What is the Average Order Value?
Average order value or AOV refers to the average amount of money spent on orders by customers in a business. AOV is one of the essential metrics in e-commerce that helps in product pricing and other business decisions.
What is the Significance of Average Order Value in E-Commerce?
AOV refers to the average amount of money a customer spends on each order from the business. It can provide insights into the financial performance of the company.
Here is why AOV is important for e-commerce businesses:
- AOV is an important metric for a business’s success because it helps them understand their marketing strategies and also evaluate the value of individual customers in the long term.
- AOV helps businesses track customer behavior throughout the website or online store. This way, the business will also know if its strategies and goals are working.
- It is important to focus on increasing a business’s AOV as it directly reflects customer spending patterns. And while trying to increase traffic to the website can cost more money, trying to increase AOV usually does not.
How Average Order Value Works
AOV can be calculated by dividing the total amount spent by customers on orders by the total number of orders. The formula for AOV is:
Revenue/Number of orders
Use Case with Average Order Value
Average order value can help businesses determine how much a customer spends on their products on average. Consider you had total revenue of 31,000 pesos for the month of December. Your total number of orders was 1000. Therefore, using the formula, your AOV for December was:
31,000/1000 = 31 pesos.
Higher AOV indicates customers have spent more on each order.
