Average Order Value (AOV) measures the average amount of money spent per order. It’s an indicator for businesses to understand how much customers are spending on each transaction. A higher AOV generally implies that customers are purchasing more products or more expensive items per transaction.
How AOV is Calculated
The formula to calculate AOV is:
AOV = Total Revenue / Number of Orders
Total Revenue: The total sales revenue generated over a specified period.
Number of Orders: The total count of individual orders placed during the same period.
For example, if your site generated $10,000 in revenue from 100 orders in a month, the AOV would be:
Example: AOV = 10,000 / 100 = 100
This means that, on average, each order brought in $100.
Why AOV Matters
AOV helps measure customer purchasing behaviour and transactional value. Increasing AOV can be a way to boost revenue without necessarily increasing traffic or conversion rate, often achieved through strategies like upselling, cross-selling, or bundling.
Limitations of Using AOV Alone
While AOV can be a valuable metric, using it in isolation can sometimes be misleading:
Doesn’t Account for Conversion Rate: AOV alone doesn’t indicate how many visitors are converting. A high AOV with a low conversion rate may not generate as much revenue as a balanced increase in both AOV and conversion.
Not Always Reflective of Profitability: Higher AOV might sometimes be driven by lower-margin items, so it’s important to consider profitability alongside AOV.
Significance calculation for AOV
Symplify Conversion use a t-test with the Welch-Satterthwaite equation to do the significance calculation of the difference for AOV.