There are many ways to increase the profitability of your store, and one thing worth focusing on is your Average Order Value (AOV). However, it should never be your goal to just cram as much as you can into the cart of the customer - you have to think about lifetime value too.
There are many ways to increase the profitability of your store, and one thing worth focusing on is your Average Order Value (AOV). However, it should never be your goal to just cram as much as you can into the cart of the customer - you have to think about lifetime value too.
If we are talking about increasing the average order value, we have to start with the mindset of your customers. If the goal is to convince them to shop more in your store or spend more money, then they must also get greater value out of the purchase.
That doesn’t necessarily mean that you have to offer gifts or discounts, and much less get into a spiral of lowering prices. But you have to think about the perceived value of your offers.
Value can materialize in the mind of the customer in many ways. If buying a bundle offer is more convenient, if a last-minute cross-sell means that they don’t forget to buy something important, if they receive a gift that is not just a generic item, but really useful based on their history - they will be thankful and feel positive about the experience.
This means they will not only spend more, but will also likely return (learn how to keep returning customers in this article, which walks you through a few e-commerce strategies regarding follow-up emails and loyalty programs).
Let’s start with exactly how you should...
Using the data your would-be customers generate on your site is really a first step in learning how to build a truly profitable online store.
And tracking their behavior is mostly easy, major e-commerce platforms have built-in solutions for this.
The idea is simple: you track what products the user viewed, what they searched for, what is in their wishlist and in their cart - and find similar offers to show them. And if your goal is increasing the average order value, you show these to them right before they want to check out.
If you are not selling yachts or hand-made briefcases with a lifetime warranty, chances are your product is going to expire or be out of stock sooner or later.
Considering exactly how long the product lifetime is, this could be a great long-term retention or short-term upsell solution. For example, if you are selling mattresses, you just have to keep the contact info and around 10 years later send out a letter with a discount offer. But it’s a different situation if the lifetime is shorter.
Let’s say you are selling toner cartridges. If you look at data showing the frequency and quantity of orders from returning customers, you can estimate how long a cartridge lasts for your average customer.
Then you can set up offers specifically based on this piece of data. For example: if someone puts one cartridge in their cart, throw up a pop-up telling them it might be more convenient to buy 3 or 4 instead because it will save them time and shipping costs.Keep in mind that you should focus on why buying more would be better for your customers. Your first and last goal is to keep them satisfied so they return. Don’t focus only on AOV increases, but their lifetime value as well.
This is why you should also set up automations reminding them after a given time (based on their order) that they are about to run out of what they have ordered - preferably before they run out, to help them even more.
Picture this: you just bought a book on Amazon. You were searching for the right one to buy and looked at a dozen different offers before making a decision. Then you go on Facebook - and the exact book you just ordered pops up in your timeline as an offer.
This is what terrible targeting looks like, and many bundle offers are put together following the same flawed logic.
A slightly better solution than putting very similar products together is to create bundles from products customers usually look at or buy together: now you are using customer data.
It’s even more efficient if you actually think about the application of your products.
The same is true for cross-selling. Many times in stores the recommended products include similar ones to that which we are viewing or ones that have been viewed often by those who bought the current one.
The problem is, when people are looking for a type of product, say a fridge on a site offering household appliances, they tend to look at different types in the same category to find just the right one.
If I already put a fridge in my basket, don’t offer me more fridges to look at. Offer me containers I can put inside, odor eliminators or similar items that are useful to buy in addition, because they offer even more functions, make using the product I bought more convenient or are otherwise directly related.
Free shipping is also a major factor in battling cart abandonment, but more often than not it is better to set a minimum on this.
Shipping in itself is a very complex financial aspect of running an online store, and the right pricing should depend on various factors, including local vs. international shipping prices, VAT in different countries, the value changes of currencies - and of course, your average order value.
If you have your prices figured out, and want to increase AOV via shipping, free shipping should be offered somewhere around AOV+10% as a general rule. (If that is profitable for you considering shipping prices.) Later on, if AOV increased, you can try increasing the limit even more.
If you use a limit on free shipping, be sure to communicate this very clearly, at multiple points during shopping and checkout: you don’t want your customers to get the impression that you are misleading them by offering free shipping when in reality there are conditions to that.
If you are not satisfied with your AOV, the problem might have to do with how you’re targeting your ads.
Your audience’s intentions could often be identified from the search queries they use. For example, if someone types this into Google:
“same day delivery refrigerator boston”
...we could assume it is some type of an emergency: likely their fridge died and they need a new one, fast. But if they use this query:
“affordable refrigerators price comparison”
...they are more likely to be looking for information: they are not in a hurry. They are looking for the perfect value for their money.
Depending on the specific industry and audience, you go for more AOV. If someone is in a rush, they are more likely to pay a higher price for a specific item, but also more likely to ignore additional services, cross- and upsells.
So, when setting your campaigns, always think about what the intentions of your audience might be.
Tiered pricing may seem like an unethical way to trick your customers into choosing something more expensive. In reality, while it is true that it works by manipulating your perception of value, it should be used to highlight that you are not overpricing.
Overall cost is often a reason behind cart abandonment. Customers can often feel like a certain item’s perceived value does not justify the price - so in order to provide context and reinforce purchase intent, you can show them similar products in different tiers.
The most common way is to use three tiers, where the “middle” one is your real offer: a good product for a reasonable price. The lowest tier is an offer with a much lower price, but also much lower value, the “budget” version that most won’t buy, because they would feel like they are not going for quality.
And in the highest tier is the premium offer, the one that most customers can’t afford but also don’t really want. If you are looking for a family car as a middle-class customer, you won’t settle for a 20-years old junk, because you value the lives of your family more than that. But you also won’t be looking at offers from Porsche.
The question “do you want fries with that” is the cornerstone of the fast-food market. And if you are not using the principle behind it in your store, you are missing out.
The question is, what can you offer that will slightly increase the price and add value to what they’re already purchasing? Remember, if you are offering some additional service, it should be right before checkout -- when purchase intent is the strongest.
When you buy furniture, IKEA offers to ship it to your place, so you don’t have to strap an instable bed on your car. If you buy a bike, you get offered insurance.
Additional analytics, consultation, assembly - all small additional services that make the life of the customer more convenient, because they have one less thing to worry about, and more times than not it means you get to initiate a longer relationship with them, if the service is continuous, thereby not only increasing AOV but also lifetime value.
It’s nice to have cross-sell and upsell offers, but if you are packing the entire field of view with offers, pop-ups, CTAs, your customer will be more likely to miss them.
Just take sliders for example, which, according to basically every UX study done on them ever, should have been eliminated from online stores long ago. This is because they want too much: to show the user a dozen offers on a single page while reducing their sense of control, which in the end, decreases conversions.
Avoid the problem of too many choices: our brain is a very resource-hungry organ, and it is aiming to keep the resources consumed to a minimum. If presented with too many choices, subconsciously you often opt for not choosing at all. This is why there are mainly 3 offers in tiered pricing and not 10.
So keep an eye on not just sales but UX, and declutter your store as much as it takes. And while we are on the subject of how to present your offers...
Simply offering some kind of gift with a purchase threshold could work, but you can do better than that.
As I said at the beginning of this article, the goal is not just to make customers spend more, but also to have them stick with your store and brand.
The gift for example can be a gift-card, which they can use to get a discount from a future purchase.
But you can use this initial gift (which you should make a one-time offer) as an entry-level gift for your loyalty program. The idea is that people roll in organically, without any additional steps needed on their part - but in follow-up emails you can assign them a rank, progress, you can remind them of the initial gift and show what awaits them on the next level etc.
Whatever offer you make to your customers to convince them about spending more at your store, the perceived value for them must be even greater. In order for this to work, it’s not enough to simply offer discounts or random gifts.
You have to get to know your customer - by listening to their questions, talking to them, and looking at the behavioral data they generate on your site. Based on this, you should create AOV-increasing methods that also serve your retention.
This way you will be the brand that cares about their customers, and not their wallet.