If your online store is running stably for a while and you start to think how you can earn more money with it. Usually, there are 3 strategies to increase your store’s revenue:
- Acquire new customers
- Get existing customers to buy more often
- Increase the value of each transaction, also know as average order value (AOV)
In today’s article we’ll focus on how you can increase the average order value (AOV) of your Shopify store so you can grow revenues in return.
Before we dive into specific strategies you can employ to increase your AOV, let’s address common questions to get an idea of what is AOV and why you need to put more focus on it.
1. What is AOV
Average Order Value (AOV) measures the average revenue generated in a single transaction. To calculate AOV, you need three inputs.
First, what timeframe are you measuring your AOV. Second, what is the total amount of revenue generated during your timeframe. Finally, count the total number of orders during the same time.
Here's the formula to calculate AOV:
Average Order Value = Total Revenue / # of Orders
2. Why AOV matters to your eCommerce business
AOV is a key metric that can help you navigate your business plans and optimize your store's income. Below are a few major reasons to focus on increasing AOV in your business.
- Multiply profits: AOV has a multiplier affect on profitability. Your store incurs fixed costs everyday - from warehouse to labor costs. Increases in AOV gives you incremental profit every order.
- Decrease payback period for new customers: Increasing AOV means that each transaction moves you further towards breakeven.
- Improves cash flow: As a consequence of decreasing the payback period, your overall cash flow will improve. Cash flow will decrease the necessary working capital you need to operate and allow you to better pursue other opportunities.
we get often from store owners: “How do I know if we should focus on increasing conversions, or focus on increasing average order value?”
A simple answer lies in a chart shared by Taylor Holiday on Twitter:
To translate this for you: ideally, you should aim to be above the red line. Meaning, if your conversion rate is 2%, aim to get your AOV above 100$. The higher your conversion rate, the lower you can afford your AOV to be.
Now don’t read this wrong. This chart is approximate, and points to the minimum conversion rate to AOV ratio you should target for a healthy business.
If your conversion rate is around 6%, and AOV is $50, you’re not in the red zone, but increasing the AOV to $100 at the same conversion rate would double your business. On the other hand, if your AOV is $500 and your conversion rate is 1%, you may benefit more from increasing conversions.
Either way, it’s never a bad idea to increase your average order value. How can you do it? Let’s dive into 5 of our favorite strategies:
1. Offer bundles for products with high average quantity
This may not be the most obvious way to increase AOV, but we’ve used this method quite successfully with a number of clients as a CRO agency. It works particularly well with beauty and skincare brands. It consists of identifying your products that people often buy more than one of in one transaction, and packaging them in bundles. While it works best with products under $20, with some creativity this concept can be adapted in a number of ways to fit almost any type of product too.
For Dr Squatch, one of our clients, we’ve implemented this in a rather creative way for their soaps by making packs of 2 soaps the default option. While customers can still buy individual soaps, it nudges them to buy 2 at a time by default; therefore increasing the average order value.
Kopari Beauty also does something similar by featuring a bundle of all 3 shades of their lip gloss, on the lip gloss’ product pages, below the add to cart button.
DTC cereal brand Magic Spoon doesn’t even allow you to purchase individual boxes of cereal, opting to sell crates of 4 boxes only.
Native deodorant ask people if they want to upgrade their orders right as they click on add to cart.
In a slightly different implementation that we love, CDLP Underwear (side note - don’t miss SplitBase’s founder’s interview with CDLP’s co-founder, Andreas Palm, on how they’re scaling by harnessing emotions. Listen to the interview here) upsells bigger product quantities and their subscription, called Automatique, directly on their product pages. One thing we particularly like about the way they implemented this, is how they highlight the savings for each option to entice visitors to select those options instead.
And Cocofloss does something similar to Dr Squatch and CDLP by requiring customers to select whether they want a single pack, 2-pack, or 3-pack before adding the item to the cart.
On the flip side, it didn’t take long for us to find other direct-to-consumer brands that could likely implement a similar strategy..
For example, Bombas socks (picture below), have a quantity drop-down for their socks. While we’d recommend keeping it if people regularly buy more than a pair at once, there’s a missed opportunity for them to let people buy 2-packs, 3-packs or 4-packs directly on the product page.
To push it even further, if they notice some products are bought in quantities of 2+ as often as individually, they could consider testing packs of 2 pairs as being the default.
Identifying which products qualify for this type of upsell is a matter of looking into Google Analytics
This is probably not something worth implementing on products that people rarely buy more than one of at a time, so we’ll want to take a data-driven approach to validate the potential of this strategy.
To do this, log into Google Analytics and navigate to the Product Performance Report, under the Ecommerce tab.
Once you’re in the Product Performance report, you’ll want to pay attention to the Avg. QTY column. This column shows how many of each product people buy on average in one transaction.
The items that qualify for this bundling strategy will have a high Avg. QTY. For example, the items you see below have average quantities that near 2, meaning, quite a few people buy a couple of these in one transaction. Those are the products that are the best suited for this strategy.
Keep in mind that unless you’re already nudging people on your product pages to add more than 1 of the same product to their cart, your Avg QTY numbers may not be very high, so look for numbers greater than 1, but don’t necessarily expect to see 2s or 3s. You’re only looking for signals at this point.
Once you determine which products you’ll apply this strategy to, and the approach you’ll take, don’t forget that it’s critical to A/B test this. While yes, it is data-driven, and has worked with some brands, you still don’t know if your way of implementing it will resonate with customers, and how it’s going to affect conversions.
Test and learn!
2. Cross-sell & upsell in the last step of the checkout flow
Cross-selling and upselling products in the checkout flow is easy to implement, and a great way to increase AOV. The downside of this is that for the moment, it’s mostly reserved for Shopify Plus merchants who have the ability to customize their checkout page.
Weezie Towels, for example, cross-sells a pair of towels in the last step of their Shopify checkout flow.
One of our clients, Primally Pure Skincare, cross-sells various products ranging from $10 to $40 depending on the products a customer has in their cart.
Our favorite tool here at SplitBase to accomplish this is Order Bump, which is quickly installed on any Shopify Plus store and only costs $99/month. Across the companies we work with that use the tool, we’ve seen that between 3% to 7% of people checking out add an Order Bump upsells / cross-sell to their order.
Products that are self-explanatory are those that perform best in checkout cross-sells and upsells.
While installing a tool such as OrderBump is the easy part, finding the best products for the strategy require a little more work.
As a rule of thumb, any product you upsell should be a product that requires little to no explanation. Your visitors are in the checkout flow, about to complete their purchase, there’s no space for lengthy product descriptions, multiple images, or anything else really other than a small thumbnail image, the product’s name, and a short description. If you want visitors to take you up on that offer, make sure people don’t have a thousand questions about the product.
We’ve tested upsells/cross-sells at various price ranges and so far, it seems like products between $10 and $30 perform best. This is highly industry dependent so you’ll have to test it for yourself; that being said, if your product is at a price point where it’s hard for someone to add it to their order without much thought, your cross-sell/upsell take rate will suffer. If the product is under $10, you might get volume, but the additional generated revenue may not be optimal.
So once you implement such a strategy, don’t “set it and forget it”. Test various products until you find the one that produces maximum revenue.
3. Cross-Sell & upsell in the cart
Another great way to promote additional products to increase revenue is through your cart, as one-click upsells / cross-sells. Just like we’ve explained above, the ideal products for this strategy are products that are easy to say yes to without having to think about it too much.
There are a few different ways to implement this, so let’s look at a few implementations from some direct-to-consumer brands.
Parachute’s side-cart upsell is quite subtle, and also different from most examples as instead of promoting one of their own products, they’re using it to collect donations for a charity. Checking the box will instantly add the donation as an item in the cart.
Black Rifle Coffee
Black Rifle Coffee’s side-cart is full of upsells and cross-sells, yet, still manages not to look too cluttered. It features a recommended product that goes well with what’s already in the cart, and allows you to change the coffee’s texture, and add it to the cart, right from the cart.
Similarl to Parachute, they provide the option to donate to charity from the cart, and they also offer a few upsells such as Gift Bags and Gift Messages for a few extra dollars.
Draper James offers a super simple upsell of gift wrapping, and manages expectations by clarifying it will add some processing time to the order.
Shoe brand Margaux chose to sell complementary products ranging from $10 to $30 in their cart, but unlike the other brands, features it under the checkout button.
There’s no one ”best area” to feature such sections. It should be tested. But if you feature your cross-sells right below the products that are already in the cart, make sure the design does not confuse people into thinking it’s an item they’ve added. (Margaux avoids this by positioning the cross-sell below the cart, away from the list of items already in the cart.)
4. Optimize your free shipping threshold
To step away from upsells and cross-sells for a moment, another way to increase your average order value is by strategically utilizing free shipping thresholds. We do want to warn you in advance, however, that there is no one-size fits all answer to how this should be set up, so you’ll have to experiment to truly find the best threshold.
Many brands that require a certain dollar amount threshold to be met for customers to qualify for free shipping, set those thresholds without much of a strategy. They often pick a number they know won’t eat up their margins, and that’s about it.
Free shipping on everything can be great too as people won’t be able to use shipping costs as a reason not to buy. That said, you could be losing quite a bit of margin if people frequently order lower priced products that already don’t have a lot of room to absorb shipping costs. It also doesn’t motivate people to place bigger orders to get free shipping (which would provide you with better margins).
Alright, what’s the solution?
UPS found that 3 out of 4 customers added additional items to their cart to qualify for free shipping. Setting a strategic free shipping threshold allows you to be more profitable by not absorbing shipping costs for small orders, while still providing free shipping on most orders. On top of that, it motivates people to buy more, therefore increasing your AOV.
To maximize your threshold’s success, set it just above your current average order value, so that most customers will be missing only a few dollars in their cart to get free shipping, incentivizing them to add additional products to their cart.
Note that some exceptions do apply. Luxury ecommerce, specifically luxury fashion, where products are in the hundreds (or thousands) of dollars, but still don’t cost a fortune to ship, may want to forget about the threshold altogether. People don’t want to double their order’s amount, or be required to an extra hundred dollars to qualify for free shipping. For these types of products, free shipping on everything is the best way to go.
For most brands, pairing the upselling and cross-selling strategies above with a threshold is a great way to boost AOV.
5. Upsell & cross-sell on the thank you page
At this point you’ve incentivized people to place bigger orders thanks to a shipping threshold, used various upsells and cross-sells before and during checkout, and customers have placed their orders. Does it have to end there? Absolutely not.
Using tools such as CartHook or Bold Checkout, you can create one-click upsells and cross-sells after people place their orders. This is great because it targets people who just bought from you, whose motivation and additional conversion potential is already quite high.
The beauty of this is that customers don’t have to re-enter their payment information either. A simple click will suffice to add the product to their order.
As for the ideal product to promote post-checkout, the same rules we’ve explained above for pre-purchase upsells / cross-sells still apply. It should be a product customers don’t have to give too much thought to decide if they want to buy it or not.
If you’re employing other upselling methodologies in addition to this, it’s best to avoid repeating the same products that were promoted previously, but that the customer didn’t add. Other than that, it’s another fantastic method for increasing AOV.
Too many upsells and cross-sells could damage your brand’s image if not done correctly.
While the strategies we’ve explained above can do wonders in terms of additional revenue, not implementing them properly, and not being conscious of how they play in the user experience, could hurt your brand’s image. For example, many upselling tools for Shopify look bad if the design is not customized for your brand. Pop ups, additional call to actions, and other things you can use for upsells can easily look like they came straight from a spammy internet marketing work, if you’re not careful about how they look, and how they’re implemented.
Avoid unexpected popups, anything that doesn’t follow your brand guidelines, or anything that disrupts the user experience in a negative way. The examples we featured above are good examples, so use those as a starting point.
While you should never stop optimizing your website for more conversions, optimizing your store for a higher average order value is equally important and can have a huge impact on your revenues.
Bundles, selling larger quantities, cart cross-sells, checkout upsells, optimizing shipping threshold, and even post-purchase upsells - are all great ways to boost AOV. No need to implement them all at once.
Start with one, and don’t forget to test different products at different price points.