Average order value (AOV)

How to calculate average order value

Divide revenue by the number of orders in the same period:

AOV = revenue ÷ number of orders

Use the same period for both numbers, and count only orders that were paid. A test order or an order you cancelled before it shipped is not an order for this purpose.

January had the most orders and the least revenue. February had 40 fewer orders than January and took more money, because each order was larger. AOV and order count have to be read together: either one alone can hide what changed.

When the average misleads

AOV is a mean, so a few large orders can move it a long way. Take ten orders of $30 and one of $700: AOV is $1,000 ÷ 11 = $90.91, though ten of the eleven orders were $30. The median order value, the middle order when all of them are sorted by size, is $30. When AOV jumps, check the median before you credit a change on the site: one wholesale order or one large buyer can be the whole jump.

In Tanqory, Analytics shows sales, orders and average order value for each sales channel. To apply your own revenue rule, download the orders as a CSV file and calculate AOV in a spreadsheet.

What to count as revenue

Two stores with the same sales can report different AOVs because they count revenue differently. Pick one rule, write it down and keep it, so this month compares with last month:

• Discounts. Count what the customer paid after discounts. A $50 order with a $10 code is a $40 order.
• Tax. Leave sales tax and VAT out. You collect them for a government; they are not your money and rates differ by place.
• Shipping. Many stores leave shipping charges out, so that a change to shipping prices does not look like a change in what customers buy. If you include it, include it every month.
• Refunds and returns. Subtract refunds in the period they are paid, or report AOV before refunds and track the refund rate beside it. Mixing the two methods makes months impossible to compare.
• Gift cards. Selling a gift card is not a sale of goods yet. Count the order when the card is spent, not when it is bought, or you count the same money twice.

Average order value and related measures

AOV describes one order. It says nothing about how many people buy or how often they come back, so it is read beside other measures:

Revenue per visitor ties the first two together. A store at $40 AOV and 2% conversion makes $0.80 per visit. Raising AOV to $44 while conversion drops to 1.8% gives $0.79 per visit: a bigger order, but less money for the same traffic.

Why average order value matters

Some costs come with every order, whatever its size: picking and packing, the box, the fixed part of a card fee, and often shipping. A larger order spreads those costs over more revenue.

Take a store with a 50% gross margin that spends $7 to pack and ship each order. A $30 order leaves $15 of margin and $8 after the $7. A $40 order leaves $20 of margin and $13 after the $7. The order is a third larger, but the money left over is more than half again as large.

AOV also sets what you can spend to win an order. If a typical order leaves $13 after costs, paying $15 in advertising for each order loses money on the first purchase, unless customers come back to buy again.

Ways stores raise average order value

Each of these can raise AOV. Each can also cost orders, so watch conversion rate and revenue per visitor when you try one:

• Free shipping above a threshold. Set it a little above your current AOV, for example $50 when AOV is $40, so that customers near it add an item. Set far above, it is ignored; set below AOV, it gives shipping away on orders that would have happened anyway.
• Bundles. Sell items that are used together as one product at a price below the sum of the parts.
• Volume pricing. A lower unit price at two or more units suits products people use up, such as coffee, filters or skin care.
• Recommendations. Show items that go with what is in the cart, such as the case for the phone, rather than more of what the customer is already looking at.
• A higher minimum for a discount. "$10 off orders over $60" lifts the orders that use it toward $60.

Questions

What is a good average order value?

There is no single good number. AOV follows your prices and what customers buy in one go: a store selling $8 phone cases and one selling $400 jackets will never be comparable. The useful comparison is your own AOV over time, by channel and by season, calculated the same way each time.

We do not quote an industry average here. Published averages mix stores that count tax, shipping and refunds differently, and few say which rule they used, so a store cannot tell whether it sits above or below them.

Does average order value include tax and shipping?

It depends on the rule you choose, and many stores leave both out. Tax is collected for a government and shipping prices change for reasons that have nothing to do with what customers buy. Whatever you choose, use it every month.

Should I subtract refunds from average order value?

Either subtract refunds in the period you pay them, or report AOV before refunds and track the refund rate beside it. Use one method only; switching between them makes months impossible to compare.

Is average order value the same as average basket size?

Not quite. Average basket size usually means the number of items per order (units per order). Average order value is the money per order. A customer who buys one $60 item and one who buys three $20 items have the same order value and different basket sizes.

How often should I measure average order value?

Monthly is enough for a store with steady sales, compared with the same month a year earlier when sales are seasonal. Look weekly only while you test a change, such as a new free shipping threshold, and judge the test on revenue per visitor as well as AOV.