Beka Rice A lot of the focus on increasing revenue is directed towards either increasing your traffic to get more potential buyers, or towards increasing your conversion rate to increase the number of potential buyers who actually purchase.
Increasing traffic typically has high acquisition costs associated with it for advertisements or promotions, so optimizing current traffic can be more cost effective. While conversion rate optimization is definitely a great way to make the most of the traffic you already get, there’s another way you can optimize current traffic to increase revenue without increasing traffic or conversions: increase your average order value (AOV).
Average order value is pretty self-explanatory: it’s the average value of every order in your shop. You can calculate it by dividing your total revenue for a period by your number of orders in that period. If you’re having trouble getting more orders (by either driving more traffic or increasing conversion rate), increasing the value of the orders you do get is a great way to increase your bottom line.
We’re going to do a short series on strategies to increase Average Order Value so that you can immediately implement improvements in your store. This article will cover helpful tips and strategies. We’ll then publish articles to show you how to use these strategies in your store — the exact plugins or tools you’ll need to do so — for stores using WooCommerce, Shopify, or Easy Digital Downloads.
Let’s say your average order value is currently $41. To raise this value, you can offer free shipping or discounts that are only available for orders of $50 or more, encouraging customers to hit this limit.
The trick is to use a threshold close to your average order value so that you incentivize customers who wouldn’t otherwise meet it. If you set the threshold at $100 with an AOV of $41, many customers are likely to blow it off since they’re not close to spending that amount anyway.
Free shipping offers are especially powerful, and motivate 7 in 10 shoppers according to some statistics on free shipping from Deloitte’s holiday survey:
- 71% of customers say they’re more likely to purchase from retailers that offer free shipping
- 40% say they’ll buy more items to qualify for free shipping.
To be honest, I found myself doing this for an online order less than two weeks ago — I planned to buy 2 items, but figured I might as well buy 3 for the free shipping.
An excellent Journal of Retailing study on shipping rates confirms that this is typical behavior, as a “free shipping for large orders” policy yields the largest order values in comparison to other shipping policies and discounts:
In sum, both existing and first time customers respond to order size incentives and higher base shipping fees lead to larger orders.
Using free shipping thresholds gives customers a very strong incentive to spend a minimum amount per order.
This follows the same principle as the free shipping threshold, but you could offer a discount instead of free shipping. This can be a coupon code you advertise on your site, or an automatically applied discount when the order value meets your threshold. Here’s a case study in which discounts tied to a minimum order amount increased sales by 25%.
Discounting may be a better strategy in comparison to free shipping depending on your demographic. For example, younger shoppers prefer discounts over free shipping:
Approximately 34.1% of respondents aged 25-34 preferred online discounts over free shipping, making them the largest demographic to favor online discounts. Conversely, only 18.5% of that age group preferred free shipping over online discounts, making them the smallest group to prefer free shipping.
The trick with discounting is to make sure that the discount doesn’t the lower the order value below your current average. For example, if my average order value is currently $41 and I set a discount for orders above $50, it doesn’t make much sense to then provide a 20% discount or higher, as this drops my AOV back to where it was. You may want to set discount thresholds higher than free shipping thresholds, or provide tiered discounts — e.g., spend more, save more:
- spend $50 = 5% discount
- spend $75 = 10% discount
- and so on
This is a different idea than a discount threshold; instead of requiring the entire order to meet a certain amount, you can give discounts for purchasing products in larger quantities to encourage bulk purchase. For example, here’s a VWO case study in which bulk discounts increased AOV by 18.94%.
Volume discounts aren’t a great fit for everyone, as it depends on what kind of product you sell. If you sell products that customers will typically buy more than one of, they can be a solid strategy for increasing order value. For example, if you sell nail polish, customers will typically want multiple colors, so you can offer a discount for purchasing 3 or more polishes.
First, determine the average quantity purchased of a particular product in your shop. If customers typically purchase only one of an item, it’s probably not a good candidate for a volume discount. If customers purchase 2-3 of an item regularly, this is probably a good item to offer volume discounts for — you can start discounting at 3-5 items to encourage purchasing larger quantities at once.
You could also look at the overall cart quantity of items purchased, and provide a bulk discount based on the cart quantity instead, though this is sometimes harder to implement depending on which eCommerce plugin you use.
Product bundling can encourage customers to purchase a bundle of a product that contains a product they’re already looking to purchase. By encouraging the customer to purchase the bundle, you can increase the order value by selling products you may not have otherwise sold. Bundles can also be helpful for customers, as they typically contain related products, such as cases for headphones or cameras.
According to Harvard Business Review, bundling tends to favor the seller, which is good news. Bundling reframes the pricing of each part of the bundle in terms of total value of the overall package rather than forcing the customer to evaluate the value of each line item individually.
A good example is free breakfast bundled with a hotel stay: while a customer may not balk at a difference between $175 per night and $195 per night for a stay to include breakfast, a $20 breakfast for one person may seem expensive when evaluated as a stand-alone purchase.
Your stand-alone products also assist with this to act as a price anchor for the bundles. If the single product is $100 and it’s part of a bundle at $120 which includes a few other products, the bundle has a higher perceived value and looks more attractive to purchase, even if customers may not have been looking to buy the other products in the bundle.
Typically bundles come with a discount, but the amount of the discount can be nominal. For example, a study on the effects of bundling strategy from Virginia Tech showed that 5% discounts performed as well as 20% discounts for bundles:
The results indicated that as long as a discount is offered, consumers perceive a 5% and a 20% discount as similar in value adding to a package… any price discount (either a 5% discount or a 20% discount) is a bonus and increases the value perception.
Everyone tells you to upsell and cross-sell products, so this probably won’t be a new concept. However, what does it actually mean? If you’re new to upselling and cross-selling, or aren’t sure how to implement them, Shopify has a great introduction explaining the differences and when each is a good fit.
Upsells let you offer customers an improved or higher “tiered” version of an item. Let’s say you sell flash drives: for a 32GB flashdrive, you can offer an upsell for a 64GB flashdrive. This asks the customer to evaluate the price of both, and determine if they want to “upgrade” the purchase for the higher ticket item.
Upselling on the product page is usually a great way to prompt customers to compare the product to its upsell, as chances are that the customer will not purchase both products, so an upsell is typically framed as a choice. Customers may be willing to purchase a higher ticket item if it appears to be a good comparative value, and simply asking or offering this item can be helpful during the shopping experience.
Cross-sells let you offer customers compatible or related products, and therefore are great to offer on the product and cart / checkout pages. The concept behind cross-selling can be similar to bundling — it lets you offer related products, and can be helpful to the customer as a way of saying, “Here, you may also like or want this as part of your purchase.” Here’s a great example of a cross-sell I came across recently:
As most customers who purchase foundation will need a way to apply it, recommending a brush to apply it is helpful to the customer, and can prompt an additional purchase that may not have occurred.
Creating a loyalty program is a great way to reward customers, but it can also help drive average order values since customers feel like they get something in return for their purchase.
Loyalty programs are great for building loyalty and repeat purchases, but you can also use loyalty points in the same way that you use discounts and free shipping thresholds: offer bonus points for higher order values, such as 300 extra bonus points for all orders over $60, or for your higher ticket items.
This is another way to encourage customers to spend more and meet order thresholds, and it’s typically a low-cost incentive to offer.
You can sell add-ons or additional services on both product pages and at checkout. These can be small fees that have little or no costs to you, but will provide value to the customer.
On product pages, you can offer add-ons like:
- personalization or monogramming
- companion services such as applying a screen protector for a phone purchase
At checkout, you may want to offer additional services that can also boost the revenue generated from the order:
- rush shipping or handling (which really means, “go to the front of the shipping queue”)
- shipping insurance
- gift wrapping
- add-on or sample products
For example, if you sell beauty products or toiletries like foundation, shampoo, or moisturizer, you can offer an add-on on the product page or checkout for a travel-size of the same item if available. (Can you tell I’ve been makeup shopping lately?)
While this example uses complimentary items, a similar set up would be great to sell sample or travel-sized items:
This can let customers test out new products for a future purchase at a minimal costs, or offer a helpful add-on (as I probably want a travel-size item just like my “home” item).
Have you raised your prices lately? Have they stayed the same for 1-2 years? You may want to consider incrementally raising prices each year on your products. I’m sure your operational costs go up periodically, and you can reflect these increased costs in your product prices so they don’t eat in to your margins.
A good time of year to do this is before holiday sales. As you’ll probably be discounting all products in your store for the holiday season, raising your regular / non-sale price at the end of October or beginning of November, but then discounting items for holiday sales, ensures that customers won’t “feel” the effects of this price increase immediately, but they’ll still see the “new” regular price so it’s not a shock.
Looking for more strategies or ideas? Check these sites out: