Every company has key performance indicators, or KPIs, to help them measure how effective they are at achieving their business objectives. In eCommerce, those KPIs generally include measuring the number of visitors to a site and the rate of converting a visit to a sale. However, if you’re looking for a KPI that has a greater impact on your online profitability, focus your efforts on increasing your average order value (AOV).
As B2B organizations see more offline customers moving online, AOV is quickly becoming one of the top metrics to help them evaluate and measure the effectiveness of their eCommerce marketing and pricing strategies. Forrester Research confirms this shift in a 2015 online study of B2B companies. They found that nearly half of the organizations they surveyed expected that at least 50% of their customer base will be buying from them online within three years.
While AOV doesn’t tell you how much profit you are making or your profit margin, it does help you determine what revenue you can expect from a certain number of visits and provides insight to your buyers’ purchasing habits. AOV is easy to calculate: simply divide your total online revenue by the total number of online purchases. B2B customers have a longer sales cycle than retail consumers, and although they typically have fewer sales transactions, B2B buyers generate more sales, so their AOV is considerably higher. In fact, of the B2B companies Forrester surveyed, the weighted average measure of their AOV totaled $2,068. In contrast, B2C retailers had an AOV of only $171. Once you determine your company’s AOV, you’ll have the metrics needed to project and evaluate the goals for your overall online marketing and pricing strategy.
Marks Supply, a wholesale distributor of Plumbing, P.V.F., Hydronics and HVAC products in Canada, saw the benefits of AOV as a key performance metric for their business after they launched their online storefront with Unilog’s CIMM2 eCommerce software platform. Grant Movold, Manager of Systems/IT at Marks Supply, said since they’ve launched their site they’ve seen an increase in sales in their brick-and-mortar locations, and their average eCommerce order value is over 50% percent higher than other orders. “We attribute our AOV KPI growth to customers becoming more familiar with the site and seeing a more complete picture of the full breadth of products we offer,” says Movold. “CIMM2 also gives us the opportunity to market related products, which increases order value. Between impulse buying and the added value of seeing likely useful additional products, customers are definitely taking advantage of our different product options.”
Average order value is different for every business, which means you have the power to increase that number and help drive sales. Forrester found that four times as many B2B companies reported their AOV increased year-over-year. And how did they do that? By growing their buyers’ shopping cart through product bundling, discounts and promotions.
Consider this: buyers are already ordering from you and there’s a transaction cost associated with each order. If you can increase the number of items they purchase per order, your transaction cost will stay the same, but your AOV will increase. Two ways to bulk up buyer baskets without increasing costs are with up-selling and cross-selling. Strategies include recommending a better or different product that they can compare against their current product; pointing them to additional products based off their current purchases that may be suited for them; and displaying other purchases made by buyers who bought a similar product. Up-selling and cross-selling help inspire your customers and make their shopping experience easier.
Discounts on clearance items or volume purchases are other methods of increasing AOV. Promote the savings they’ll receive if they buy in bulk, or include an additional incentive of discounted or free shipping with their larger purchase. These types of promotions work best if they’re time-sensitive because they encourage buyers to act fast in order to obtain the best deals.
With more buyers doing business online, distributors need to take advantage of this additional sales channel to increase their customer transactions. Frankly, it’s not feasible or cost-effective to assign a sales person to a buyer that places small orders infrequently, so why not steer these low-volume spenders to your website instead, so you can serve their needs and provide them with more buying opportunities across your other products lines. Even small companies can help boost your AOV and, in time, they may even become loyal customers.