There are two ways to grow revenue from your online store: either increase the number of purchases made or increase the dollar value of each purchase. Most marketers focus on increasing purchase volume, but increasing Average Order Value is every bit as important. In this series of posts we're going to delve into some tactics you can use to increase your AOV.
The most obvious way to increase the average order value is to raise your prices. While this may sound obvious, setting the right price is a real science (want to learn more? Read our whitepaper on setting prices for your ecommerce site). Once you're happy with your pricing, it’s time to get creative.
Increase your Average Order Value Tip 1: Free Shipping
Typically, ecommerce marketers use free shipping as a conversion tool. It’s pretty darn effective, too: a customer is 71% more likely to shop from online retailers that offer free shipping. But free shipping can also be used in clever ways to improve your average order value. Here are a few ideas:
40% of online customers say they will change the way they shop to buy more items that qualify for free shipping. By setting a free shipping threshold that is above your current average order value, you encourage your customers to buy more with each purchase. For example, if your current average order value is $75, try setting your free shipping threshold at $99. Shipping thresholds don’t always need to be all or nothing. Work with your logistics provider to set up a tiered shipping cost for purchases. Knowing how much it costs to ship products, you can set up tiers for discounted shipping charges, with the highest tier to include free shipping.
Free for certain products
Test out free shipping for customers that buy a pre-determined list of products. This Forrester Consulting report for UPS notes that product category is the biggest driver of the effectiveness of free shipping promotions. Select products with the highest margins and avoid free shipping on large or extremely heavy products. It might be worthwhile to list certain products at a slightly higher price and include free shipping. Run this test to see if your customers respond more to the offer of free shipping, or if they prefer the lower priced product.
Limited time offers
If your ecommerce business experiences seasonal lulls or areas of the country with lower average order values, consider offering limited time periods of free shipping. Telling loyal customers that they have 48 hours of free shipping encourages customers to buy more at once, as they know in two days time, they’ll need to pay for shipping. Our neighbours, Monetate, have an interesting case study on this with Sheplers Western Wear. Sheplers saw a 20% increase in net contribution even though it was paying for shipping.
When building your free shipping strategy, just make sure you’re not going in the red. Track the net margin on each purchase and compare with the free shipping charges you’re incurring. Compare on an individual and an aggregate basis. Free shipping can be an incredibly powerful tool to incentivize customer behavior, but you have to make sure you’re tracking the impact on net profit.
This is just the first idea in our series of increasing your average order value. If you would like to learn more about how to increase your average order value, download the whitepaper now!