Guest post: Average order value – why is it important and how can it be improved with loyalty?

This guest post is written by Ross Adamson, Marketing and Partnerships Executive at Charle – an award-winning Shopify agency that designs and develops strategic ecommerce websites. This blog shares how to encourage your customers to spend more per transaction through loyalty incentives.

A key focus for many merchants on Shopify is offering products that are attractive to their customer base. A lot of work and attention goes into this, but what if your customers don’t get the full picture of your product offering? If the right products aren’t displayed to shoppers at the right time, merchants can miss out on a lot of potential revenue from transactions.

Ecommerce merchants often prioritize two metrics: traffic (the number of users that arrive at their Shopify store) and conversion rate (the rate of users which convert into a sale). While having a high volume of traffic and high conversion rate is great, what if merchants could go that extra bit further and get customers to buy more when they do convert? Increasing average order value (AOV) can have an enormous impact on revenue and profitability and so can be a very underappreciated metric in ecommerce.

Average order value – what is it?

AOV is a metric that shows the average amount spent by a customer when they order from a merchant’s store. When optimizing AOV, it’s important to have a solidified conversion rate as if this rate is low, it will be difficult to convert customers further into buying additional products. You can use this helpful tool to calculate the average conversion rate for the industry you operate in. 

It’s also important to consider whether the amount of traffic being generated to your store can provide enough data to reliably calculate the average spend of each customer. It’s suggested to first optimize traffic, and more importantly conversion rate, before fine-tuning an online store to improve average order value. 

If you are new to the ecommerce environment or looking to upgrade your existing platform, we recommend reading our article on why to choose Shopify or Shopify plus as these platforms offer built-in features to help traffic and conversion rate optimization.

How to Increase AOV

One of the most traditional strategies in increasing AOV is by encouraging customers to buy more by showcasing additional products. These products displayed to the customer could be similar or complement the original products in their basket, or could be promotional items that are on sale or newly offered by the business.

The average customer spends less than a minute on a website so it is unlikely that they will have a chance to see the majority of a merchant’s market offering and potential purchases, meaning a great deal of opportunity for additional sales is missed out on.

The strong link between loyalty and AOV

Loyalty schemes are an effective way to both improve customer retention and increase average order value. What’s more is that engaging previous customers is much more effective than acquiring new ones, and can in turn create greater lifetime value. 

A study by Bain & Company found that the top 10% of customers of a business order 3x more per order than the rest. The top 1% of customers order 5x more than the rest. And after 30 months of loyalty, customers spend 67% more than their first purchase. Highlighting the strong connection between customer loyalty and AOV.

A classic loyalty scheme set-up is rewarding customers with points that can be redeemed for product discounts. As customers spend more, they receive more points which incentivize buying more products and in turn increases their AOV.

A common misconception of a loyalty program is that offering discounts to loyal customers puts a dampener on profit margins. However rewarding your shoppers with discounts helps build customer relationships in the long run, especially if a spend threshold is used. 

Merchants such as Neom Organics have seen a 45% increase in average order value after launching a loyalty scheme to their customer base with LoyaltyLion, showing the huge impact this strategy has on the metric.

Points-based loyalty schemes aren’t the only loyalty schemes that help improve the average order value and lifetime value of businesses. The ecommerce space is constantly evolving with new concepts and ideas, and brands such as Marks & Spencer are moving towards recognition-based loyalty programs with their ‘Sparks’ scheme, offering priority access to promotional sales, in-store events, and charity donations which can further help incentivize customer retention and increased average order value over time.

Increasing AOV on Shopify

Shopify has a wide offering of apps and features which can help improve average order value for online stores. It’s worth searching “cross-selling” or “upselling” on the Shopify App Store as many apps have been built solely for the purpose of persuading customers to buy additional products in the checkout process. 

Alternatively, you can opt for a more specialized approach. Shopify agencies, such as Charle, offer retainer memberships services that support businesses with access to their expert ecommerce team to launch bespoke websites and features to help merchants fully optimize and improve their traffic, conversion rate and average order value month after month.

About the author

Ross Adamson

Ross is a Marketing & Partnerships Executive at Charle, an award-winning Shopify agency focused on results. Charle partner with ambitious brands across the globe to design, develop and optimize bespoke Shopify websites, delivering ecommerce solutions that are built to perform.

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