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Why Does Average Order Value Matter in Business?

Understanding and monitoring your average customer value enables you to assess your marketing efforts accurately.

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Average order value in business
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As an e-commerce business, there are several metrics that you need to track in order to monitor your success. One of the most important metrics in business to take note of is average order value.

Monitoring average order value provides valuable insights into your customers’ purchasing behaviours, their loyalty to your brand, and the effectiveness of your marketing strategies.

A high average order value indicates that a customer spends a high amount per each order they place with your brand. It represents the average value of a single order or the average amount an individual customer spends each time they order on your website.

Calculating Average Order Value in Your Business 

To calculate the average order value, you need to add up the total amount that a single customer has spent over the course of a specified period of time, such as a month or quarter. You then divide this number by the total number of orders that this customer has placed within this given timeframe.

Doing this calculation provides the average order value of a single customer. However, you can get your overall average order value by dividing your total revenue within a given time period by the number of orders you’ve fulfilled within that same period.

A Higher Average Order Value Can Lead to Increased Revenue

Tracking your average order value is important when you sell products online, whether physical or digital, as it can significantly increase your business’s total revenue. Average order value is directly related to revenue, as the more each customer spends on average per order, the more your business generates overall.

Average order value is directly related to revenue, as the more each customer spends on average per order, the more your business generates overall.

Every order you receive from a customer costs money to fulfill. By increasing the amount you’re receiving per order by upselling or offering product bundles, you can maximize your profits per order, as it will cost just as much to fulfill an order of $10 as it would for an order of $100.

Increasing average order value can lead to sustainable growth in your revenue and higher profits. You can use the increased revenue you generate to improve your marketing efforts or product innovation.

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A Higher Average Order Value Can Help with Tracking Your Marketing Efforts

Understanding and monitoring your average customer value enables you to assess your marketing efforts accurately. You can determine the effectiveness of your promotional strategies by seeing whether your average order value has increased over time. 

New strategies can help you increase your average order value if you’re unhappy with your existing metrics or think your business could do better. You might wish to offer more product bundles, invest in new marketing software, or focus on upselling to maximize the amount your customers spend each time they place an order on your website. During your marketing campaigns, the average order value will be a crucial metric to track. You can ensure that the cost of customer acquisition, customer retention, and promotional efforts are justified by a higher average transaction value.

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Emenike Emmanuel is a multiple award-winning blogger, CEO of Entrepreneur Business Blog, Chief Evangelist of Ebusinessroom Ventures, and the Lead Coach of an online community of over 12,000 business owners called, The Excellent Entrepreneurs' Network. He’s here to help you start, manage and grow a profitable and sustainable business using digital marketing strategies. Follow him on Facebook, Twitter, Instagram, LinkedIn & Pinterest with this handle, @emenikeng. Telegram group - t.me/yourfirst1000 | Email: [email protected]

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