In e-commerce, the more transactions the better, right?
Well, not always. Let’s say one brand completes 1,500 orders for the month and the other completes 800. Will the first brand always show the most revenue growth? It largely depends on one thing: the average cost of each transaction.
Let’s break it down: One brand has 1,500 orders with an average value of only $40. A second brand has just 800 purchases but with an average of $80. The second brand may be financially healthier than the first! The difference? Average order value.
In this blog, we’re covering everything e-commerce brands need to know about Average Order Value (AOV): What it is, how to calculate it, why it’s important, and ways to increase it.
Let’s get started!
What is Average Order Value (AOV)?
Average order value (AOV) is a metric that tracks the average dollar amount a customer spends each time they make a purchase at your store. Typically, AOV is tracked over a certain time period, such as month-to-month or quarterly.
Average order value depends on two things:
- How many products your customers are buying.
- How expensive the products are.
For example, a luxury athletic apparel brand like Lululemon sells higher-priced products than a more affordable brand like Fabletics.
Now, you may think since Lululemon is more expensive, their AOV must be higher than Fabletics. But, this doesn’t always hold true. It all depends on the number of products that customers are adding to their carts. A Lululemon customer may only feel comfortable purchasing 1 pair of $100 leggings, while a Fabletics customer might spend $150 across a few different articles of clothing.
Plus, this doesn’t take into consideration the promotions and pricing strategy run by each brand that could increase the number of products purchased.
Why is Average…
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