Average order value: what it is, how to calculate it, and how to raise it

By Zach Schleien

How to calculate average order value, why it decides how much you can pay for a customer, and eight ways I've seen it go up.

Average order value is the average amount of money a customer spends each time they buy from you. You calculate it by dividing your total revenue by your number of orders, and the fastest way to raise it is to change what you offer around the sale.

At Filteroff, our subscriptions were $9 to $25. Later we sold human matchmaking packages of around $2,000 each and did $50K in revenue in a single month. Same company, very different money per order. Below is the formula, why the number matters when you run ads, and the ways I've seen it go up.

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Key takeaways

• Average order value (AOV) is total revenue divided by the number of orders in the same time period.
• It's per order, not per customer. Lifetime value counts everything a customer buys over time.
• A higher AOV means you can spend more to get each customer and still make money.
• Tiers, order bumps, one-time offers and bundles raise it without lowering your price.
• Check it by channel and by offer, because one average can hide a lot.

What is average order value?

Average order value, or AOV, tells you how much a typical order is worth. It matters because you've already paid to get that buyer to your checkout, and every extra dollar on that same order costs you very little to earn.

Here's a made-up example. Someone buys a $97 course. If you add a $27 checkbox right above the pay button and some buyers check it, you've made more money from the same traffic. You didn't pay for one extra click.

In a service business, people usually call this average deal size. It's the same idea. If you sell coaching or consulting, your AOV is what the average client pays you when they sign.

How to calculate average order value

The formula:

Average order value = total revenue ÷ number of orders

Here's a made-up example. You did $50,000 in revenue last month from 400 orders. $50,000 divided by 400 is $125, so your AOV is $125.

A few choices change the number, so make them once and keep them the same every month:

• Pick the time period. The last 30 days is a good start. Compare it to the 30 days before.
• Decide what counts as revenue. I'd take out refunds, tax and shipping, because that money isn't yours to keep.
• Count orders, not customers. If one person buys twice, that's two orders.

Then check two things the average can hide.

One big order can pull the whole number up. Here's a made-up example: 99 orders at $100 and one order at $10,000. Your AOV is $199, but your typical buyer spent $100. Look at the median too, which is the order in the exact middle. If the median is far below your average, a few big buyers are carrying the number.

Different traffic spends different amounts. Your email list might spend more than people coming from cold ads, or the other way around. Break AOV out by channel and by offer, so you know which change actually moved it.

AOV vs lifetime value

AOV is one order. Lifetime value is everything a customer pays you over the whole time they buy from you.

Here's another made-up example. A member pays $50 a month and stays for 10 months. Their AOV is $50 and their lifetime value is $500. You want to know both, but AOV is the number that tells you how much money you get on day one, and day one is when your ad bill is due.

Why average order value matters when you run ads

Your ads don't care how much you make. They cost what they cost. So AOV decides how much room you have to pay for a customer.

Here's a made-up example. Say it costs you $100 in ads to get a customer and your AOV is $120. You've got $20 left to pay for the product and yourself, which isn't much. Raise your AOV to $150 and you've got $50 left on the same ad and the same traffic.

That extra room is why a business with a higher AOV can outbid a business that only sells one small thing. It can pay more for each click and still make money.

Work backward from what you need. Add up what it costs you to get a customer, what it costs to deliver the product or service, and the profit you want. That total is the AOV you need to hit. If you don't know the first number yet, here's how to calculate customer acquisition cost.

What is a good average order value?

There isn't one good number, because a skincare order and a consulting deal have nothing in common. The two comparisons that help are your own past numbers and the math above.

If your AOV is going up over time and it covers your cost to get a customer with money left over, it's good. If it doesn't cover that cost, it isn't, no matter what someone else's number is.

How to increase average order value

These are the ways I've seen it go up, in the order I'd try them.

1. Raise your price before you add anything

The reflex is to say nobody wants the offer and cut the price. That's almost always wrong. People in the matchmaking industry sell $30,000 packages, and at Filteroff we sold a package of around $2,000 over the phone.

A lot of the time the price is low because of how the seller feels about it. My friend Malik closed $1.5K on his first deal, lower than it should have been, because in his own words he doubted how much what he was offering was worth.

2. Offer tiers

I price service tiers like an airplane: economy, business class and first class. Cap it at about three tiers, because more than that and people get stuck choosing.

Build the tiers around how much help the buyer gets. At the low end they do it themselves. In the middle you do it with them. At the top you do it for them.

3. Add an order bump at checkout

An order bump is a small add-on shown on the checkout page, usually a checkbox above the pay button. The buyer has already decided, so the only question left is a small yes or no.

Keep it cheap and closely tied to what they're buying. A course can add recorded Q&A calls. A physical product can add a refill. I wrote a full guide with examples in Order bump: what it is, examples, and how to add one to your checkout.

4. Add a one-time offer after they buy

A one-time offer shows up right after someone pays, and they can only get it on that page. It's usually bigger than a bump, because the person just said yes and hasn't left yet.

If they say no to a big offer, you can follow with a downsell, such as group coaching instead of one-on-one help. When I helped my friend Ryan rebuild his landing page, we added order bumps and one-time offers to it.

5. Bundle what people already buy together

A bundle groups products that buyers already pick up together and prices them a little below the separate total. Check your margin first, so the bundle doesn't give away the money you were trying to make.

In a service business, the bundle is the longer package. I'd never sell one-month packages. Six to nine months is the sweet spot, and I price the three-month option so it isn't very appealing.

6. Set a minimum for free shipping or a bonus

If you sell physical products, set your free shipping minimum a little above your current AOV. As a made-up example, if your AOV is $60, try $75 and show buyers how much more they need to add. The same trick works with a free bonus instead of shipping.

Then check your margin on those orders, because the extra items need to cover the shipping you're now paying for.

7. Sell the extras instead of giving them away

Look at what you include for free and ask whether a buyer would pay for it alone. I never include unlimited text support by default. It's an add-on you can charge for.

8. Look at who's selling

Your AOV also depends on who takes the call. At Filteroff, an agency handed me off to a rep who kept selling the smallest package, and the close rate was stuck around 18%. I spent a few weeks trying to train him before I realized the real problem was the guy making the calls.

Listen to your calls. If your reps keep steering people to the cheapest option, you'll see it in your AOV before you hear it in a complaint.

Build a ladder of offers

Early on at Filteroff I just wanted users. We had subscriptions at $9 to $25, and nothing above them. Looking back, I'd build low-ticket, mid-ticket and high-ticket from day one.

Low-ticket is do it yourself and subscriptions. Mid-ticket, roughly $75 to $200, is do it with us. High-ticket is done for you. It's the same customer getting different levels of help, and each level gives someone a way to spend more with you.

Offers underneath your top package also give someone who isn't ready for it a way to buy. When I worked with Simone Grossman on her matchmaking business, adding offers underneath her high-ticket package was part of the build. She's done $160K in about five months since launching. If matchmaking is your business, I wrote out the offer and the price in how to start a matchmaking business.

Mistakes that hold AOV back

• Discounting to get bigger orders. Coupons can raise the order size and shrink what you keep. I'd change the structure of the offer before I'd cut the price.
• Too many choices. Five tiers and three add-ons will slow buyers down. Keep it simple enough to decide fast.
• Looking at AOV by itself. If AOV goes up and fewer people buy, you might be worse off. Watch your conversion rate and your refunds at the same time, along with the rest of your conversion metrics.
• Asking people if they'd pay more. I once emailed potential customers asking if they'd want matchmaking from Filteroff and at what price. Almost everyone said no. We launched anyway and people bought, including the same people who'd said no.
• Fixing AOV before the leaks. If your landing page is too short, has no video or has no testimonials, start there with what to put on a conversion landing page. A bigger order doesn't help if nobody reaches the checkout.