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Customer Retention. Automated

Average Order Value Defined

Posted by Aviva Imbrey on Sep 18, 2015 2:09:00 PM

When evaluating your retail business metrics, obviously the first thing that comes to mind is revenue. But what metrics can you look into that drive that? There are a number of key ways to measure your progress, but today we are going to focus on only one: Average Order Value.

 

What do these three scenarios have in common?

  1. You get behind someone in line that is buying what seems like hundreds of school supplies, and then, they whip out several coupons resulting in their transaction amounting to only $8? It takes FOREVER.
  2. You have four people in front of you in line, and each purchases one or two small things. Speedy and out the door in a jiffy!
  3. You get free shipping on purchases of $20 or more, so you decide to buy a dress that is $21. A few weeks later you use a coupon to buy some shoes to go with it that are also just over $20. Why not, free shipping, right?

 

These situations all have one thing in common. This shopping behavior is NOT profitable for retailers. It’s about basket size, and the metric we track is Average Order Value (AOV). The more someone purchases at once can drive your business to be more productive, and can help you discover your best customers.

 

Let’s take a look:

Our Retention Analytics Suite provides a variety of charts that measure how AOV impacts your business. Here are some of the key ways retailers track this metric and use it to grow revenue.

 

1. Average Order Value by Number of Orders

 This graph is important for understanding trends in customer buying behavior. For many retailers, we see AOV going up on subsequent purchases. We hypothesize that this is because repeat customers trust your brand more, spend more as they get comfortable with you, and discover more of your inventory that they are interested in.

 

What to do with the information? If you're a Windsor Circle customer, you should have already have a Post-Purchase Thank You Series. From there, you should immediately set up one of the following emails: 1) Best Customer 2) Biggest Ticket Single Purchase 3) Free Gift to Top 10%. Your goal here is to find those best customers and lock them in!

 

2. Average Order Value by Coupon

 AOV is essential to understanding coupon effectiveness. Knowing which coupons drive the highest AOV is important for driving revenue. Likewise, targeting based on incentivized spend is a great way to get insights into a specific segment of your customer base.


What to do with this information? Look at your marketing event calendar and create the next type of promotion based on what drives larger orders. Stop spending time and money on the promotions that do not drive increased basket sizes.

 

 3. Average Order Value of One-Time Buyers vs. Repeat Buyers

 This graph helps you contrast the value of your one-time buyers with your repeat buyers. The bad news is that if you're like most retailers, you're probably neglecting customers who may buy from you again, but will go elsewhere because you're not really engaging them. The good news is that with a smart retention marketing program, you can directly change this dynamic and win more repeat customers.

   

4. Average Order Value by Day of Week and Hour of the Day

 This is different than the other graphs because you're looking for quality, not quantity. Arguably, AOV shouldn't change significantly during the week. But if you see that it is significantly higher in a given time period, you should explore more deeply to answer "why?" Further, you should ask "how do I exploit this to make more money?"


What to do with this information? If you see a specific period of the week or time of day in which AOV is significantly higher, then you need to act on it immediately. If it is a specific segment of your customers spending more during this period, you should craft targeted, exclusive messaging to this group. If it's something else, like a type of product that sells better at that time, you can segment everyone who has bought the product in the past, and test an email to them with cross/upsell messaging. Hopefully, you can replicate the trend.

 

 5. Average Order Value by State/Country

Certain geographic areas have higher likelihood to spend on various product types. Depending on your product and customer base, you may find interesting gems of geographic areas that spend at a higher rate. If you know this, then you should double down in these states by coming up with region specific promotions and copy.



What to do with this information? Identify your top state by AOV. Brainstorm five creative region-based messages, and select one to test. Remember, WC_State field allows you to easily target this segment. If you see a significant response, then you can amplify this strategy to retain more customers and drive higher revenue.

 

AOV should be top of mind for your business. This metric will help you make smart marketing decisions that grow your repeat buyers as well as increase productivity in both operations and marketing. 

For more actionable ways to drive your retail business, check out our free Resource Center.

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Topics: Customer Retention, Best Practices