Wouldn't it be nice if you could increase your average order value magically overnight? I have some good news for you. There are some simple adjustments you can make to your product mix right now that will help you do just that. And the best part is that it doesn't take a huge investment or long nights brainstorming new ideas.
Increasing you average order value (AOV) is an integral part to growing your revenue. It doesn't require new customers or any additional spend in marketing and advertising. All you need is a basic understanding of how your customers make purchasing decisions and then you can start influencing their decisions to buy more.
Want to know the single most powerful tool for increasing your average order value? It is the law of averages. Here's how it works.
Very simply, the law of averages states that over time, the frequency of a particular outcome of an event will balance out based on the probability of the event occurring. In short, if there is an equal chance of three different events occurring, over time, the average will equal the middle event. If there is a higher probability of one event occurring over another (like in a Casino), then the outcome will skew toward the event that has the higher probability (in this example, the house winning). But in the place of business, there is an equal playing field for the most part, which means all purchases are fair game and have an equal probability of being made by the customer. Here is a very brief video we made to give you quick introduction into increasing the average transaction size.
So with that in mind, here are 3 ways to leverage this insight and drive up your average order value:
#1 - Add a higher price point option.
This is a very common strategy in retail, more common than you are probably aware of up until now. Some of your favorite retail establishments are making a killing simply by introducing higher price point options, or in this case, bigger cups.
7 Eleven has been doing this for years and so has Starbucks. Starbucks introduced the Trenta cup as a large serving compared to the already impressive Venti cup. Who needs more than 24 ounces of coffee?
The Trenta is 31 ounces, and by the law of averages, will naturally increase the average order value simply because there is now a larger, higher priced option that was not previously available.
If you want to see a nice visualization of how comical yet real this is, Ellen DeGeneres actually did a segment to show how ridiculous it has become over at 7 Eleven.
How to apply this to your business: Think of a way you can expand your product mix or service lines to offer a higher price point option. You probably already have this but just don't make it readily available to your customers. Add it to your pricing sheet or carry it in-store to drive up the average order value. If you find yourself saying "that's too much, I doubt anyone will buy that", then you are probably on to something.
#2 - Second money.
Hands down, the master of the up sell is Vistaprint.com. Their website has woven into the user journey opportunities to add to you order all the way through until after the purchase, and this is where the genius level happens.
If you have ever bought anything from Vistaprint, you know there is a special offer as soon as you place your order. Without fail, they offer you to double your order at a very discounted rate. This is called second money and your customers are nearly 80% more likely to buy this offer than the initial purchase they came for and here's why.
The customer has already made the difficult decision to make a purchase with you. Don't kid yourself, it was difficult and you were probably shopped at least once. The users are now at a point where they are comfortable transacting with you, but there is still some level of buyers' remorse.
As soon as the customer pays or at that very moment of transaction, you want to offer the customer something that costs about 10-20% of the purchase they just made. For a QSR, this may be adding a cookie for $.99 to their order. If you are fast food, it is the super size option. In Vistaprint's case, they offer to double your order for significantly less than the first batch cost.
The reason customers buy is because it justifies their initial purchase and makes them feel better about their decision. Rather than wonder if their purchase was the right decision, now they cement in their minds that "yes, this was a good decision and I'm doubling down on my decision."
How to apply to your business: Figure out what products or services you can add to your orders that will be easy to purchase and add value. You do not have to discount the product or service, but it should already be a lower priced option when compared to the product or service sold.
#3 - Bundle & bulk options
This one is probably one of the most widely used strategies, but at the same time, under utilized across most industries. Remember, acquiring a new customer and getting them setup can cost your company upwards of 25% more than retaining and growing the value of an existing customer. So if you keep that in mind, you can offer customers discounts on larger bundles of products or services without losing money.
Now this is a very apparent strategy in B2B industries where you are already selling in a wholesale capacity. In fact, most of these types of businesses already have wholesale pricing setup. But if you take a minute to look at your business and calculate the cost to get a new customer and your cost of goods/services, you can probably uncover some creative ways to bundle your offerings. Here are just a couple examples.
Consumer packaged goods brands are actually really good at this. You have probably seen in a grocery store or convenience store the buy 2 for $X or 5 for $X offers where you save for buying more. Now you won't sell two new cars for a discount (or maybe you will) but you can always bundle complimentary items or require the purchase of multiple items to get the lower price. If you sell services, offer a discount for increasing the length of the service agreement or increasing the scope of service. For example, we offer tiered discounts in rates based on the number of hours our clients contract us for over a 12-month retainer. In fact, our hourly rate drops significantly when you move from a project basis to a retainer. The reason for this is we can achieve numerous efficiencies from working ongoing with you and it doesn't cost us proportionately more to increase the scope of certain services.
How to apply to your business: Look at your products or services and the cost of those, and also calculate your customer acquisition cost (CAC). These two things will help you find out what makes the most sense for your business. How much does it cost you to get a customer any way, and what type of discount could you offer to grow a customer's value and spend less than acquiring a new customer? Also, what products or services compliment each other and could be bundled. If you are a retailer, this could be as easy as selling two garments together or offering a discount when the customer buys the entire outfit.
There are numerous ways you can increase the average order value (AOV) and, ultimately, the lifetime value of a customer. We put together a Revenue Growth Cheat Sheet that is packed with more techniques you can use, but this should give you a solid starting point.
18 Ways to Grow Your Revenue
Are you exhausted trying to find new ways to generate revenue? Do you feel like you are throwing away money on advertising that isn't working? There are three areas you can adjust in your business right now to start generating new revenue and you don't have to spend one more dollar on advertising. Get our Revenue Growth Cheat Sheet which includes 18 different ways you can find new revenue opportunities today.