There’s a common myth in internet marketing that say “the only way to truly increase your revenue is to increasing the percentage of visitors that convert to customers”.
Sure, you might spend a lot of time examining your conversion rate to find ways to improve it. And, sure again, by removing obstacles and friction to conversions on your website, you’ll certainly see your customer base, revenue, and profits grow.
But a good conversion optimization strategy needs to fundamentally improve your bottom line and if your profit margins are slim at best then no improvement in your conversion rate is ever going to improve that.
Profitability, my good friend, depends on something else.
Acquiring new traffic is expensive and can be labor intensive. Other metrics; such as improving your average order value and lifetime customer value can help make the most of customers that are already on your site and willing to buy.
Why is Average Order Value Important?
Average Order Value, also called Average Sale Value, is an important metric for every business owner to understand.
The metric is simple: each time you make a sale, on average you will get that person to spend X dollars. X is important because it helps you predict everything from ROI on your marketing efforts to overall profit margins for your business.
But your average order value isn’t fixed. Studies have shown that there are a number of factors that can influence what customers are likely to spend with you in a single purchase.
Before diving into some of the more common areas to test, I want to highlight two important things to keep in mind when you’re experimenting with average order value and conversion rate optimisation.
The best approaches to conversion rate optimisation are systematic. They need to tackle one issue at a time. A scatter-gun approach will not work and by really focusing, you can pinpoint your targets and see real progress.
A huge range of factors can influence your average order value, from free shipping offers to program bundles. Avoid debuting new packages, free shipping, and big discounts simultaneously – or you won’t be able to pinpoint cause and effect.
There are at least a couple of handfuls of different permutations that you can test when you’re working to increase your average dollar value, but the following three are among the most common and most effective in accelerating your revenue.
Raise Your Average Order Value Through Shipping Offers
40% of customers are willing to spend more on purchases if they get free shipping, and 71% of customers have taken advantage of free shipping offers over the holiday season.
In a sense, this uses Cialdini’s concept of reciprocity – if I give you something, you’ll be more likely to give something in return. Stated more plainly, many shoppers simply can’t pass up on a deal.
Don’t make the mistake that some site owners make by simply offering free shipping. If free shipping gets people to convert, they reason, then it’s worth the potential cut in profits. The truth is, it’s not.
How can you offer free shipping in a way that raises your Average Order Value?
The biggest and most successful retailers have tuned into this technique. How frequently have you seen offers such as “free shipping when you spend over $150” or “buy two and get free shipping”? These numbers are not random: instead, they’re based on two factors.
- The merchant’s current average order value;
- An educated guess on what to raise that average order value to and still have customers.
So let’s say, for example, that your current average order value is $80. If your goal is to raise your AOV, you might offer free shipping on offers on $120. If that’s not converting, you might experiment with different price points and find that your sweet spot is $97.
As long as the profit margin remains reasonable in the face of the costs from shipping, you will know you’re on the right track with a free shipping offer.
Present Product Bundles for Sale
Package deals and product bundles are a great way to increase average order value.
Consider, for example, if you operate a whitegoods store. You might have a customer that’s visiting your store, looking for an oven. That’s a straightforward sale to make. But many merchants have found that product bundles are a natural extension to leverage an existing purchase intent into a larger spend.
For example, you might offer a customer oven accessories, cook-top mini-oven or possible a a book on mastering the art of french cooking at a discount.
By buying the items together, they achieve an overall savings. In many cases, the purchase may have never happened if you didn’t suggest it. But once a customer sees the items together, it feels like a “natural” fit.
Amazon.com
Nearly every product or book on Amazon is offered alone and as part of a bundle. “Buy this book on marketing, or buy it as part of this trio of books that are commonly bought together.”
The prospective customer gets a quality recommendation, and Amazon sells more.
The key to successful product bundles is to suggest bundles that work for your customers.
Depending on the depth of customer information you have, it may be easy to create these bundles. Many retailers have had success with mix and match deals to customers.
For example, you may set a minimum criteria – for example, buy any three items and save 15% – and then allow the customer to choose the specifics. This allows you to obtain the benefit of product bundling, while having the added advantage of providing the flexibility that is appealing to a wider range of customers.
In other instances, curated packages are the way to go. I.e. you decide what the bundled products will be in advance. The only way to really know is the experiment and test.
Upsell and Cross-sell
Another area that we’ve covered on our sister blog at is upselling and cross-selling.
As advanced techniques, each of these allows you to offer related products or higher end products to enthusiastic customers. Upselling may be as much as 20x more effective for eCommerce that cross-selling. Ultimately, you would test based on your product mix, business goals, and customer preferences.
There are a few areas that we would recommend considering in relation to upselling and cross-selling:
Take the time to make connections between your customer’s lifecycle and the overall customer experience that your products may create. The more strategic you make your overall funnel design, the more effective these techniques will be for raising your average order value.
In order to successfully upsell and cross-sell, you need to have a strong understanding of who your customers are and what they want. A key aspect of this is knowing the degree to which one kind of purchase signals a potential interest in another product. The stronger your understanding of the predictive analytics side of your business, the better – and that means getting organised to grow sales.
Don’t underestimate the power of the small cross-sell. For example, many retailers make a healthy profit by charging just a few dollars to gift wrap products before they ship. While the overall increase to average order value is minimal, the profit margins can be excellent.
Other retailers find that add-on items, costing a small amount each, are a great way to boost sales. For example, if you sell cycling-related products, you might offer branded water bottles for $1.99 each. These purchases feel minimal to someone already spending $75, $150, or $200 but can help raise your average order value.
Download the ebook on Mastering the Art of Upselling »
If you’re searching for new ways to grow your business and have already achieved competitive industry conversion rates, it’s time to look at your average order value and average sale value.
A growth in average order value reveals a business that’s bringing together better strategies for marketing and to its customers.
Of course there is another option…
Just raise your prices.