What is AOV?
AOV (Average Order Value) is a key metric that measures the average amount of money a customer spends per order in your Shopify store. It helps you understand how much revenue each order generates on average, providing insights into your customers’ purchasing behavior.
To calculate AOV, you should use this formula:
AOV = Total Revenue ÷ Number of Orders
This formula tells you how much, on average, each customer spends when they make a purchase.
But let’s better explain how you can calculate your average order value.
So, let’s say your Shopify store generates $50,000 in revenue from 1,000 orders. To calculate your AOV:
Why is AOV Important?
AOV (Average Order Value) is a powerful metric because it helps improve several key aspects of your Shopify store’s performance.
Here’s how AOV impacts your Shopify performance:
- Increase revenue without more customers,
- Lowers customer acquisition costs (CAC),
- Improves profit margins,
- Helps in scaling paid ads, and
- Optimizes inventory and logistics.
Increases revenue without more customers
You don’t always need more website traffic or new customers to boost revenue—just higher-value purchases.
By encouraging customers to buy more per order, you can increase your overall revenue without having to spend extra on acquiring new visitors. This can be a more cost-effective way to grow your store.
Lowers customer acquisition costs (CAC)
When customers spend more per order, the money spent on acquiring them (through ads, promotions, etc.) becomes more justified.
For example, if it costs you $10 to acquire a customer through ads, but that customer spends $100, your customer acquisition cost relative to their spending is lower.
This helps ensure that your marketing efforts are more profitable and efficient.
Improves profit margins
Larger orders help offset fixed costs such as packaging, shipping, and transaction fees.
For example, while shipping might cost you the same for a small order or a larger order, if customers buy more, the fixed costs become a smaller percentage of the overall sale, increasing your profit margin.
This means you make more from each sale without incurring additional costs.
Helps in scaling paid ads
A higher AOV makes your paid advertising campaigns (like Meta Ads or Google Ads) more profitable.
When your customers spend more per order, you improve your ROAS (Return on Ad Spend).
This means you can afford to spend more on ads to bring in customers while still seeing a solid return. This creates a sustainable loop of growing revenue from advertising.
Optimizes inventory and logistics
Fewer, larger orders are generally more cost-effective to process than many small orders.
When customers buy more per order, you’ll have fewer shipments to handle, which reduces your shipping and fulfillment expenses.
This can make your logistics more efficient and help streamline your overall operations.
How to Track and Analyze AOV in Shopify
Tracking and analyzing AOV in Shopify is straightforward, and understanding the right data can help you make informed decisions to boost revenue.
Here’s how you can do it:
To track AOV directly in Shopify:
- Go to Shopify Admin → Analytics → Reports → Average Order Value
This report shows you how much revenue you’re generating per order, and you can easily calculate your AOV from the data provided.
In addition to Shopify, you can also track AOV directly in Lebesgue AI CMO. In your Business Report, you can see the overall AOV of your store. For a deeper dive, you can break it down by each of your advertising channels (Meta Ads, Google Ads, etc.).
This gives you a clearer understanding of which channels are driving higher-value orders.
You can also view AOV over time to monitor trends and performance. If you notice a decrease in AOV, you can take action—whether through optimizing your ads, introducing upsell offers, or adjusting your pricing strategy.
Benchmarks: What’s a Good AOV?
Factors That Affect AOV
Several factors influence your Average Order Value (AOV), and understanding them can help you implement strategies to increase it.
Here are the factors that influence AOV:
- product pricing,
- product variety,
- shipping policies,
- discounts and promotions, and
- customer behavior and purchasing power.
Product pricing
Stores that sell high-ticket items (expensive products) naturally have a higher AOV because each order generates more revenue.
If your store sells low-cost products, you’ll need to find ways to increase the average spend per customer. Common strategies include:
- Bundling: Offering packages of related products at a discounted price.
- Upselling: Encouraging customers to buy a more expensive version of a product or additional accessories.
Product variety
The wider your product range, the more opportunities there are to cross-sell.
Cross-selling means recommending complementary products to customers, increasing the total order value.
For example, if you sell skincare products, you could suggest adding a moisturizer to a cleanser purchase. Stores with more variety, like fashion or beauty stores, benefit greatly from this strategy.
Shipping policies
Many stores offer free shipping as an incentive for customers to spend more.
For instance, if you set a threshold like “Free shipping over $75,” customers may add more items to their cart just to qualify for the deal.
This encourages larger orders without directly discounting the products.
Discounts and promotions
Strategically using discounts and promotions can drive higher AOV:
- Volume discounts: For example, “Buy 2, Get 10% Off” can persuade customers to buy more.
- Bundle deals: Offering promotions like “Buy 3, Get 1 Free” can increase the total value of each order.
- Limited-time upsells: Offering an exclusive deal for a limited time (e.g., “Add this item for 25% off”) can encourage customers to increase their purchases to take advantage of the deal.
Customer behavior and purchasing power
Understanding your customers’ buying habits and spending power is essential for optimizing pricing and promotions. If you know that your target audience typically spends more on premium products, you can create tailored offers.
Conversely, if they tend to buy in smaller quantities, offering low-cost upsells or bundling options might be more effective.
By focusing on these factors, you can implement strategies that influence customers to spend more per order, ultimately increasing your AOV and boosting overall revenue.
Limitations and Misconceptions About AOV
While AOV is an important metric for any Shopify store, there are some important limitations and misconceptions to keep in mind. Here’s a breakdown of the key points:
A high AOV doesn’t always mean more profit
Although a high AOV suggests that customers are spending more per order, it doesn’t always translate to increased profitability.
This can happen if you:
- Discount heavily to encourage larger purchases. While the AOV increases, the profit margin on each item may be lower due to the discount.
- Bundle low-margin products together. Bundling can boost AOV, but if the individual items have low profit margins, the overall profit from the order might still be minimal. Always ensure that higher AOV doesn’t come at the expense of your profitability.
AOV alone isn’t enough
AOV is a great metric for understanding how much customers are spending per order, but it doesn’t provide the full picture of your store’s performance. It’s essential to pair AOV with other key metrics, such as:
- Conversion Rate (CR): This measures the percentage of visitors who make a purchase. A higher conversion rate means you’re getting more sales from the traffic you’re driving, which directly affects profitability.
- Customer Lifetime Value (LTV): This represents the total amount of money a customer will spend over their lifetime. While a high AOV is good, you also want to ensure that customers return and continue making purchases. LTV gives you a more comprehensive view of customer retention and long-term value.
One-time high AOV vs. long-term LTV
Increasing AOV can be beneficial, but it’s important to remember that one-time high AOV doesn’t always equate to long-term success.
For example, a customer may make a large purchase during a sale or promotion, but if they don’t return for future purchases, their high AOV isn’t as valuable in the long run.
What’s more valuable in the long term is Customer Lifetime Value (LTV).
Customers who return multiple times, spend consistently, and build loyalty are far more profitable than one-time high spenders. Thus, you should focus on strategies that increase both AOV and LTV to create a sustainable revenue model.
