The ecommerce industry is booming and it doesn’t look like it may slow down anytime soon. While millions of people have jumped on the wagon, switching from shopping at brick and mortar stores, the cost of acquiring new customers for online retailers seems to increase exponentially. Aside from metrics such as gaining more traffic and more sales, online store owners need to pay more attention to their Average Order Value (AOV). Fortunately for Shopify, WooCommerce, or BigCommerce shop owners, integrating a loyalty program in your store is an easy task, and it can increase AOV significantly. This post sheds light on how this is possible.
What is the average order value?
Average Order Value (AOV) measures the average total of each order placed over a specific period. In e-commerce, this metric is particularly important because it determines if certain major changes should be made in your online store. Knowledge of this metric is so important that online retailers may have to adjust their store layout, product pricing, or even the amount of money spent on advertising as a result.
AOV is calculated by dividing your revenue by the number of orders received. Thus if your online store earns total revenue of $5,000, split between a hundred orders, your shops' average order value is $50. This simply denotes that on average, each customer spends $50 on each purchase from your shop. The focus here is to use sales generated per order and not sales per customer. This is because while one customer may make repeated purchases, each of their orders would be considered separately. Average Order Value also gives insight into how an online store arrives at its profit margin or gross profit figure. The example below should help us gain a better understanding of how this works.
- For an online retailer selling three products priced at $20, $26, and $32, with an AOV of $22, two trends are revealed about the behavior of consumers in their store.
- The first trend is that customers may not be purchasing multiple items. The second trend is that most of the sales made are from the lower-priced product.
- If the higher-priced products have higher profit margins, the shop needs to improve on its marketing efforts specifically for such products.
When online businesses increase their AOV, they tend to increase their return on investments. The higher your store’s AOV, the more you get from each customer, and for that matter, the more you get from every investment made to attract those customers.
It is essential to note that it depends on your product category and industry. Some industries will have a higher AOV than others. The Average Order Value infographic helps you find out the AOV of your industry.
How AOV impacts your CLV
Before delving into how to improve, it is important to understand how the AOV can impact your CLV. CLV stands for Customer Lifetime Value and represents the amount of revenue or profit gained from one customer throughout the period of their commitment to a business. One of the most important reasons online retailers need to be aware of their CLV is because it determines how much they will need to spend to acquire new customers. In simple terms, CLV helps business owners know how profitable each customer is, and thus the amount suitable to spend on acquiring them.
AOV has a direct impact on CLV in the sense that an increased AOV means more money per order, hence a reduced number of customers one may have to acquire or deal with. Again, if an online store has a higher AOV, it means there will be enough room to spend on advertising or bringing in customers. A lower AOV however indicates that you need to lower the amount spent on acquiring new customers to avoid losses.
How loyalty programs help increase AOV
While several different strategies can boost your Average Order Value, using a good loyalty program for this purpose has proven to be one of the most effective tools in e-commerce over the years.
The four tactics below are effective in ensuring a higher AOV while using a loyalty program.
- Building loyalty membership: The first step to increasing AOV is to have a solid loyalty program in the first place and have potential members sign up for them. The best time to prompt customers to join is after they have made a purchase. Since they have trusted you and your products enough to make a purchase, they will be open to communicating and improving the relationship. A prompt notification that showcases the benefits of becoming a part of your loyalty program should get them on board in the first place.
- Offering desirable rewards: Once customers sign up for the loyalty program, your job as a brand is to offer worthwhile rewards which will encourage them to make further purchases to get these benefits.
- Use instant gratification: Humans naturally love to be appreciated and it feels better if there’s some sort of urgency attached to it. A clever approach is to reduce the gap between a customer’s first purchase and when they can claim their first reward. Customers who find out that they can receive instant rewards for ordering more from your store will most likely return to purchase more. For example, a loyalty program can be designed to allow them to use the points earned from a purchase at checkout to redeem a reward before completing the order. Since they can see the immediate benefit they stand to gain, it encourages them to add more to the cart just so they can reach the threshold to be able to instantly claim their reward.
- Rewarding people for spending more: With this tactic, you can entice customers to spend extra per order by rewarding them with more loyalty points for exceeding a certain amount (this amount could be your AOV).
How Liana increase your AOV?
Beans provides the perfect tool for online retailers who would like to use a Shopify loyalty app or a simple WooCommerce loyalty program for their shop. Apart from its many amazing features, Liana has a rule known as the Cart Booster rule which is dedicated to boosting AOV. Unlike other loyalty apps, this Cart Booster rule allows you to give extra points to customers when they exceed a certain spending threshold.
For example, with this rule, customers can be rewarded up to 2 times or 3 times as many points when they spend over $200 per order. Thus you can set your multiplier to 2X, which means that a customer who is ordinarily entitled to 100 points ($1 discount), will now receive 200 points ($2) when they exceed the $200 spending threshold.
When the Cart Booster rule is implemented, a customer who often spends up to $150 per order would be encouraged to purchase more products to reach the threshold, so they can claim the double points. Not only does this rule give your customers a reason to spend more, thus increasing AOV automatically, it will also urge them to refer others to your storefront, and foster a long-term relationship with your brand because they are receiving a very good deal for purchasing more.