 2,000 orders. Your AOV for the period would equal $50.
Revenue divided by orders = $100,000 / 2,000
Resulting Average Order Value = $50
AOV is a ratio used to understand customer purchasing trends:
- Over a defined time period - and compared to prior similar time periods to identify trending (growth or loss).
- Against a defined AOV goal - to understand how the business is performing against targets.
- By channel - to understand customer purchasing trends and how they vary by channel (tasting room, wine club, telemarketing, etc.)
- By customer type - to identify if certain customer groups are purchasing more or less than other groups; for instance, wine club members vs. non-members.
- By marketing campaign - to understand how well a campaign performed compared to another campaign.
AOV may be influenced by a variety of factors, including:
- Pricing strategy: The price points of individual products offered.
- Product mix: The variety of products offered and their value.
- Customer demographics: Factors like income level, age, and buying habits of your targeted customers.
- Cross-selling and upselling: Suggesting complementary or higher-priced products during checkout.
- Loyalty programs: Offering rewards and incentives to encourage customers to spend more.
- Shipping offers and thresholds: Offering flat rate or complimentary shipping to incentivize customers to spend more or add more items to their order.
- Marketing and promotions: Targeted promotional discounts encouraging higher spend thresholds can influence customer buying behavior and AOV.
- Website design and usability: A well-organized online store with clear navigation and product information can facilitate larger orders.
- Seasonal trends: Certain times of the year, like holidays, may naturally lead to higher average order values.
Some important considerations when evaluating your AOV include:
- Are there any orders you want to exclude from the data set being evaluated? Some potential orders for exclusion may be:
- Orders processed with $0 value; these may be transacted for samples, tasting room pours, etc.
- Refunded orders; by including both the original and refunded order in your resulting KPI you may be falsely increasing the total number of orders in your calculation, where the revenue for the original and refunded order would only contribute $0.
- Tax, shipping, CSV, duties, etc.; consider if you want to track your net or gross revenue and be consistent with your measurement
- Specific customer groups; should you include employee purchases, for instance, in your calculation, as you may be falsely reducing your AOV due to a high discount offered to employees.
- Your AOV won't be static, it will fluctuate based on the influencing factors identified above. Expect it to change quarter-to-quarter, month-to-month, and even day-to-day. It is important to evaluate the full picture of the different influencing factors that may affect AOV to determine if any changes are meaningful or just an expected change.
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