If you’re ready to start driving more revenue via your online platform, average order value (AOV) is your new best friend. In this blog post, we explore why it’s so important for growing B2B sellers to focus on increasing AOV.
From conversion rate and cost of goods sold (COGS) through to churn rate and cart abandonment, there is a plethora of key performance indicators (KPIs) that B2B sellers can choose to monitor. One of the most important is average order value.
What is AOV?
As the name suggests, average order value is the average value of all transactions over a given period.
Simply put, a higher AOV means you’re earning more revenue from the same number of customers. Your revenue grows, but your marketing and sales costs don’t have to grow by the same factor because you’re not necessarily trying to win new business.
How do I calculate AOV?
Calculating average order value is simple. First, take your total revenue for a set timeframe. Then, divide it by the total number of orders in that same period.
Average order value = Total Revenue / Total Number of Orders
For example, imagine a B2B e-commerce site selling giftware that has generated £140,000 of revenue across 200 orders in one month.
Average order value for this period will be calculated as:
£140,000/200 = £700
So, on average, a buyer spends £700 on each purchase from the store.
Why should B2B merchants care about AOV?
B2B merchants should care about average order value (AOV) because it’s a key metric that directly impacts profitability and overall business performance.
Here are seven reasons why AOV is important for B2B merchants:
- Revenue generation
A higher average order value means more revenue per transaction. By increasing the AOV, B2B merchants can generate more income without needing to increase the number of orders or customers. This can significantly improve their bottom line and help grow their business.
- Profitability
AOV directly influences profitability. With a higher average order value, merchants can cover their fixed costs more efficiently and potentially increase their profit margins. If a buyer purchases more then the seller has to order more stock, the price of which goes down as the quantity rises, increasing overall margins for the seller. By focusing on increasing AOV, B2B merchants can improve their overall profitability and financial health.
- Customer lifetime value (CLV)
AOV is closely linked to CLV, which represents the total value a customer brings to a business over their entire relationship. By increasing AOV, B2B merchants can maximise the revenue potential of each customer, leading to higher CLV. This is particularly important in B2B relationships, where customers tend to have longer-lasting partnerships and higher purchase volumes.
- Upselling and cross-selling opportunities
Monitoring AOV allows B2B merchants to identify opportunities for upselling and cross-selling. By analysing the purchasing patterns and behaviours of customers with higher AOV, merchants can tailor their strategies to encourage additional purchases, introduce complementary products or services, and increase the overall value of each order.
- Efficient resource allocation
Understanding AOV helps B2B merchants allocate their resources more effectively. By identifying high-value customers or orders, merchants can focus their marketing efforts, customer support, and resources on those segments that yield greater returns. This targeted approach can enhance efficiency and drive better results in terms of revenue and customer satisfaction.
- Competitive positioning
AOV is a metric that allows B2B merchants to benchmark their performance against competitors. By monitoring and comparing AOV with industry standards, merchants can evaluate their pricing strategies, product offerings, and customer experience to ensure they remain competitive. Achieving a higher AOV can give B2B merchants a competitive advantage and contribute to their overall market positioning.
- Saving money
For many B2B suppliers, transport and logistics costs are fixed at a certain cost, regardless of the size of an order. For example, a food and beverage supplier may pay the same shipping fees for 3 pallets of produce as they do for 6. These suppliers will find that a higher AOV results in a larger overall margin because they are maximising the value of the transport costs.
Next steps
In summary, AOV is a crucial metric for B2B merchants as it directly impacts revenue and profitability. By understanding and optimising AOV, merchants can improve their financial performance and drive sustainable business growth.
But how can sellers begin to drive higher AOV? One way is to offer buyers a seamless checkout experience with optimised credit limits and payment terms detailed at the point of purchase. Research by Hokodo shows that, when payment terms are offered, average order value grows by 30%.
To find out more about how a Hokodo solution could help you to boost AOV, chat to one of our payments specialists today.
