eCommerce
In the eCommerce and retail industry, Average Order Value (AOV) and Average Basket Size are two critical metrics to measure success. Often used interchangeably, these KPIs actually measure very different metrics.
In this article, we'll discuss the differences between Average Order Value and Basket Size and how you can use them to improve your sales and marketing strategy and to increase not only the number of things sold per transaction but also the cart value in its entirety - and both vital metrics in conversational commerce.
Average Order Value (AOV) is a metric that measures the average amount of money customers spend on each order. So a higher AOV suggests that customers are spending more per purchase, while a lower AOV could indicate that customers are only spending a small amount on each order.
Average Basket size, on the other hand, measures the average number of items that customers purchase per transaction. So a larger basket size may suggest that customers are buying multiple items in one purchase, while a smaller basket size could indicate that customers are only purchasing one or two items at a time.
Both Average Order Value and Average Basket Size can be useful metrics for understanding customer behavior and optimizing your business strategy.
Average Order Value, for example, can help you target customers who are more likely to make larger purchases - which may increase your profit per sale, while Basket Size can help you identify patterns and focus on products that customers tend to purchase together.
By tracking Average Order Value and Basket Size, you'll be able to better understand the purchasing habits of your customers and optimize your sales and marketing strategies accordingly. In turn, this will lead to more successful campaigns and increases in both metrics, which also contribute to your customer LTV (which is a topic for another time)...
Considering AOV and ABS together can be a powerful tool for understanding if shoppers are purchasing more (or fewer) items each time they shop and what the total value of their order is. This data can be used to optimize product bundles, maximize margins, and provide discounts on certain items or products that are often purchased together.
Average Order Value typically consists of the total revenue divided by the number of orders. It's a pretty simple KPI to calculate:
AOV = Total Revenue / Number of Orders
For example, if a store has total revenue of $300,000 from 100 orders, the AOV can be calculated as $300000/100 = $3000.
Basket size is typically calculated by dividing the total number of items sold by the total number of orders. It's also a fairly simple metric to calculate:
Basket Size = Total Number of Items Sold / Total Number of Orders.
For example, if a store sold 1000 items in 100 orders, the basket size would be calculated as 1000/100 = 10.
As a conversational commerce platform enabling customers like Saucony to provide remote concierge services to their shoppers, we're asked constantly what KPIs matter most when it comes to understanding customer purchasing habits. If you're still reading this, I'm sure it'll come as a shock to you that Average Order Value and Average Basket Size are often at the top of that list.
You can increase Average Order Value by focusing on marketing campaigns that incentivize customers to spend more per purchase. Offering discounts, free shipping, product bundling, upselling, and cross-selling - these are all strategies that can help to increase Average Order Value.
One way luxury handbag manufacturers like Louis Vitton and TUMI have done this is by offering discounts on smaller items when larger ones are purchased. Which will also increase your basket size.
In order to increase Average Basket Size, try offering discounts on multiple items when customers purchase them together. You can also introduce product bundles and recommend related items that customers may want to add to their cart.
The English dress shirt manufacturer, Charles Tyrwhitt does an exceptional job at increasing the average basket size by bundling shirts at a discount. Shirts that are normally $150+ can be purchased at 40- 50% off - and once a year, you can purchase bundles of their shirts for as little as $39 apiece.
Another example of this would be bundling skincare products to help customers with oily skin types, or who are prone to redness and irritation - applying this slight change in strategy can help you create far more holistic recommendations to fit your customer’s individual needs.
Many online retailers who also have physical locations measure their Average Order Value both online and in-store. Each store may have a different AOV depending on its products, customers, and locations. But it's a good metric to understand the customer base dynamically.
Average Order Value and Average Transaction Value are two different metrics that are often misunderstood. Average Order Value measures the average amount spent per order, while Average Transaction Value measures the total amount spent on a single transaction.
The Average Order Value is usually calculated by dividing the total revenue by the number of orders while Average Transaction Value is typically calculated by dividing the total revenue by the number of transactions.
Average Order Value is usually a better metric to measure customer loyalty, as it takes into account repeat customers who may purchase multiple items in one order. Average Transaction Size is better for understanding what customers typically spend per visit or single transaction.
AOV forecasting is a predictive analysis tool that helps businesses understand future Average Order Value based on past historic data. It involves using statistical models to identify trends and changes in Average Order Values over time, while also taking into account external factors such as seasonality, customer preferences, and marketing campaigns.
AOV forecasting can be used to inform business decisions around pricing and promotions and can predict with some accuracy the next season's sales.
The basket size or total number of things in your cart is just that. ABS describes the number of products a buyer has purchased in the course of an entire purchase.
Typically, a customer purchasing two shirts, three skirt jackets, and two hats will buy 8 things. Average basket volume, also termed item per sale is a measure of the average amount sold per sale for all of your customers. In addition, you can view customer basket sizes for a customer.
This data is a valuable resource for remote concierges when they're recommending new products. The concierge can upsell products that have shown to be interesting to the customer in the past or cross-sell items that match the one in their cart.
The importance of average basket size as a metric is also used to assess the effectiveness of your marketing efforts in conjunction with the customer's needs. ABS can tell you if your messaging and offer bundles are targeted at the correct ICP or customer segment.
It can tell you whether your customers are buying enough of the right items to make their purchase worth it and if they're likely to become repeat buyers.
If a brand is creating real value for its customers, and the customers feel safe purchasing their products, then shopper confidence will improve and customers will be willing to spend more.
If you amortize even a 1% increase in average basket size over time, these increases will lead to radical increases in revenues, the direction of the brand, and the overall company’s bottom line.
Ultimately, ABS can help brands become market leaders by leveraging data-driven insights to understand customer behavior and make more informed decisions about investing in marketing strategies and product offerings.
ABS is calculated the same way in physical retail stores as it is in eCommerce. The average basket size can be calculated with this formula - Average basket size equals the total number sold / total transaction value.
For example, You sell 2,500 products and made 1000 sales in the online clothing store. Using this formula your basket is 2500/1000 = 2.5 Average Basket Size.
We have no optimal basket size, but we aim for an increased basket size over time, as this increase shows us a store is trending overall in the right direction.
"Nothing happens until something gets sold." This famous quote has been attributed to the likes of Peter Drucker, IBM's Thomas Watson, and Arthur "Red" Motley, but regardless of who said it first, the quote remains as relevant now as ever. Sell and up-sell customers to grow their basket volume.
The most important thing to do when selling is to avoid being "salesy." None of us like dealing with people who feel superficial, pushy, or even forceful when buying things.
When trying to create an efficient sales process look at what you have that your customer wants before you make an order. List some upselling incentives you can use during and after a sale:
PRO TIP: Your remote concierge can effectively upsell and cross-sell better than most because they're a product expert- so having a conversation with them is more like getting product recommendations from a friend.
If you run an eCommerce store, you know that every customer’s purchase has an emotional component to it - and when customers feel understood, they’re far more confident in their purchase and that it's going to be beneficial to their lives.
This builds brand loyalty and keeps customers coming back.
One of the best ways to help customers build this confidence is by creating a personalized shopping experience through 1:1 human interaction. A customer can engage a remote concierge on your website that will walk them through each step of the buying process - this is called conversational commerce.
Through platforms like Humankind, a remote concierge will engage the shopper, asking questions and making suggestions based on the shopper’s responses and preferences. Conversational commerce is a great way to increase AOV because it provides the customer with a complete solution to their needs.
Remote concierges can make holistic shopping recommendations because they’re having a direct conversation with the shopper. This real-time feedback loop increases confidence and trust throughout the buying process.
It also makes the checkout process easier since the customer feels like they’ve been understood and their needs have been met.
At Humankind, we're here to help you create incredible shopping experiences for your customers that build profitable eCommerce stores. More than just tracking metrics, we’re here to help you double down on increasing your average order value.
We've built conversational commerce software based on 1,000,000-plus customer conversations so we know how to help you combine the right talent with the right tools to get results. Book your demo to see how it works, today!
