Why You Should Stop Worrying About Average Order Value

We frequently field questions about the effect that using the Mobify platform will have on a potential client’s Average Order Value (AOV). We understand why brands are concerned with this metric, but we don’t believe AOV tells the whole story. Here’s why:

What is Average Order Value?

Average Order Value is just what it sounds like: revenue divided by number of transactions. AOV is an interesting metric because it is a proportion, but not dependent on visits.

average-order-value-formula
Among our clients, we have luxury brands that have an Average Order Value over $500. Should they be worried if that decreases? Not necessarily. If AOV decreases because customers stopped buying complementary products, that’s an issue, but what if the company launched a new mobile site and someone looking just to buy lipstick who wouldn’t have have made a purchase before is now able to enjoy a better shopping experience that drives them to complete the transaction? That $50 lipstick is money in the bank, but that purchase will also decrease the overall AOV. It’s a very positive sign that someone who wouldn’t have purchased at all is now buying from you and AOV doesn’t reflect that customer gained.

How Does Deploying Mobify Affect Average Order Value?

In short, it depends. When we improve the mobile experience, there are two effects on Average Order Value that pull the rate in opposite directions. Fortunately, both effects also pull revenue upward.

CauseEffectEffect on Average Order ValueEffect on Revenue
1Easier to find complementary productsAdd more items to cartIncreaseIncrease
2Less hassle to make a purchaseSmall purchases are now worth a visitor’s time to completeDecreaseIncrease
TOTAL EFFECT:May increase, decrease or stay constantIncrease

Effect #1

When it is easier to find products, visitors are more likely to add complementary products to their orders. This effect increases Average Order Value and Revenue.

Most companies understand Effect #1 intuitively and thus expect Average Order Value to increase with an improved mobile shopping experience.

Effect #2

A visitor will make a purchase if:

Benefit > Cost

(Personal value attributed to item) > (price of item) + (time and effort cost of purchasing item)

When we decrease the time/effort cost, more transactions are completed, which increases conversion rate and revenue. This will likely have a negative effect on the Average Order Value, though, because the additional purchases are ones that had previously fallen below the aforementioned threshold. Those purchases are likely to be smaller purchases, where the value attributed to the item is not significantly higher than the cost. For example, a visitor may not buy a pair of socks if it takes her an hour to complete the transaction, but she may if it takes her less than five minutes.

The magnitude of the two effects varies across projects. If one effect dominates another, Average Order Value will change. If the effects balance out, Average Order Value will stay constant.

The Bottom Line

Regardless of how Average Order Value shifts, an improved mobile shopping experience will increase revenue — and that’s a metric that really counts.

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