Breaking Down the Average Order Value Formula

Today’s Shopify owners are not only managing their online stores but also focusing on digital marketing and running online advertisements to acquire new customers.

However, in the process, many of them forget to focus on one of the most important ecommerce metrics—average order value (AOV).

While driving traffic to your website is a crucial step in sales, you may find that your customers aren’t spending enough money per transaction to justify spending more money on advertisements. This can result in a net loss per transaction.

In this article, we’re going to break down the AOV formula, explain its importance, and how you can increase your customers' order values. 

What is average order value and why is it important in ecommerce?

The average order value (AOV) is one of the most important ecommerce metrics for Shopify merchants to be aware of. It shows how much on average that each customer is spending per transaction.

Measuring and increasing average order value should be the main priority for Shopify merchants to offset rising customer acquisition and overhead costs that include inflation, which can drastically reduce a company’s revenue.

In the past eight years, customer acquisition costs have increased by 60%, with online merchants spending more money than ever on digital advertising. 

This is due to a number of factors including increased competition and advanced user privacy settings, making delivering ads more expensive than ever.

Today, Shopify merchants are searching for creative and frictionless ways to increase their average order values and drive customer retention rates.

Use a formula to determine average order value for your store

To determine your AOV, divide your total revenue by the number of transactions in a particular time frame. 

For example, a store that sold $12,000 worth of products through 100 transactions would have an AOV of $120. 

Typically, AOV is measured every month, although you can also determine your yearly AOV to compare this year’s progress to last year’s. Monthly AOV will be more useful in helping you drive more revenue in the short term.

Also, keep in mind that your store’s revenue is not the same as your store’s profit. Revenue counts as the sales for your business before deducting the costs you’ve spent building or acquiring those items.

Therefore, you’ll want to find even more ways to increase AOV to not only enhance your sales revenue but also increase your profits.

What is a good AOV for my Shopify store?

According to a study done in September 2022, the average Shopify merchant’s AOV was around $85.

The top earning 20% of Shopify stores had an AOV of $192, while the bottom 20% of Shopify stores had an AOV of below $50.

Not sure what your Shopify store’s AOV currently is? Go to your Analytics menu and select the dashboard to see your AOV chart. 

If your AOV is below $50, then keep reading for more marketing and pricing strategies to improve the average dollar amount that your customers spend. 

6 tips for improving AOV values

If your website’s conversions are staying relatively consistent, but your average order values are still too low, try implementing the following tactics to cross-sell and upsell more products during the checkout process.

1. Add one-click upsell funnels at the end of the checkout process

One-click upsell funnels are personalized product recommendations shown to the customer after they complete checkout, but right before they reach the final confirmation page.

With just one click your customer can easily accept or decline their personalized product offer. If they accept the offer, you may opt to show them a second offer. And because it’s shown after checkout, there’s no risk of cart abandonment. 

Once the customer accepts their offer, the items will be automatically added to their order and they’ll reach the final order confirmation page.

One-click upsells offer a more personalized shopping experience, displaying product upsells that have been triggered by the customer’s shopping cart’s contents.

Using the app CartHook, merchants have found a 15% conversion success rate in increasing their AOV by placing one-click upsells at the end of the checkout page.

2. A/B test upsell offers for more conversions and sales

Upsell offers can be split-tested and optimized to incrementally increase their chances for conversion.

Using CartHook, merchants can A/B test the same upsell funnels to test which variation has the highest conversion rates so they can finetune their upsell funnels for maximum revenue generation. 

For example, through A/B testing you may find that one product photo converts more customers than a different photo. Or that the call-to-action (CTA) of one product offer works better than another.

3. Raise the free shipping threshold

One of the simplest ways to boost AOV is to simply raise your free shipping threshold.

If your current AOV is around $50 and you want to increase it to $75, experiment by raising your free shipping threshold to $75. Your customers may be willing to spend an extra $25 to avoid shipping costs.

4. Offer subscribe and save services 

Subscriptions are the next big trend happening in retail because they produce reliable, recurring revenue and drive repeat sales through your existing customers.

One of the best places to upsell your customers on subscriptions is at the end of the checkout process using the one-click upsell funnel.

Using CartHook, merchants can select subscription offers and services as part of their recommended upsells and cross-sells.

By offering a subscribe and save deal, you will see an immediate bump in your customer lifetime value (LTV) and AOV

5. Bundle similar products together

If your Shopify store’s product selection is limited and you need ways to boost AOV, then simply bundle similar products together to create a 3-pack, 5-pack, or even 10-pack version of the same product.

For example, if you’re selling t-shirts on your Shopify site, give your customers multiple options to easily click on a product bundle, instead of making them manually increase the product count for the item they wish to buy.

To further incentive your customers to buy the bundled product, offer a slight discount to make it worth their while.

6. Reduce cart abandonment

One of the biggest threats to a store’s AOV is cart abandonment. Currently, upwards of 69% of online shopping carts are abandoned. 

The biggest culprits of cart abandonment are high prices, followed by a confusing checkout process that requires customers to create an account to place a purchase.

Follow these tips to reduce your cart abandonment rates to boost your AOV:

  • Allow customers to complete their order as a “guest” 
  • Don’t bombard your customers with too many upsells in the pre-purchase stage
  • Show upsells after the checkout page
  • Offer discounts to customers who have reached a certain price threshold to motivate them to complete their purchase
  • Send cart abandonment emails using UpOrder, a Shopify app that optimizes transactional and post-purchase emails

Download CartHook and watch your AOV grow by 10%

CartHook is an app that adds easy, one-click post-purchase offers to the Shopify checkout page.

CartHook boosts revenue and AOV by recommending targeted product upsells that your customers will love, triggered by their shopping cart’s contents.

Most Shopify merchants will see an average 15% acceptance rate on post-purchase offers and a 10% boost in total revenue.

Download your free trial of CartHook today and watch your AOV grow!

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