What is AOV?
Average Order Value (AOV) estimates the typical amount spent by a customer in each order, commonly placed on a website (i.e. e-commerce) or mobile app.
How to Calculate AOV (Step-by-Step)
By measuring the average order value (AOV), a company – most often operating in the e-commerce vertical – can obtain insights regarding the spending patterns of its customers.
In particular, tracking the average order value metric can help understand if upselling/cross-selling efforts have been paying off.
- Upselling: Strategy to convince existing customers to upgrade to different products or plans with higher pricing (i.e. upgrade)
- Cross-Selling: Offering complimentary (or related) products to existing customers
If so, the company’s average order value over time should reflect a positive trend line moving upward year-over-year (YoY), which is a positive signal that the current strategy in working as planned.
Clearly, companies desire their customers to spend more in each order, as this implies their product/service offerings are complementary.
The formula for calculating the average order value is as follows:
Similar to the average selling price (ASP) and average revenue per user (ARPU) metrics, the core of the average order value KPI is a price metric divided by a volume metric, which is the inverse of the traditional bottom-up revenue forecast.
- Price Metric → Total Revenue ($)
- Volume Metric → Number of Orders Placed (#)