The average order value is the average amount a customer spends per order. To calculate the average order value, take all of the company's income for a certain period and divide it by the number of purchases. For example, in January the store made 70 purchases totaling $5000. Then the average order value would be $71.4, which is how much money the customer spent on average per purchase in the store.
It is customary to track the indicator in dynamics, through even periods, in order to compare them with each other. That is when it will be most useful to the company. Thanks to information about the average order value you can:
- predict the profit of the company — knowing the size of the average order value and the number of customers, you can understand what profit should be expected in the future;
- to register seasonality — if the average order value is steadily going down in certain periods of the year, and then comes back to the norm, it means that sales are seasonal;
- assess the solvency of the target audience — if the size of the average order value is unsatisfactory, then perhaps the reason is in the audience;
- make management decisions — the average order value is tightly linked to pricing policy, product range, product promotion and customer service. Fluctuations of the indicator can signal problems with one of these components and the company will analyze its work in more detail.
The average order value is one of the basic metrics in commerce for assessing the success of a salesperson. The indicator is calculated in all basic analytics tools, but it is also easy to calculate on your own. All salespeople strive to increase the average order value because it is one of the easiest markers of effective performance. There are several techniques for increasing the average order value:
- cross-selling — when a customer buys a product, they are offered additional items. For example, when buying a smartphone, the consultant offers the customer to buy a memory card;
- upselling — this method involves selling a product more expensive than the one the client was originally going to buy. For example, the client wanted to buy a 50-inch diagonal TV, but the salesperson convinced him that it wouldn't be big enough for his room, so he ended up buying a 55-inch diagonal TV;
- promotional offers — promotions with conditions such as 1+1=3 or make an order for a certain amount to get free delivery, also contribute to an increase in the average check;
- accumulation discount program — it encourages customers to buy larger amounts to increase the amount of discount in the future;
- bundle sales — discount bundles, where buying several items together costs customers less, is one effective way to increase the average order value.