Selling Online #13 : Measurement : Average Order Value (AOV)

Last month I began talking about measurement criteria for your e-commerce operations by focusing on conversion ratio, or how many browsers actually become buyers. This month, I’m going to talk about another key measurement criteria, Average Order Value (AOV). I’ll briefly go over what it is, how you can try to optimize it, and some potential pitfalls to watch out for.

What Average Order Value actually measures is fairly obvious by its name. Take the value of every order placed on your site over a period of time, and divide it by the number of orders over that same period. You may or may not choose to do this net of returns and other adjustments. If you’re measuring for very high-level analysis of your site’s performance, it’s typically OK to just use unadjusted numbers.

Merchandising is the primary tool you have to influence your site’s AOV. Present relevant product assortments to the customer. Use your manual merchandising expertise to display obvious and not so obvious accessories with each product. There are typically anchor products that are going to become your site’s main draw. There are other products that you need to get under the mouse pointer of the shopper that you know they should be buying along with these major products. Make sure that you have set up your site with intelligently chosen products in the relevant “You may also like” area of a product’s detail page for instance. This is your chance to offer up some of the higher ticket items that, while they may actually have a low individual conversion rate, when they are purchased, they have a major positive impact on your AOV when done intelligently.

System generated, dynamic merchandising is another excellent way to influence your AOV. Typically dynamic merchandising is driven by similar, past customer behavior with some merchant control of various selection parameters. An example: if a bunch of customers bought Product A when they bought Widget X, make sure that you always show Product A anytime you show Widget X.

The effectiveness of dynamic merchandising is greatly influenced by the robustness of the algorithms doing the product associations, as well as the type of shoppers you have, so it’s not a perfect silver bullet for optimizing AOV. In a lot of situations sound manual merchandising will have a larger impact on AOV that the dynamic merchandising. However, if you have thousands of products and don’t have the resources to manually merchandise every nut and bolt, dynamic merchandising is an excellent AOV booster.

As with most other measurement criteria, blind adherence to one indicator like AOV can cause as many problems as it attempts to solve. In an extreme case, let’s imagine a dealer whose only goal is to have a huge AOV. They manually merchandise thousand dollar exhaust systems with every minor widget and doodad on their site. They set up their dynamic merchandising to only offer products that are over $500. Now because screen real estate is in practice limited (theoretically of course a browser could scroll forever, but offering shoppers infinitely scrolling pages is not typically a sound design practice), if all you’re offering up are big ticket items with potentially low conversion rates, then you are not offering smaller ticket items that more people may actually buy. Our fictional dealer may end up with a large AOV, but his conversion numbers will most likely be horrible, and in most cases his overall revenue may actually be down because while each customer that buys is spending a lot, there’s not a lot of a customers. Depending on your market, the products you’re selling, etc., this strategy may work very well for AOV, conversion and overall revenue numbers. High end jewelry and fashion etailers that are selling to customers where money is essentially no object may choose to go this route.

Another negative side effect of successful merchandising is called cart shock. Essentially you or your systems are so good at presenting products to your shopper that they are dumping everything into their cart. Everything is a “gotta have!” Potentially huge AOV’s! Until they get to the checkout that is. Now your customer is facing a grand total that is way out of line with what they came there to spend. This leads to a lot of product removed from the cart and a lot of abandoned shopping carts. A good way to help alleviate this cart shock is to have a mini cart display on all your pages so the customer sees a running total of what they are spending.

As you can tell, managing AOV can be a tricky beast. It’s almost more of an exercise is optimizing your AOV as opposed to just focusing on maximizing it. That is, a lower than “desired” AOV may yield paradoxically higher conversions and larger gross sales numbers. The optimal AOV number will begin to reveal itself over time as you develop a feel your customer base, their expectations, and so on. Just keep the big picture in mind.

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