Average Order Value (AOV)

What is average order value (AOV)?

In ecommerce inventory management, the acronym ‘AOV’ stands for average order value. This is an important metric that tracks the average dollar amount of every order placed on a website or mobile app over a designated period of time. Average order value is one the most important KPIs for any online store or retailer, since it drives decision-making related to your brand’s advertising spend, product pages, and pricing.

How to calculate AOV

To calculate your company’s unique AOV, all you need to do is divide total revenue by the number of orders: average order value = [revenue ÷ number of orders]. Keep in mind, AOV is determined using sales per order, not sales per customer. So although a single customer may make multiple purchases with your brand, each order would be factored into AOV separately. And although AOV does not tell you about gross profit or profit margins, it does offer awareness around how your revenue growth comes to be.

Calculating AOV: an example

Let’s say your company sells lamps, and for the month of May your online sales were $50,000, with a total of 1,000 orders. Using the AOV formula, you’d divide your revenue ($50,000) by your number of orders (1,000) to discover the average order value for that time period was $50. Although this is a simple calculation, it still provides useful insight into the customer journey.

Frequently Asked Questions

  • How do you forecast AOV?

    Forecasting average order value can get a bit tricky, but perhaps the most basic way to form a prediction is to look at your claimed ecommerce value and the known AOV. You can divide your revenue by your AOV to get an estimate of total orders, and then start to predict what you’ll sell over the next month, in the upcoming quarter, and so on. 

  • Why is AOV important?

    Knowing your average order value helps you analyze your marketing efforts and pricing strategies by giving you the metrics needed to measure the lifetime value of specific customers. That’s because AOV is really a benchmark for consumer behavior and customer retention, and can assist you in creating systems to evaluate how well things are going. 

    Ecommerce stores often focus their energy on increasing traffic to their site, when in reality, it would be much more profitable to increase AOV. Turning your attention toward upselling, cross-selling, or add-ons with product recommendations can be a big boost to your profits — and it doesn’t cost a dime since that customer is already adding items to their shopping cart.

  • Is high AOV good?

    Simply put, a higher AOV is much better for your online business than the alternative. A high AOV tells you that you’re really leveraging every dollar you’ve put toward new customer acquisition. While AOV will differ greatly from company to company, steadily increasing this metric should be the goal for every business regardless of industry.