Our friends over at RJMetrics recently released a 2015 Ecommerce Growth Benchmark, where they analyzed the data of 200+ ecommerce retailers and $25 billion in transaction revenue. One of their core findings was that top performing retailers outperform on five key indicators:
- They acquire customers 3.5 times faster
- They process 3.5 times the number of monthly orders
- They have a more loyal customer base
- They hit $600k in monthly revenue by month six
- They have 36% higher Average Order Value (AOV)
You can read more about the first four items here. In this post, which was written by the RJMetrics team, we’re going to focus on that final item, AOV. We’ll be exploring five strategies that we see top performing companies adopting to boost average order value.
What’s a good average order value?
In the chart below you can see that top performing companies have an AOV of $102, which is 36% higher than companies in the fourth quartile.
While AOV is an indicator of a top performing company, it’s not necessarily a driver of that performance. AOV is byproduct, or output, of two performance elements:
- The number of purchases per transaction
- Average selling price of each item
These are the only two levers you have to boost AOV, and they should be handled with care. You can present your customers with multiple purchasing options, but eventually you’ll overwhelm them. You can increase the price of the product to a certain point, but eventually you’ll start turning people off. Increasing AOV, then, is a result of overlapping strategies that focus on providing the best customer experience possible.
How to increase AOV
1. Design site navigation to reflect how people shop
If you want to boost the number of purchases per transaction, you need to make it as easy as possible for customers to find items they want to buy. Search is a great tool for this, but consider that 60% of users prefer on-page navigation over search to find the products they are looking for. If you’re looking to boost AOV, then you want to design site navigation that reflects how your customers shop.
Mr. Porter is a great example of a company doing this really well:
You can see here that their navigation is designed to pull customers further into the site, instead of only pushing them through to checkout. This kind of approach makes it easy for customers to find all of the items they’re looking for, and maybe a few they didn’t even know they wanted.
2. Group products together
Another way to encourage shoppers to make more purchases per order is to make it easy for them to find additional products that are complementary to their main purchase. This could be by offering add-on items (items that are too small to cost-efficiently ship alone) like recommending a customer purchase a hat along with the sweater that’s in their cart. Or it could be by bundling items together, like suggesting new boots to go along with a coat.
The best way to find these opportunities is by analyzing purchasing data.This analysis is often referred to as “market basket analysis” or “affinity analysis.” There is sophisticated software that will run this analysis for you in real-time, but even a bare bones approach to executing this analysis can go a long way in providing AOV-boosting insights.
If you’re a Volusion customer, then putting these insights to work is easy. Once you know what items pair well together, set up bundles on your site to make sure customers are seeing the items most frequently purchased together.
Remember, the goal is to remind a customer of other items that could go well with their primary purchase. You want to find the products that are not just similar to their main purchase, but more importantly, complementary.
3. Provide social proof
90% of customers say reviews from other customers have impacted their buying decision. Weirdly enough, even bad reviews have a positive impact on purchasing behavior, converting 67% more than product reviews that are all positive. Reviews will go a long way in giving customers the confidence to add that additional item to their cart, and also feel comfortable spending money on more expensive items.
As of 2013, 27% of companies in the IR 500 didn’t have review functionality on their sites. If you’re still in that group, it’s time to change that.
4. Offer free shipping
The first and most critical step related to free shipping is establishing the right threshold, because when executed well, three out of four customers admit to adding on an extra item to qualify. However, if the threshold is set too high or too low, customers won’t be compelled to add the extra items to reach the dollar amount for free shipping to kick in. On the other hand, if your threshold is set correctly, you’ll see something like the chart below in your own data:
That second bump is all the customers who are willing to add an extra the extra item or two in order to qualify for free shipping.
Ecommerce companies have long considered “free shipping with conditions” to be one of their most powerful marketing tools. It’s an incredible motivator for customers and something that online shoppers have come to expect. The number one reason shopping carts are abandoned is due to “unexpected costs.”
One important caveat about free shipping: if you want the AOV-boosting benefits of free shipping without dragging down profits, you have to find the threshold that’s just right for your business. If you just base your threshold on guesswork or what your competition is doing, you stand to lose a lot of money. A while back we wrote a blog post on how to take the guesswork out of establishing a free shipping threshold, which includes steps to calculate within a Google spreadsheet.
5. Find your most profitable price
The first four strategies all center around increasing the number of purchases per transaction. Now let’s talk about the second AOV lever: average price per item. Raising prices is scary, but the impact on your profit margins will make it worth the risk. Again, don’t undertake price increases randomly—use data!
Think of the process for setting your price as akin to A/B testing. From a high-level, the process involves gathering your data, setting a baseline price, and then making small changes (often a good start is to only increase the price by 1%). At that point you can start collecting and measuring your data. Keep in mind, for accurate results, the goal is to gather data on a small number of products sold, at a range of prices. After you’ve collected all of this data, and you factor in your costs, you can begin to determine the impact of the changes you’ve made. You can learn exactly how to do it in this whitepaper.
Higher AOV is not the ultimate goal
Top performing ecommerce companies optimize for maximum AOV, and you should too -- but higher AOV per order is not the ultimate goal. Your goal should always be to increase the lifetime value of your customer. If you overuse tactics designed to increase your AOV, you could end up of diluting your brand and damaging your customer experience. Get the AOV-boosting basics right, and then get back to focusing on what’s actually driving revenue for your business: new customers and loyal, repeat business.