AOV is an acronym for average order value, a key metric and performance indicator for ecommerce businesses that measures the average dollar amount customers spend per order. It is often used—along with the metrics of lifetime value (LTV), customer acquisition cost (CAC), and churn rate—as a critical indicator of a business’s overall health. The higher a company’s average order value, the more money its customer base is typically spending per transaction.
The formula for AOV is to divide a company’s revenue by its total number of orders. Monitoring this metric frequently provides insights into gross profit by shedding light on trends in customer behavior and purchasing habits. This influences many business decisions, including pricing strategy and marketing efforts.
Cross-selling and upselling are frequently-used sales tactics companies use for increasing AOV. Other strategies include incentivizing higher order values through discount codes associated with certain purchase minimums, creating discounted product bundles, honing the personalization of product recommendations through data analytics and customer surveys, and the creation of customer loyalty programs that offer customers benefits for continued purchasing. Studying changes in average order value over time, and segmenting customers into different groups based on their purchasing behavior, can also help improve AOV. This allows companies to target high-spending customers with marketing and advertising strategies tailored to their preferences.