What is the Average Order Value (AOV)?
The average order value (AOV) is a key performance metric used by affiliate marketers, ecommerce businesses and website analytics professionals to produce a broad estimate of the value of each order placed. The AOV provides an indication of the value of each visitor and prospect that converts into a purchase.
Armed with the AOV, digital marketers can forecast potential revenues from future customers and anticipated increases in buyer volume.
For example, if an ecommerce company were to invest $100,000 in a campaign projected to increase total orders by 2,000 in Q3. That would be an average cost of $50 per order. Unfortunately, if the AOV is only $55, then that campaign will only be returning net revenues of $5 per order — making it a money-losing campaign.
Affiliate marketers also use the AOV to gauge potential affiliate merchants. Most affiliates avoid affiliates who pay relatively lower commissions on low AOVs. Low commission rates may be acceptable when the AOV is high. But low AOVs mean lower affiliate compensations for affiliate marketers.
Calculating the AOV
The basic formula for the average order value is the total value of customer orders for a specific period, divided by the number of orders: AOV = total order value / number of orders
- Order value – the order value is the revenues generated from order and includes taxes, fees and discounts. Taxes and fees are added to the order value amount, while discounts are used to lower the order value amount.
- Number of orders – the number of orders refers to orders in a period. However, it does not necessarily involve individual items purchased or visits.
- Time periods – as with most KPIs, the AOV is measured for a specific time period and compared with AOVs from other time periods to establish trends and context.
- Segmentation – digital marketers should also measure AOV by different segments to determine which segments are more profitable and which are actually money-losers or loss leaders.
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