Term
Average order value
The average amount of a single order in an online or physical shop, calculated as revenue divided by the number of orders. It is raised through product recommendations, bundles or free shipping above a threshold.
Updated
What it means
Average order value shows how much a customer spends on average per purchase. It is revenue for a period divided by the number of orders and is tracked mainly in online shops, restaurants and retail.
Together with visits and the conversion rate it forms the basic revenue formula of an online shop: visits times conversion times average order value. Improving any of the three increases revenue.
The measure matters for profitability because the cost of processing, packing and delivering an order is largely fixed. With a higher order value it is spread over a larger amount and more margin remains.
How it works in practice
The most common levers are free shipping above a threshold, related product recommendations, upselling and cross-selling and discounted product bundles.
When assessing it, use revenue net of VAT and discounts and exclude cancelled orders. Otherwise shop figures will not match the books and decisions will rest on inflated data.
It is useful to track the measure separately for new and returning customers and by channel. Customers from price comparison sites often buy less than those who came via the newsletter.
What to watch out for
A higher average order value does not necessarily mean higher profit. If it is achieved through deep bundle discounts or free shipping that eats the margin, the company sells more but earns less.
Pushing add-ons too aggressively in the basket can increase cart abandonment. Changes should be tested, watching conversion as well as order value.
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