For most eCommerce businesses, sales and marketing focus on driving the customer to the shopping cart and pushing a warm lead into a sale. Once you have a steady stream of conversions though, the emphasis should shift to increasing the value of each order placed.
Average order value (AOV) is a metric that tracks the average amount a customer spends each time they place an order through your web store. You can track that data across all customer life cycles and as part of customer lifetime value. By learning your AOV, you can determine how much you can afford to spend to entice that customer for repeat purchases.
Increasing AOV is often about honing your marketing and finding a balance between shipping and advertising to incentivize higher order values without increasing costs for you or the buyer. This article will show you how fulfillment influences marketing and how you can leverage it to improve your AOV.
6 Fulfillment Hacks for a Higher AOV
Average order value is driven by marketing around products during checkout. You can promote bundles, relevant add-ons, ease of returns, and the cost of shipping to encourage customers to add to their shopping carts. Order fulfillment also plays a large role in your total expenses.
For example, if you can save money by shipping products together because they’re in the same warehouse, you may be able to offer a discount to the customer. On the other hand, if your products aren’t in the same warehouse, that might not be beneficial to your profit margins. In addition, balancing free shipping with the cost of customer conversion helps determine when you’re able to offer fast, free shipping across your sales channels.
In any case, logistics directly impact cost per order, the feasibility of selling bundles and offering discounts, and other sales tactics. To capitalize on that influence, we’ve outlined a few strategies that enable your fulfillment to contribute to a higher AOV for your business.
Set a Free Shipping Threshold
A free shipping threshold serves two purposes: It entices shoppers to purchase by giving them something for free, and; and it raises the order’s worth by establishing a minimum for customers to reach to save on shipping fees. Offering free shipping options is also crucial to keep buyers happy, as 77% of Amazon shoppers report that having free or fast shipping options will make or break their purchasing decision. In fact, the Shippo State of Shipping Survey suggests that up to 93% of customers have added products to their shopping cart simply to qualify for free shipping.
To determine a free shipping threshold that’ll attract shoppers without eroding your profits:
- Know your shipping costs per product across every marketplace where you sell
- Know your net profit margins (earnings per product after costs for sales, etc.)
- Know your AOV
From there, you can calculate your average shipping costs per order with the gross profit margin per order to determine how much you need to sell to make free shipping profitable (or at least break even).
If your average order costs $9 to ship, including packaging, and you have a net profit margin of 8.5%, you can calculate your break-even at $86 and profit at $100. So, you’d want to set your free shipping threshold there.
However, if your average order value is something like $30, you’re unlikely to incentivize people to add on that many more products to hit your shipping threshold. In that case, you’d be better off offering transparent, flat-rate shipping instead.
Sell Bundles and Kits
The longer you’re in business, the more data you collect on what customers often buy together. That information allows you to create relevant bundles that are attractive to shoppers. Additionally, if you ship through FBA or another 3PL, those services will pack and ship your bundles according to your specifications, thus saving you time and money.
Bundling items together also enables you to adjust your free shipping threshold for those products. In turn, you can sell these sets at a slightly lower price than if customers bought them separately, which serves as an enticing incentive for shoppers to buy more at once.
Allow Customers to Build Their Own Bundles
Another simple way to increase order size is by allowing customers to build their own bundles and kits. You can use incentives like bundle discounts and free shipping thresholds to encourage larger orders. Although these won’t have the same profit margin as a pre-packaged bundle, it opens the opportunity to upsell and cross-sell additional products, accessories, or add-ons; this gives buyers everything they need to have a memorable experience with your offering and combines total shipping and handling costs into one.
Craft a Flexible Returns Policy
One of the barriers to making larger purchases is the return policy. First-time buyers especially don’t know if your products will meet their expectations or needs and so may balk at a higher order value. However, you can ease their hesitation by making returns simple (and free, if your margins allow). For instance, pack your products with a return slip for a simple and effortless process. This removes shoppers’ stress about committing to a new purchase knowing they can easily return it if it’s not what they expected.
Leverage Fast Shipping for Bestselling Products
Fast shipping is now the norm, but it can easily become expensive. You don’t want your entire inventory in a fulfillment program because it’ll cost you more than fulfilling from your own warehouse. Instead, you can optimize by shifting your fastest-moving products into FBA or a similar program. That allows you to incentivize sales by offering quick delivery for products that are most likely to sell, which also reduces much of the burden on your internal fulfillment infrastructure.
Offer Discounts on Subscriptions
You also have the opportunity to drive future sales in the package itself through simple discounts and coupons. For instance, a bundle of refills, filters, etc., taster kits, or “try the rest of our product” add-ons can entice shoppers to increase their cart values. Consumables and accessories are easy targets for this strategy. For example:
- A year’s worth of filters for your vacuum at X% discount
- Switch to a subscription to receive monthly products and a discount
- Buy shampoo refills with all the options in a sample set at X% off
If you sell bundled accessories, you’ll shave off expenses for individually picking, packing, and delivering these products. Those cost savings can be as basic as using one box instead of two or as significant as a lower cost of:
- Sponsored product clicks
- Individual item pick and pack
- Shipping a single product
The smaller individual items and accessories are, the more profitable it is to pack them with other products. Although the impact on their shipping expenses is generally minimal, you’re able to skip the cost of packaging and delivering individual products. Offering discounts to incentivize purchasing them together increases your AOV as well as your profit margins for those products.
Conclusion
Your shipping and fulfillment strategy should support your marketing, so you need to align your product bundling and free shipping strategies with your promotional efforts. That could mean shifting fast-moving products into FBA or competing programs; packaging and prepping products for bundles; or reviewing the physical location of stored products for more efficient shipment. Once you incorporate the tips discussed in this article, you’ll see reductions in costs while discovering opportunities to incentivize larger shopping carts and AOV.
This is a guest blog post by Tom Wicky – an entrepreneur, startup advisor, and management consultant with over 20 years of senior management experience. He is the Co-Founder and CEO of MyFBAPrep, the largest worldwide 3PL eCommerce warehouse network.
