AOV (Average Order Value)

Quick Definition

The average dollar amount spent per order, calculated by dividing total revenue by total number of orders.

What is AOV?

Average Order Value (AOV) is the average dollar amount spent each time a customer places an order. It's one of the three primary levers for ecommerce growth alongside traffic and conversion rate.

AOV = Revenue ÷ Orders. If you made $100K from 1,000 orders, your AOV is $100.

Why AOV Matters

Increasing AOV is often the fastest path to profitability. You've already paid to acquire the customer and get them to checkout. Getting them to add more to their cart is pure margin.

AOV also determines which acquisition channels are viable. If your AOV is $30 and your margin is 50%, you can only afford $15 in acquisition costs. If AOV is $100 with the same margin, you can spend $50.

Strategies to Increase AOV

• Bundle related products.
• Offer free shipping thresholds above current AOV.
• Create volume discounts.
• Add upsells at checkout.
• Recommend complementary products.
• Implement tiered pricing for larger quantities.

How to Calculate AOV Step by Step

Step 1: Pull total revenue and order count for the period.

• Total revenue (March): $125,000
• Total orders: 1,850

Step 2: Divide. AOV = $125,000 ÷ 1,850 = $67.57

Step 3: Track AOV over time. Is it trending up or down? Rising AOV with stable order volume means your upselling works. Falling AOV might mean you're discounting too heavily or attracting lower-value customers.

Step 4: Segment by channel and customer type. Returning customers often have higher AOV than first-time buyers. Email-driven purchases may have higher AOV than social. These insights guide marketing allocation.

Step 5: Set your free shipping threshold. A common tactic: set free shipping at 20-30% above current AOV. If AOV is $68, set free shipping at $85 to encourage larger orders.

Common mistakes founders make:

• Including refunded orders in the calculation (use net revenue)
• Not segmenting new vs returning customer AOV
• Optimizing AOV by removing low-priced products instead of encouraging add-ons
• Ignoring that AOV and conversion rate often have an inverse relationship

Formula

AOV = Total Revenue ÷ Number of Orders
Revenue = AOV × Number of Orders

Example

Monthly ecommerce stats:

• Total revenue: $150,000
• Total orders: 2,500

AOV = $150,000 ÷ 2,500 = $60

If you can increase AOV by 20% to $72 through bundling or upsells, that's $30,000 more monthly revenue without any additional customer acquisition.