Average Order Value (AOV) refers to the median total of every order a merchant receives during a defined period. It is an essential metric for an ecommerce entity as it drives decisions such as store design and navigation, advertising spending, and product price.
The formula that calculates the Average Order Value is relatively straightforward. You must add the total figures from all orders placed during a defined time first. This step creates your total revenues. Once you have that total, count the number of orders placed during the designated time.
Your AOV is the total revenues divided by the overall orders. It is not a sales per customer figure, as some purchases may originate from returning consumers.
You cannot use the Average Order Value in ecommerce to describe profit margins or your gross profits. It measures your total revenue only as part of the median equation.
If you had four orders of $20, $40, $60, and $80, your AOV would be $50 ($200 divided by 4 transactions).
When online stores have this information, they can pick up insights into consumer behavior trends. It provides a glimpse into how revenue figures originate, what items are purchased together, and what customer profiles are spending more - creating more insight to help optimize and grow AOV. When AOV grows, the profit typically increases along with it.
As a best practice, all e-commerce entities should monitor their AOV at least weekly. If it is possible, a daily review can help online stores understand the reasons behind the various peaks and valleys that develop with ordering behaviors.
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