Quick Answer: Average order value (or AOV) is how much money your average customer spends at one time. As an affiliate marketer, it can help you decide which affiliate programs to promote. You work it by simply dividing the total revenue generated by the number of referrals.
If you start an affiliate marketing business, then chances are you’ll come across the Average Order Value:
A key performance metric that will drive the success of your business.
Knowing the AOV of any affiliate program you promote will help you see the average amount of money consumers spend every time they make a purchase so you know how much money you can make as an affiliate.
How Do You Calculate AOV?
It is very easy to calculate AOV, you just have to put in the values in a simple formula:
Total Revenue/ Total Number of Orders= Average Order Value
You can calculate AOV for any given period, like dividing monthly revenue by the total number of orders received in a month.
You must note that AOV is calculated by Sales per Order. Your loyal customers may come back multiple times, and therefore, each order will be considered and factored individually into the calculation of AOV.
Don’t Forget These Metrics
You cannot evaluate a metric separately, its importance is closely linked to the business performance entirely, and therefore, you must consider the following two metrics:
Earnings per Click
EPC is the average amount of money made per click.
Lifetime Revenue per Visitor
This is the total value of each customer; it calculates the average amount customers will order over time. If this figure is too low, it indicates that customers are not coming back to make multiple purchases and the ROI is falling.
Cost per Conversion
This metric estimates the cost needed to convert each customer. The conversion rate must be subtracted from AOV to show the actual/net profit per order.
Significance of AOV
AOV offers valuable insights into the consumer’s purchasing decisions and behaviours. It helps marketers establish. Buying patterns and identifying key trends in the consumers’ attitudes.
AOV also enables companies to evaluate their overall marketing strategies and current pricing efforts. This way, companies can design better campaigns tailored to fit the customers’ purchasing patterns best.
If businesses calculate their AOV frequently and identify pain points to improve upon them, then they can enhance their online profits and returns on investment.
It is a simple relation:
The higher the AOV, the more each customer is spending on your company. This means that for every dollar that you spent on acquiring customers, you will gain a greater return on it.
It is important to track this metric closely and often so you can monitor all the dips and peaks; this will assist you in assessing each aspect of the business individually and closely.
How Can You Improve AOV?
AOV is a prominent metric that informs vendors about the status of their offerings and where they are lacking. Though it tells the vendors about their progress and current status, it does not reveal the entire story.
The conversion rate may be soaring and you will see a high influx of traffic, however, your profits will be collapsing.
No matter, where you stand as a seller, you must learn about different ways to motivate your customers to spend more money on their purchases. Here are some effective ways to boost your average order value:
- Find out what motivates customers
You must conduct extensive market research to find out what customers want and what makes them tick. You must capitalize on those factors and encourage them to make a purchase. It will help you to have a good understanding of your target niche and customers so that you can design a campaign accordingly.
This is a great way to market high-priced items. If you create a demand for the product and make customers believe that that specific product is effective in addressing their needs, they will upgrade their purchase.
Cross-selling refers to putting complementary products together so that customers are encouraged to make additional purchases to receive an additional benefit. A prime example of this is the “frequently bought together” category.
- Offer Bundles
You can boost AOV by creating offers that customers cannot resist. Businesses can bundle two complementary products together and sell them as a bundle at a discounted rate. You can also create an option where customers can customize their bundles.
- Free Shipping
You can set a limit after which the company can offer free shipping; make sure that you can afford to offer this incentive. A free shipping threshold can boost the AOV of a company by a considerable margin.
Average Order Value is a common term tossed around in the zone of affiliate marketing. This metric depicts the important story of the potential of the company.
As an owner of a product business, you have to keep track of many different things at the same time. However, this key indicator gives you an overview of where you stand and how can you improve.
So, make sure you have a good understanding of how average order value works and how it can boost your profits if you know how to leverage it well.
And if you’re just getting started in affiliate marketing, I know it may seem like there’s a lot to learn but don’t worry:
Take the free Commission Academy course and we’ll break everything you need to know down in easy-to-understand bite-size lessons so you can build the online empire you’ve always dreamed of.