To maximize your revenue, increase average order value with these helpful tips from The RV Entrepreneur podcast host Rose Willard.
When it comes to business optimization, every transaction counts. Your Average Order Value (AOV) stands at the heart of this pursuit. It represents the essence of revenue enhancement. But what exactly is AOV? It’s a simple yet powerful metric, calculated by dividing total revenue by the number of transactions within a given period. Whether you’re a solopreneur or leading a team, understanding your AOV provides invaluable insights. And, learning to increase Average Order Value can drive your business towards unparalleled growth. Join us as we explore the significance of AOV and uncover strategies to boost your revenue like never before.
Understanding How to Increase Average Order Value
This discussion presumes you have established the following:
- A product or service that adds genuine value.
- A solid marketing funnel that captures hot leads.
- A customer service system that makes your leads/customers fall in love with you.
Now, it’s time to track your Average Order Value and figure out how to maximize your revenue per order.
What Is The Average Order Value (AOV)?
First of all, what is the average order value? This is simply your gross revenue divided by the number of customers or clients that you sold a product or service over a fixed period.
For example, you consulted with 8 clients over a 1 month and grossed $12k for the month. This equates to an average of $1.5k per client.
Or perhaps, your website sells downloadable ebooks, paperback books and has custom apparel drop-shipped. In one week, your site generated $1.2k in sales and had a total of 52 sales. The AOV for that period is $23 ($1200/52).
How Often Should You Track AOV?
This is loosely defined and ultimately up to you based on the volume your business is selling. In the last business my husband and I owned, we calculated this monthly because there was very little price variation in our service.
The higher your revenue, and volume, the more customers/clients you have, and the more price variations you have, the more frequently you should calculate the AOV.
What Can You Learn By Calculating AOV?
An analysis of your AOV can be very insightful for both a solo-preuneur and an entrepreneur running a large team of employees. As you drill down the details, you’ll begin to see patterns and trends. Let’s explore some of the data you can obtain from your AOV!
Pricing Strategy:
Finding the sweet spot to set prices appropriately, minimizing consumer turn-off and maximizing the ROI is your goal. Also, for a digital business, client/customer perception of your business plays a vital role in how you set your prices. This of course speaks to how your digital content is perceived by the consumer, which is more challenging from an RV.
Buying patterns:
Customer spending habits disclose a lot about how you should market to future customers as well as your pricing strategy. Over time, you’ll see buying patterns evolve.
For example, you may see AOV change based on the season, allowing you to better allocate capital to promotion and advertising. In other words, a spike in sales every April for your “How to Make Money as a Nomad” book informs you to allocate marketing dollars in March promoting an upsell or bundle promotion for April.
This generates a high ROI and AOV by efficiently aiming your capital like a laser beam instead of a flood light.
Not elevating your AOV based on buying patterns isn’t necessarily a failure. Instead, think of it as a learning lesson to refine your marketing and promotion direction for the future.
Advertising costs:
Does it cost you more to acquire a new customer than your AOV? If so, it’s beyond time to figure out the best way for your particular business to raise your AOV. As stated previously, it will also be beneficial to figure out how to more efficiently use your marketing dollars.
For example, rather than spending money on ads with our local media, we maximized the use of our media kit to help journalists write stories. This translated into free marketing directly to our local demographic. This method can be leveraged in a digital business in the same way with HARO (Help A Reporter Out) and reaching out directly to media sources.
Conversion costs:
Your conversion cost is your cost to acquire a new customer. Your AOV must be higher than your conversion cost for leads. Otherwise, your business needs to make more money to sustain itself or you.
You can calculate conversion by dividing the total amount of money you spent on a marketing campaign by the number of leads you closed (or sold to).
Let’s say you spent $600 above and beyond your normal overhead for a marketing campaign and closed 8 high dollar consulting clients. Your conversion cost for the campaign was $75 per closed lead.
Now, let’s say that your AOV from consulting is $400/month. Since your AOV is much higher than the conversion cost, your campaign was a huge success.
Long-term value of a customer/client:
This was a factor that was a top priority in our personal training and physical therapy business. Most importantly, it costs us a lot less to sell to a current client/patient than it does to a new lead. In our circumstance, it also supplied a predictable monthly revenue stream.
There are a lot of factors that go into solidifying the long-term relationship you have with a customer, including customer service, shipping times (if applicable), the customer’s perception of your business, etc.
If nothing else, committing resources to the long-term value of a customer is money well spent.
Examples Of How You Can Increase Average Order Value
As An RV Entrepreneur, consider these suggestions which may or may not apply to your specific business.
First-time customer offers:
One can raise AOV by offering new customers a discounted price if they purchase certain items together. There are no rules here. Get creative and do what makes sense with your product or service.
Free shipping thresholds:
We’ve all been subjected to this offer. Spend just $10 more and you get free shipping. Truth is, it works really well and is easy to apply to any nomadic business that sells a physical product.
Bundle products or services:
Bundling products or services is a great way to introduce your audience/customer to more of what your business has to offer. It’s a no-brainer for an expert fitness trainer to bundle fitness and nutrition coaching (which are separate services) together as one sale to elevate AOV.
Upsell:
Adding additional time to a coaching package or upselling the hardcover edition of a book you wrote instead of a paperback is a good example of upselling to raise your AOV.
Bulk order savings:
This is exactly what it sounds like. Turn Costco’s business model into your own. Maybe you sell a niche designed daily planner that’s drop shipped to your customers for one month at a time. You could encourage the purchase of all twelve months in one transaction to save them money.
Cross selling:
During checkout or while closing the deal, make it known what other services or products customers have purchased in addition to what is currently being purchased.
For example, if a customer is purchasing online coaching from you, an image in the cart stating “customers also frequently buy” your book about making money online.
Time exclusive offers:
This is another powerful tool to raise AOV and it works really well. Offer multiple items that bring the sale price over the original price at a slight discount if purchased before a specific date and time.
Limited edition campaigns
A limited edition campaign only applies to a tangible product. But it may fit your parameters if you sell niche oriented products.
Customer loyalty program:
There are not many businesses that don’t utilize a loyalty program. If you’re a consultant, you can reward your best clients for continuing to do business with something value added. This will help with the long term value of that client. The longer they’re a client and remain happy, the more they will likely spend on your services.
Wrapping Up
It may seem trivial to some, but tracking things like AOV is very important even if you don’t plan on scaling your business up. If you take nothing else from this article, remember this:
When you increase Average Order Value, you raise your revenue without raising your marketing and advertising expenses. That translates into an elevated ROI and more capital to reinvest into your business. Or pay yourself!
