Why Is Average Order Value Crucial For eCommerce Stores?5 Min read
The decisions that you make as a business owner will decide the fate of your business, family, and overall life. Everything that you do in your business should be planned and measured.
There are tons of different KPI’s, financial ratios, and benchmarks we can use to diagnose and assess your business to drive key financial outcomes.
One important KPI that all eCommerce Stores should be tracking is average order value (AOV).
Your average order value (AOV) is the average amount of money each of your customers spends per order.
Your Average Order Value Is calculated as:
Sales/Total Number of Sales
The Average Order Value multiplied by your Gross Margin Rate show your average margin per order.
This will drive your marketing decisions since this will show how much you can afford to spend on new customers to keep their first order profitable. It is important for eCommerce businesses to focus on improving their AOV while maintaining net profit margins in order to increase the amount of money that they can spend to acquire a new customer. As ads continue to become increasingly competitive and costly, it is crucial to have a strong AOV to when competing with your advertising dollars to acquire new customers.
To increase your average order value, you’ll need to convince customers to add more items, or more expensive items, to their cart. There are many different strategies that can be used to achieve this.
I included an overview of 5 strategies below.
- Add product recommendations to product and checkout pages
- Upsell or cross sell complementary products
- Provide order minimum incentives
- Create product bundles or packages
- Run effective deals and specials
eCommece store onwers should very carefully consider all the revealnt KPI’s that drive financial results in their business including average order value.It is important to consult with an experienced eCommerce CFO/CPA regarding your specific business.
Here at Camuso CPA, we offer eCommece tax, accounting, and CFO services nationwide. Our team is highly experienced in eCommece. Contact our team today to discuss your portfolio in detail here.