Does Shopify AOV Include Shipping? Understanding Your Average Order Value

Table of Contents

1. Introduction
2. What is Average Order Value (AOV)?
3. Why is AOV Important?
4. Factors Affecting AOV
5. Five Proven Strategies to Increase Average Order Value
6. Closing the Loop: Analyzing Results and Making Adjustments
7. Conclusion

Introduction

Did you know that the average eCommerce conversion rate hovers around just 2-3%? For many Shopify merchants, this means that despite having high website traffic, a significant percentage of visitors leave without purchasing anything. One key metric that can transform this scenario is Average Order Value (AOV). Understanding and improving AOV is not just a trivial task; it holds the potential to elevate your Shopify store’s financial health dramatically.

In this blog post, we’re diving deep into understanding AOV, particularly for Shopify merchants. We’ll explore what AOV is, how it is calculated, and most crucially, whether it includes shipping fees. By the end of this article, you’ll grasp why AOV matters for your bottom line and learn actionable strategies to increase it, specifically through the seamless integration of Tevello’s offerings.

As we embark on this exploration, we invite you to reflect on your own Shopify business. Are you aware of your current AOV? Could there be opportunities for you to implement strategies that ensure a better return on your marketing investments? Our goal is to empower you with knowledge that can drive effective decision-making and, ultimately, business growth.

Let’s uncover the intricacies of AOV and its implications in the busy world of online commerce.

What is Average Order Value (AOV)?

Average Order Value, frequently referred to as AOV, is a key performance metric that represents the average amount of money each customer spends per order during a specific timeframe. In eCommerce, understanding AOV is essential for optimizing pricing strategies, marketing campaigns, and inventory management.

How to Calculate AOV

To calculate your Average Order Value in Shopify, follow this straightforward formula:

[ \text{AOV} = \frac{\text{Total Revenue}}{\text{Total Number of Orders}} ]

Let’s break it down with an example. If your store generated $5,000 in revenue from 100 orders, your Average Order Value would be:

[ \text{AOV} = \frac{5000}{100} = 50 ]

This means that, on average, customers are spending $50 per order in your store.

Does Shopify AOV Include Shipping?

As we delve into whether Shopify’s calculation of AOV includes shipping, we should clarify how Shopify defines it. When Shopify calculates AOV, it generally uses net sales—total revenue minus discounts, refunds, and any adjustments for exchanges. However, shipping fees may or may not be included based on how you’ve configured your reports.

Therefore, if you want a clear picture of your product-focused AOV, it’s essential to subtract shipping fees from your total revenue before performing the calculation. This way, you can determine what customers are truly spending on your products, excluding any additional costs.

Why is AOV Important?

Average Order Value is more than just a metric. It provides robust insights into your customer behavior and overall business performance. Here are several reasons why AOV is crucial for Shopify merchants:

1. Understanding Buying Behavior: AOV reveals how much customers are willing to spend on average, guiding your upselling and cross-selling strategies.
2. Profit Optimization: Higher AOV contributes to increased revenue without needing to bring in more traffic. This can significantly enhance profit margins.
3. Marketing Efficiency: AOV impacts your return on ad spend (ROAS). Knowing your AOV helps tailor your marketing strategies for maximum effect.
4. Customer Insights: Monitoring AOV can identify trends in seasonality or customer arrangement that can influence future inventory or promotional strategies.
5. Competitiveness in the Market: Understanding your AOV in relation to industry benchmarks helps assess your competitive position.

In essence, AOV acts as a vital indicator of your store's health and can guide various strategic decisions in areas like pricing, inventory, and customer engagement.

Factors Affecting AOV

To effectively work towards improving your AOV, it’s essential to first understand the factors influencing it:

1. Product Pricing Structure

The pricing of your products fundamentally determines the maximum potential AOV. Stores that offer higher-priced items will naturally have a higher average order value compared to those focusing on low-cost items.

2. Shipping Policies

As stated earlier, shipping plays a significant role in overall purchase decisions. Setting thresholds for free shipping can motivate customers to add more items to their carts.

3. Promotions and Discounts

Seasonal sales, discounts, and bundled offers can increase the perceived value of a purchase, encouraging larger order values.

4. Customer Lifetime Value (CLV)

Increasing AOV often goes hand-in-hand with improving CLV, as loyal customers tend to spend more on subsequent purchases.

Five Proven Strategies to Increase Average Order Value

Now that we’ve established the importance of AOV, let’s explore tangible strategies you can implement to boost it within your Shopify store.

1. Offer Free Shipping Thresholds

Free shipping is a powerful incentive for online shoppers. Research indicates that a majority of consumers will add products to their cart to qualify for free shipping. Calculate your AOV and set the free shipping threshold to slightly above this average (like 30% higher). For instance, if your AOV is $40, consider offering free shipping on orders over $52.

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2. Implement Upselling and Cross-Selling Strategies

Leveraging upsells and cross-sells can significantly increase AOV. When a customer adds a product to their cart, suggest related products or higher-end options. A classic example is, “Would you like fries with that?” This simple question can effectively increase the overall transaction value.

3. Bundle Products Together

Creating product bundles can offer your customers the combined value of various products at a discount, making them feel like they are getting an excellent deal. For example, if you sell skincare products, bundle a cleanser, toner, and moisturizer at a lower price than if purchased individually.

4. Use Loyalty and Rewards Programs

Establish a loyalty program where customers earn points for every order. These points can later be redeemed for discounts or exclusive gifts. This not only incentivizes repeat purchases but can prompt customers to increase their spending to unlock higher rewards.

5. Create Personalized Shopping Experiences

Utilize data to recommend products based on browsing behavior and previous purchases. Personalized suggestions create a rapport with customers, making them more likely to add additional items to their carts.

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Closing the Loop: Analyzing Results and Making Adjustments

Measuring your AOV is vital, but equally important is analyzing results and making necessary modifications. Regularly revisit your AOV, customer data, and sales performance to identify trends and fine-tune your strategies.

Consider segmenting your AOV data by product categories, customer types, or sales channels. This analysis will help you spot which areas are underperforming and where your most profitable customers lie.

FAQ

1. What is a good AOV for Shopify stores?

A good AOV can vary significantly by industry. For Shopify, averages typically range from $85-$92, with top-performing merchants exceeding $120.

2. Does Shopify automatically calculate AOV for my store?

Yes, Shopify automatically calculates AOV within your sales reports by dividing net revenue by the number of completed orders.

3. How can I track AOV over time?

Shopify allows you to generate detailed sales reports for specific dates, which you can track monthly or quarterly to see how AOV fluctuates with your promotions or changes in pricing strategies.

4. What should I consider when analyzing AOV trends?

Consider looking at high and low seasons, comparing promotional periods against standard periods, and assessing any impact from product launches or website changes.

5. Can I use Tevello to help increase AOV?

Absolutely! Tevello equips you with the tools needed to create and manage courses, communities, and digital products. Utilizing educational offerings can inspire customers to spend more on your platform.

Conclusion

Understanding and optimizing your Average Order Value is a crucial element in your Shopify business strategy. It not only measures customer spending but also offers valuable insights into customer behavior, marketing effectiveness, and overall profitability. By implementing the strategies we've discussed, you can effectively boost your AOV and ensure sustainable growth.

As you move forward in your journey, we invite you to harness our innovative platform designed for Shopify merchants. Install the all-in-one course platform for Shopify and explore how Tevello can empower you to create new revenue streams and build lasting connections with your audience. Start your 14-day free trial today and elevate your business to new heights!