Average order value (AOV): definition and 8 growth strategies

Average order value (AOV) is a powerful metric that reveals customers’ spending habits. A thorough understanding of AOV can change how you approach sales, marketing and customer engagement in your business operation.

In this article, you’ll learn how to use AOV to enhance your sales tactics, create more effective marketing campaigns and potentially create revenue growth.

What is AOV?

Average order value (AOV) is the average amount of money your customers spend on each order. When you understand how much buyers like to pay per transaction, you can use targeted strategies to drive more sales.

Suppose you sell cosmetics. If your customers usually place orders of around $100, you could recommend similar products when an order is below $100 to drive it closer to that price. If the average order is $20, you could offer discounts to motivate customers to add more expensive products to their cart.

Why is average order value so important?

Increasing your average order value can not only directly increase your profits, but it can also help you measure the effectiveness of your marketing and sales strategies.

Understanding the AOV metric allows you to make better business decisions. You’ll be able to:

• Run more effective marketing campaigns. Analyzing the average dollar amount per order can help you identify customer groups with different AOVs. You can then tailor your marketing efforts to each customer segment, improving your return on sales.

• Optimize pricing strategies and make smarter offers. AOV gives you an idea of how much your customers like to spend. With this insight, you can fine-tune your sales strategies and encourage higher spending. For instance, a high AOV might mean you can absorb shipping costs and offer free shipping to your customers.

• Find the perfect product mix. You can analyze the AOV for specific product bundles. Find out which product combinations have the highest AOV, then promote these combinations and create an optimal sales mix.

• Increase customer lifetime value (CLV). Increasing AOV can enhance the value of your customers’ relationship with your business – especially if you’re in an industry with returning customers. Use actionable insights from your AOV to find upsell and cross-sell opportunities and encourage larger repeat orders.

By combining AOV analysis with other key performance indicators (KPIs) – like annual sales revenue, order volume and the rate of returning customers – you can get a comprehensive idea of your sales performance to optimize growth opportunities.

How to calculate AOV

To calculate AOV, choose a time period and divide the total sales revenue by the number of orders placed during that time. For instance, if you had 100 orders with a total revenue of $1,000, your AOV would be $10.

You can make AOV calculations using the following formula:

Say you want to calculate the AOV for the financial year. All you have to do is collect your sales data for that period and plug your numbers into the AOV formula.

If you had 154 orders adding up to a sales revenue of $8,200, you’d work out your AOV as follows:

What’s a good AOV?

What makes up a good AOV depends on your industry, product type, target market and pricing strategy. While there’s no one-size-fits-all AOV, you can evaluate yours using industry benchmarks and your historical average.

Industry benchmarks

Explore your industry’s average order value to determine how competitive your AOV is. Here are the average order values of eight industries across the globe in May 2024, according to Dynamic Yield statistics:

If your AOV is significantly below your industry’s average, you might benefit from new sales or marketing strategies.

Industry is a broad category that covers a wide range of businesses, and it’s not the only factor that gives your AOV meaning. Your products, business model and customers also have an effect.

Ask the following questions to find the best competitors to compare your AOV against:

• How expensive are my products? The more expensive your products are, the higher your AOV will be. A luxury e-commerce fashion store will probably have a higher AOV than a budget brand.

• What is my business model? How you sell is just as important as what you sell. A wholesale business will have a higher AOV than a brick-and-mortar store that sells directly to customers.

• Who are my customers? Different customers have different budgets and spending habits. For example, if your customers are mostly budget-conscious shoppers, your AOV might be lower than average. To determine what a good AOV is, consider how your customer base differs from the global average.

Here’s an example to illustrate how the above factors help you evaluate your AOV.

Say you have a company that sells discount home goods. The average AOV for the home goods industry is $150. Yet, with mostly low-cost items and thrifty customers, your company only has an AOV of $50.

You might conclude you’re underperforming because your AOV is much lower than the average. However, because you cater to a price-sensitive market, your AOV shows that your strategy aligns with your target customers.

Note: While AOV is important, it’s not the only sales metric that indicates sales performance. Take sales volume. If you have a low-priced product, you might sell more units. You’d have a lower AOV but higher sales volume and revenue. Tracking multiple metrics gives you a complete picture and ensures you don’t overlook details by focusing on just one thing.

Historical trends

Tracking your company’s AOV periodically establishes a baseline for comparing future changes. If your AOV increases over time, it’s a positive sign that your strategies are working.

To get the most out of your customer data, track AOV across different periods and categories.

Here are some ways to break down your AOV and get more granular customer insights:

• By month, quarter or year. Tracking your AOV across different periods can give you more context. For example, a monthly AOV shows short-term changes and lets you adjust strategies quickly. On the other hand, a quarterly AOV highlights seasonal customer trends.

• By customer segment. Break down AOV by demographics like age, location and gender to understand specific customer behaviors.

• By purchase channel. Compare AOV across different sales channels to find out where your customers spend more money.

• By product category. Track how AOV differs between standalone items and bundles. Compare your high-margin and low-margin products to optimize your product mix for better profitability.

• By promotional period. Assess your AOV around promotion periods to see how your campaigns affect sales. Use these insights to improve planning for the next holiday season.

8 powerful strategies to boost your AOV

Increasing your AOV is a great way to directly impact revenue without acquiring new customers. Here are 8 effective strategies to boost your AOV:

1. Upselling

Upselling is when you convince a customer to buy a more expensive version of the product they’re considering. When executed well, upselling can also improve the customer experience by adding value to their purchase.

Here are two ways to get the most out of upselling:

Offer upgraded versions or add-ons

Suggest a more expensive premium alternative if a customer adds a product to their cart. For example, if they choose a mid-range laptop, propose a higher-end model with more features. List the features of the upgraded product and how they lead to a better experience.

Offer tiered pricing

Tiered pricing aligns your products with different customer budgets and preferences. Develop good, better and best versions of your products, ensuring each version offers genuine value.

Here’s an example of tiered pricing for Pipedrive’s customer relationship management (CRM) software:

Each plan adds more features and functionality. The tiers build on one another so customers can upgrade as they scale their business.

2. Cross-selling

Cross-selling encourages customers to add related products to their cart on checkout. The goal is to help buyers discover products they’re likely to find useful. In this way, cross-selling can significantly increase AOV while boosting online sales.

Here are some tactics to enhance your cross-selling approach:

Provide contextual suggestions

Recommend products that are related to what’s in the customer’s cart. Provide suggestions relevant to their demographics, shopping habits and purchase history. If you run an e-commerce store, invest in a product recommendation engine to offer complementary options in real time.

Consider placement and visual cues

Display recommendations where customers will notice them, such as on product pages, in the cart and during the checkout process. Use banners, icons and small pop-ups to catch the buyer’s attention.

Send targeted follow-up emails

If a customer recently bought or enquired about a product, send a follow-up email suggesting related products. You could even add recommendations to transactional emails, highlighting how other items can complement their purchase.

Here’s an example follow-up email from YouTube that promotes a related product offer based on a user’s Google Assistant query:

The email offers premium subscribers the chance to try YouTube Music for free. The brand is cross-selling its music service to an already engaged video audience.

3. Product bundling

When you offer a bundle of related products at a discount, shoppers may feel they’re getting more value from their purchase. This product bundling strategy helps to increase customer satisfaction and your AOV.

There are three main ways to bundle products:

Volume bundling

Create bundles with larger product quantities to encourage consumers to buy in bulk. Offer frequently purchased items (like toiletries and snacks) and show the customer how much they’ll save if they opt for the bulk option.

Occasion-based bundling

Build bundles based on themes, events or seasons to target customers with the right products at the right time. For instance, you could offer a Halloween package containing themed snacks, toys and a costume.

Complementary bundling

Combine products people use together, like a smartphone with a screen protector and case. Make sure the bundled items offer real value or convenience and showcase these benefits at your store.

Here’s an example of an item bundle from Bruvi:

The coffee brand suggests thoughtfully curated flavor bundles for purchase with a coffee maker. Customers benefit from a discounted price when buying the items together, making the bundle offer more compelling.

4. Personalized recommendations

By tapping into a buyer’s browsing history, past purchases and preferences, you can recommend relevant new products they like or need – increasing the chances of a purchase.

You can use this AOV marketing strategy alongside upselling, cross-selling and product bundling to boost sales opportunities. Better yet, showing an interest in their preferences and pain points can also strengthen your customer relations.

There are many ways to deliver personalized recommendations, including:

Product recommendation engines

Product recommendation engines provide suggestions to customers as they shop from your online store or mobile app. They’re an essential investment for any e-commerce store, improving the customer experience while reducing manual work.

Personalized email offers

Segment your email list based on behavior, purchase history and demographics, then send personalized offers to each group. You could also set up automated emails triggered by abandoned carts or recent purchases.

Take a look at this abandoned cart email from hands-free shoe retailer Kizik:

The email includes an image of the pending cart item and a friendly message encouraging the customer to return and complete the purchase.

5. Free shipping

Free shipping is a retail strategy where the seller absorbs the shipping cost, letting customers buy products without a delivery fee. It’s a powerful incentive that can make online purchasing much more attractive while increasing customer acquisition and conversion rates.

Here’s how to use free shipping to boost sales:

Create a minimum purchase threshold

Offer free shipping only when a customer exceeds your AOV. For example, if your AOV is $50, set your free shipping threshold at $60 or $70. To help customers reach the threshold, recommend they add products at checkout with a suggestion like, “You’re just $10 away from free shipping! Check out these items”.

Offer conditional free shipping

Provide free shipping to first-time customers or customers in an area where your AOV is lower. You could also launch limited-time free shipping promotions during key shopping periods, like holidays or sales events.

6. Discounts and promotions

Price reductions are a counter-intuitive way to increase AOV. Discounts incentivize people to make larger purchases during a promotion. Even though you reduce the price per product, buyers often spend more to take advantage of the deal. Customers may also choose higher-priced items when they feel they’re getting more for their money.

To increase AOV with discounts and promotions, consider these best practices:

Spend X, get Y discounts

Encourage customers to spend more for a discount or free item. For instance, you could offer $20 off if they spend $100. By choosing a spending threshold that’s just above your AOV, you’ll quickly increase it.

Volume discounts

Offer a discount based on the number of products a customer buys. For example, you could offer tiered discounts like, “Buy 2, get 10% off; Buy 5, get 30% off”. This strategy is most effective with frequently bought products like toothbrushes and batteries.

This Mother’s Day example from luxury towel brand Onsen uses two discount tactics:

7. Loyalty programs

Customer loyalty programs are marketing strategies that reward customers for repeat business. They increase AOV by getting customers to make higher-value purchases in return for perks like discounts or exclusive offers. A well-designed loyalty program can drive long-term customer retention and increase customer lifetime value.

Here are two techniques to try:

Point-based rewards systems

Let customers earn points for every purchase they can redeem for discounts or free products. Introduce a structure like one point for every $1 spent to encourage larger orders.

Tiered loyalty programs

Create a program where customers unlock higher reward levels as they spend more. You could have multiple tiers (e.g., Silver, Gold and Platinum) offering perks like free shipping and special discounts if they spend a certain amount each month.

For example, cosmetics retailer Mecca offers a four-level loyalty program. Here’s what Level 1 entails:

Each level offers increasingly valuable incentives for higher yearly spending.

8. Price increases

Raising your product price is a simple but challenging way to increase average order value. While higher prices naturally lead to a higher order value, be careful not to raise the price too much. If your customers feel like the price increase is justified, they’ll often be willing to pay more.

To pull off a successful price increase, aim to:

Raise the price incrementally

Increase prices gradually to ease customers into the change. To stay competitive, raise your prices in small steps and observe how the market responds. If there’s too much pushback, slow down for a while.

Use luxury positioning

Customers will pay more for exclusive or superior-quality products. Consider repositioning your company as a premium or luxury brand to justify a sudden price increase.

AOV FAQs

Final thoughts

Average order value is one of the most important metrics in the retail industry, especially for e-commerce businesses. To enhance AOV, convince your customers to spend more using effective strategies like upselling, cross-selling and personalized marketing.

Pipedrive’s CRM can help streamline every part of your sales and marketing process, from tracking key business sales metrics to delivering powerful marketing campaigns.