Average Order Value and how to calculate.

What is it: Average amount a customer spends per order on your site.

Why track it: Serves as a larger indicator of whether overall profits are increasing or decreasing.

What is Average Order Value?

The ecommerce metric Average Order Value (AOV) is the average euros amount customers spend when they make a purchase from your website. This metric helps online retailers understand customer purchasing behavior.

How to calculate Average Order Value:

(€) total revenue / (#) orders placed = (€) Average Order Value

The Average Order Value is calculated by dividing the total revenue by the number of orders placed. Often, this metric will be calculated monthly (i.e. total revenue from the month divided by total orders placed that month), but it can also be calculated weekly or even daily.

For example, if your total revenue this week is €4000 from 160 orders, your AOV would be €25.

€4000 / 160 = €25

Pros:

Tracking the Average Order Value is critical for ecommerce businesses to understand and monitor customer purchasing patterns. Increasing AOV is one of the most effective (and usually cheapest) ways to increase revenue since no additional costs are incurred via transactions.

This metric is helpful for calculating your customer lifetime value (LTV) as well as determining the best marketing and pricing strategy.

Cons:

The Average Order Value can be misleading if skewed by a couple of extremely high or extremely low value orders. This is most often encountered when the range of products spans a wide price range.

It’s important to remember that AOV doesn’t show profit unless you use total net profit in place of total revenue.

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