Calculating average order value.
Finding out your average order value is the first step in understanding how your store is generally performing. It's not so useful for understanding your profits, however it's extremely helpful in understanding a benchmark value for which you are going to try and improve on.
Start by writing down the total revenue for last month. Let's say $5000
Now divide that by the number of orders for that month. Say 37.
This gives you the average order value of $135.
Now What?
Now we're going to add 10% to $135 to give us just under $150. This will be the 10% increase in order value we're aiming for.
The end result is, we can now advertise that we offer free shipping for any order over $150. Now you may notice that we're now losing about $15 for this order, not to worry. By the time your customer added the extra product to reach over the threashold, it's likely to be more than $150 so you're probably going to end up square in profit based on your old order value.
The real prize comes from the following list of benefits on top of the sale;
- Happier customer with free shipping
- More sales by offering free shipping
- Potentially much higher order value as there's no fear of additional shipping fees at checkout.
- Repeat business from happy customers
- More product turnover, therefore possibly more wholesale discounts
- More customers means more referrals and more customers.
So don't cut your profit off the sale amount (to which there's no end), use free shipping as a tool to grow your business.
