The key to running a successful SaaS business is to understand the customer journey. Mapping the customer journey gives you insight into how a customer interacts with your brand at each stage, how they feel and what their challenges are. In this article, we’ll help you learn more about the SaaS customer journey, why you […]
AOV (Average Order Value) Definition
Average Order Value (AOV) is a crucial metric that gauges the average amount customers spend when placing an order on a website or mobile app. It offers valuable insights into customers’ purchasing behaviors. Typically, your store’s AOV tends to rise as customers opt for higher-priced items.
Similar to most other key metrics, average order value can be tracked over time to measure changes and growth, whether that is over a year, six months, or a few weeks. Most businesses follow their AOV monthly, however, for up-to-date readings that allow them to make frequent and necessary changes whenever the need arises.
How Do You Calculate AOV?
Calculating your average order value is fairly simple. All you have to do is divide the total revenue by the number of orders placed. The calculation is as follows:
- Average Order Value (AOV) = Revenue / Number of Orders
For example, over a period of two months, your online store’s sales were $74,000 and you had a total of 4,000 orders. When you plug these numbers into the equation, you end up dividing $74,000 by 4,000, which equals $18.5. This means that for these two months, the average order value for both was $18.50.
When figuring and monitoring AOV, you must also look at two other important metrics: lifetime revenue per customer and cost per conversion. Let’s break these metrics down further:
Lifetime Revenue Per Customer
Lifetime revenue per customer is the total value of each customer. This value actually indicates the average amount a customer will order from your business over time. If you find that this number is low, it means that your customers aren’t coming back to make more purchases. This means that you’ll find a lower return on marketing investment.
Cost Per Conversion
This specific metric measures the amount it costs your business to acquire customers. It is important to note that these must be paying customers, not just leads. When this number is determined, it should be subtracted from the average order value so that you can figure out the actual profit per order.
These metrics provide a clearer understanding of your AOV and how well your business is doing. Again, to improve your business, you should improve and increase your AOV. This can be done in a number of ways.