Dealing with a consistent stream of low-priced orders can be quite frustrating. This situation means the revenue per transaction is low, which hurts the bottom line and business growth.
Could it be because of lackluster offers, or is there some hidden reason influencing shoppers not to fill up their carts with more products?
Many stores miss out on potential earnings by not adequately incentivizing customers who have already shown an interest in their brand. Or perhaps they attempt to do so but leave a lot of money on the table.
It’s essential to implement strategies to increase the average order value (AOV), which is the average value of all your sales transactions.
Factors Contributing to Low AOV
Let’s take the example of the famous Dollar Shave Club, which skyrocketed to success by promoting one-dollar razor blades.
Undoubtedly, they had great marketing from the very beginning on all fronts, such as creating winning video ads, which are still showcased as a shining example.
However, their business wouldn’t have survived by selling one-dollar blades alone, not even at scale. The average order value (AOV) would have been way too low to make it a profitable venture. Their major profits come from other products, as they offer a range of men’s care products from electric trimmers and razors to shower gels and deodorants.
You should similarly think about your store. Shoppers may come in for one enticing offer, possibly priced lower, but end up loving your brand and purchasing more than they originally planned.
To increase average order value, there are a few key things to consider:
- Pricing Strategies – Although they depend on the market and your ideal customer persona for whom the product is made, you still have control over many factors such as minimum order requirements, bundling, discounts, tiered pricing, cross-selling, and discount strategies. Be careful with discounts. If people see discounted offers too frequently, they may never purchase products at the normal price.
- Product Assortment – Shoppers appreciate having a variety of options. Only if the website is difficult to navigate and customers feel overwhelmed by the abundance of products, could it pose a hurdle. To increase average order value (AOV), the product assortment must be well organized, especially with complementary products available for cross-selling.
- Customer Behavior – You need to understand deeply how your customers buy. How do they come to your website? Is it from social media or Google? The behavior of visitors on your website can be easily monitored. By analyzing their user’s journey, you’ll be able to pinpoint hurdles and what stops them from buying more.
- Industry Dynamics – Purchasing patterns and AOV depend on the industry you’re in, so it’s beneficial to understand AOV standards to gauge where you stand among the competition.
Strategies for Increasing Low Average Order Value
Here are successful strategies to implement to increase low AOV.
1. Product Bundling
To ensure success, package products that complement each other or make sense together, and offer them at a discounted price.
For instance, you can pair shower gel with body lotion and deodorant, as these items are commonly used together.
Additionally, consider creating themed bundles for special occasions like Christmas or Valentine’s Day, or invent your own themes like Jimmy Lion, a renowned sock brand, has done with gift packs such as the Dog Day Pack, Cat Night Pack, and Frida Kahlo Pack.
Another effective tactic is to combine a bestseller with items that aren’t selling as well, thus facilitating the sale of accumulated stock. In addition to discounts, consider adding an exclusive item that’s otherwise unavailable to make the bundle more appealing.
Furthermore, you can combine variations of the same product, like the socks mentioned above. This strategy works particularly well in industries like cosmetics or food, where scents and tastes are easy to combine.
However, ensure that your bundles present clear benefits to the customer without causing confusion or hurting the brand image.
2. Upselling and Cross-Selling
These two terms refer to techniques we employ when shoppers browse your website or during the checkout process.
Upselling involves convincing the customer to purchase a more expensive item or a higher-tier option than what they originally intended.
There are various methods for upselling. In practical terms, we also call it upselling when we offer shoppers a bundle instead of an individual product. Often, an upsell involves a package deal. With stackable products like razor blades, toothpaste, or supplements, offering more of the same at a discount is an effective strategy.
For example, the bone broth brand Broya upsells by offering different quantities on the product page. In addition to providing options for 5, 8, 16, or 24 pouches in a variety pack, they show how many servings you get with each option. This increases the perceived value for customers.
Now, let’s consider an example of cross-selling, a technique aimed at selling complementary products.
Loftie, a brand specializing in items that enhance the sleeping experience, employs a cross-selling technique. When you add their alarm clock to your cart, they also offer you a sleep mask.
Credit: ByLoftie
Since a sleep mask is significantly cheaper compared to an alarm clock, it appears inexpensive. This perception stems from comparing one item to another, leading to a psychological effect where we perceive the mask as cheaper than if we were considering it on its own.
The key to success lies in personalization. Offer something relevant, such as items frequently bought together. Otherwise, recommend your best sellers, especially if you have not yet collected extensive purchase history data.
3. Free Shipping Thresholds and Incentives
Shipping fees are the most common reason why shoppers abandon their carts. At least 48% of cart abandonments happen because extra costs like shipping and fees are too high. No other reason for cart abandonment reaches such a high rate.
Determining a free shipping threshold requires careful planning and analysis of profit margins. There are several approaches to consider.
Some stores decide to include shipping costs in the product price by raising it. However, if your average order value (AOV) tends to be low, the free shipping threshold should be set at least around 30% higher. The objective is to incrementally raise the bar for free shipping but not to scare away customers at the same time.
Show shoppers both a visual and numerical representation of how much more they need to spend to reach the minimum order amount for free shipping. This method has proven highly effective in motivating them to make additional purchases.
Finally, combining free shipping with incentives such as signing up for a loyalty program or membership can further raise the appeal. We’ll delve into these strategies in more detail below.
4. Customer Loyalty Programs and Memberships
Acquiring a new customer typically costs five times more than retaining an existing one. Repeat customers are your most valuable asset. Let’s examine this through the lens of the Pareto principle.
The Pareto principle, or the 80/20 rule, suggests that 80% of outcomes result from 20% of causes. Applied to e-commerce, this implies that a significant portion of revenue or profits comes from a small fraction of customers.
In other words, if you have this core 20% of customers who are enthusiastic about your products and keep coming back, it forms a strong foundation for business growth without major retention challenges.
The first step is to create loyalty or membership subscriptions. Apart from offering discounts, some brands take it a step further. Take, for example, Pot Gang, a UK brand specializing in gardening gear.
It’s not just their watering cans that have excited people about the brand.
They offer a unique membership subscription where members receive a monthly box with seeds, pots, and everything a beginner needs to start growing veggies and herbs.
Each month, subscribers receive different seeds with pots to grow seasonal plants. It’s not solely about selling gear, but rather about creating a ‘gang’ of gardeners and guiding them step by step on their gardening journey.
Loyalty programs and memberships not only increase customer lifetime value but also average order value. For instance, a customer who subscribes to toothpaste is more likely to purchase a toothbrush and dental floss as well.
Conclusion
We’ve outlined four reliable strategies for boosting the average order value in e-commerce stores. Numerous factors influence a shopper’s journey. By systematically approaching and understanding purchasing signals and patterns, you can significantly enhance revenue per transaction and grow your business.
If people have already visited your website, they’re interested in and need what you offer. This presents the ideal opportunity to capture their attention, encourage them to purchase additional products, and guide them through a seamless checkout process.
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