Increasing your Average Order Value with your online store

Average Order value is a difficult but necessary metric to improve, and most store owners focus on this metric when customers have been found, they are arriving at your store and they are purchasing items - however, the basket average is low. This impacts other metrics like your return on advertising spend, and profit margins being challenged. When your conversion rate is hitting the mark, and traffic is to your expectations, then this metric is key to growing with your customer base. However, it has to be grown profitably, it isn't enough to provide incentives to customers to increase their baskets but the store owner has to do it in a profitable way.

Average Order Value - what is it?

By definition, it is the sum of your revenue divided by the number of customers over that period of time. For example, if you have $5000 in revenue, and you have 500 customers, then your Average order value = Revenue/Customer = $10.00 - in your Shopify Admin, you can find this number calculated in your Reports area. Methods in improving your conversion rate can positively affect the average order value, but one has to realize if your customer is trying you out first, then they may not have a high basket value, so looking into expanding your methods of encouraging customers to increase their basket value takes additional resources/methods.

Free shipping - minimum order value incentive

This is by far the simplest way to assist both conversions as well as increase the average order value since customers do enjoy not paying for shipping. The first exercise is to understand the popular products that are being purchased, and if they are the type where it is a one-time purchase or the user can benefit from a bundle purchase. For example, consumables can have multiple quantities, while single-purchase items look like accessories. Therefore the average basket price to define free shipping has to consider these situations, and then stack up what the average consumer would pick out and what would the basket price be like once the user accessorized or took on a bundle of the popular products. This could mean up to 2x your average basket value or slightly less.

Bundle Products or Packages

If you have the ability to package a bundle based on a popular product with its accessories to deliver a perceived greater value where the sum of all parts is greater than the bundle, you are onto the path where you can protect your gross profit margin and improving the average order value. Savings in packaging and shipping can be passed onto the customer, all the while they see savings in the bundle - a win-win for both the store and the customer. Packages, where likely products would be purchased together, are usually less profitable due to the fact that packaging may not be conducive to being optimized.

Upsell or Cross-sell products

If your products have the ability to have a good-better-best offering, such as a PC when it comes to screen size, memory, processor, and hard drive - you can upsell a customer to have a better system via incentives. The same goes with cross-selling, such as a computer bag for your laptop. These incentives usually are based on price scaling, where doubling the hard drive space is not 2x the price of the hard drive you started with but 1.5x instead, giving the user the feeling that they get value for their money. The same goes with other components, where a user may choose to accentuate their needs on screen size vs. memory. At the end of the choice, the user takes on the feeling that they have maximized their upsell on the system they want. On the way to checking out, cross-selling to the various accessories top off the basket price with items they may need, such as insurance, computer bag, back-up hard drive, USB-hub, etc. Structuring your products in a way the user may make decisions on price vs. capability is important when adding it to the flow of the purchase funnel.

Customer Loyalty Program

Customer retention is a big factor when it comes to your advertising budget. Returning customers are easier to convert, as well as their basket values are usually larger (after a good experience on the first purchase). Loyal customers are returning customers, giving them a way via a points-based reward system is a way to measure their behavior and their frequency of purchase. In some loyalty incentives, there are tiers based on the total points of a customer - the more they spend, the more you reward the customer. Customer feedback based on Reviews can also add points to the customer, helping your User Generated Content (UGC) for your pages, as well as giving other customers an incentive to purchase. Additional rewards in redeeming points, both at the checkout as well as gift cards can be a side benefit to the user to get other friends and family involved in shopping in your store, thus improving your customer referral and lowering your Ad spend. Having a customer retention strategy should be a top priority in your quest to have a large average order value.

Live Chat for your Online Store

A study has proven that the average basket value improves by 15% when a Live Chat is available in the store. With immediate questions answered, the items in the cart that was in doubt of their functionality or application get resolved with greater confidence - this also affects conversions as well and encourages cross-selling when the attendant suggests related products that would compliment the experience. Shopify Ping is a great tool to explore since Live Chat is available all the way to the point of purchase. If your average product price is high, then Live Chat becomes a higher priority given that users see higher risk in large purchases, and may require to have greater confidence in their decision to convert.

Conclusion

While any online store owner may know of these techniques, applying the tools and methods to your store will require planning and calculating how your customers perceive value, how your number of conversions are growing, and which direction your operating profit margin is taking with the various improvements, and how your loyalty program is increasing customer retention. Customer satisfaction is key to repeat purchases, where the opportunity to increase your average order value is with this group of customers, since they earn points, they keep buying. Rewards programs can be a focal point for reaching out to new customers and extending your marketing reach. If you have questions and would like assistance in applying these methods and tools to your store, please reach out to us at wish@thegenielab.com - we are happy to assist.