The average order value (AOV) of first purchases is a key performance indicator (KPI) that provides valuable insight into the initial spending behavior of customers making their first purchase on an ecommerce platform.
Understanding this metric enables businesses to make informed decisions about marketing strategies, customer acquisition costs, and overall revenue potential. By analyzing first purchase AOV, ecommerce businesses can tailor their approaches to effectively acquire and convert new customers.
Key Takeaways
- Definition: First purchase average order value (AOV) is the average amount new customers spend on their first order on an ecommerce platform.
- Calculation: AOV of first purchases is calculated by dividing the total revenue from new customers by the number of orders placed by these customers.
- Strategic Importance: Understanding AOV of First Purchases helps companies evaluate the effectiveness of their marketing strategies, optimize customer acquisition costs, and tailor their approaches to more effectively acquire and convert new customers.
- Optimization Strategies: Increasing AOV of first purchases can be achieved through strategies such as offering welcome discounts, creating bundle offers for new customers, recommending complementary products, setting a free shipping threshold, and integrating loyalty programs into the first purchase experience.
- Limitations: First purchase AOV provides only a snapshot of initial customer spending, can be influenced by outliers, does not reflect the full customer journey or frequency of purchases, is subject to seasonal fluctuations, does not directly indicate profitability, and lacks depth without supplemental data.
- Complementary metrics: First purchase AOV should be analyzed alongside other metrics such as customer acquisition cost (CAC), conversion rate, retention rate, new customer ratio, and product affinity analysis to gain a complete understanding of customer acquisition and revenue potential.
Why does AOV of First Purchases matter for your business?
For an ecommerce business, comprehending and optimizing the AOV of first purchases holds several advantages:
- Effective Marketing Strategy: Knowledge of the AOV of first purchases assists businesses in assessing the effectiveness of their initial marketing efforts. It allows them to understand how much revenue is generated from new customers and whether their marketing investment is yielding profitable results.
- Customer Acquisition Cost (CAC): By comparing the AOV of first purchases with customer acquisition costs, businesses can determine if their marketing expenditures are justifiable and sustainable in the long run.
- Resource Allocation: Insights from the AOV of first purchases enable businesses to allocate their marketing budget more efficiently by focusing on channels and strategies that attract higher-value first-time customers.
- Optimized Onboarding: Understanding the AOV of first purchases helps in tailoring the onboarding experience for new customers. Businesses can provide personalized recommendations or incentives to encourage larger initial purchases.
- Loyalty and Retention: The AOV of first purchases can influence customer loyalty and retention strategies. Customers with higher initial AOVs might have a higher lifetime value, warranting special attention and retention efforts.
How to calculate AOV of First Purchases ?
Explanation of the parts of the formula:
- Sales from New Customers refers to the total revenue generated from customers who made their first purchase on the website. This includes all products and services that these new customers paid for.
- Orders from New Customers is the total number of orders placed by customers who are making their first purchase. Each unique order, regardless of the number of items it contains, is counted as one.
- The ratio gives the Average Order Value (AOV) of first purchases. It’s calculated by dividing the total revenue generated from new customers by the number of orders they placed.
- AOV essentially tells us how much, on average, a new customer spends on their first order. This can help us understand the buying behavior of new customers and assess the effectiveness of marketing efforts targeting them.
Example Scenario Imagine that in a certain month:
- Your website attracted 200 new customers.
- The total sales from these new customers amounted to $10,000.
Insert the numbers from the example scenario into the above formula:
- AOV of First Purchases = $10,000 / 200
- AOV of First Purchases = $50
This means that, on average, each new customer spent $50 on their first order on your website during this month.
Tips and recommendations for increasing AOV of First Purchases
Increasing first purchase AOV involves strategies that encourage new customers to spend more during their first interaction with your ecommerce platform:
Offer welcome discounts
Welcome discounts can play a significant role in increasing the average order value (AOV) of first-time purchases. By offering new customers exclusive discounts or offers on their first purchase, you create a compelling incentive for them to explore a wider range of products and potentially spend more during their first interaction with your ecommerce platform. It’s a way to make their first shopping experience memorable and valuable, which can not only increase their initial AOV, but also cultivate long-term customer loyalty.
Bundle deals for new customers
Creating special bundle deals or packages specifically for new customers is another effective strategy for increasing AOV. These specially curated bundles can showcase a variety of your products, catering to different tastes and preferences, at a discounted price. The allure of saving money by purchasing a bundle rather than individual items can entice new customers to buy more during their first shopping experience. This strategy also allows customers to try and discover more of your products in one go, increasing the likelihood of repeat purchases.
Recommend complementary products
Personalized product recommendations can be a powerful tool for encouraging new customers to add more items to their shopping carts. By leveraging data about the customer’s initial product selection, you can suggest complementary or related products that match their tastes and preferences. This not only improves the customer’s shopping experience by making it more personalized and relevant, but also potentially increases the value of their initial order by encouraging them to buy more.
Free shipping threshold
Setting a free shipping threshold for the first order can motivate customers to add more products to their shopping carts. When customers know they’ll receive free shipping once they reach a certain order value, it gives them a clear incentive to spend more on their first purchase. It’s a powerful strategy that can significantly increase first-time purchase AOV, as customers will add more items to their cart rather than pay for shipping.
Loyalty program integration
Integrating your loyalty program into the first purchase experience can motivate new customers to spend more. By offering customers the opportunity to earn rewards or points with their first order, you give them an extra incentive to explore and purchase higher-value products. This strategy not only increases the AOV of the first purchase, but also builds loyalty as customers are likely to return to redeem the points or rewards they have earned.
Examples of use
Personalized Onboarding Experience
- Scenario: An ecommerce platform specializing in tech gadgets finds that customers who purchase both a smartphone and related accessories tend to have a higher AOV of first purchases.
- Use Case Application: During the onboarding process, the platform could create personalized bundles for new customers, showcasing smartphone and accessory combinations. By offering a slight discount on these bundles, they encourage customers to make a comprehensive purchase, raising the initial AOV.
Exclusive New Customer Gift
- Scenario: An online clothing retailer observes that new customers who buy items from multiple categories have a higher AOV of first purchases.
- Use Case Application: The retailer can provide an exclusive gift for customers who purchase from different categories in their first order. This strategy not only drives cross-category purchases but also increases the AOV of their first interaction.
Customized Welcome Discounts
- Scenario: A beauty and skincare brand notices that customers who purchase a combination of skincare and makeup products tend to have a higher AOV of first purchases.
- Use Case Application: The brand can send personalized welcome emails to new customers, offering discounts on makeup products when they purchase skincare items. This approach encourages customers to explore both product categories and elevate their initial AOV.
Special Access for New Customers
- Scenario: A premium fitness equipment retailer identifies that customers who purchase high-value equipment items have a substantially higher AOV of first purchases.
- Use Case Application: The retailer can offer new customers exclusive access to premium workout content or training sessions as part of their initial purchase. This added value motivates customers to invest in high-value equipment and increases the AOV of their first order.
Early Access to Limited Collections
- Scenario: An artisanal home decor brand finds that customers who purchase from limited-edition collections tend to have a higher AOV of first purchases.
- Use Case Application: The brand can offer new customers early access to upcoming limited-edition collections. By creating a sense of exclusivity, customers are more likely to explore and purchase multiple items from these special collections, increasing their initial AOV.
AOV of First Purchases SMART goal example
Specific – Increase the average order value (AOV) of first-time purchases by 30% (from $100 to $130).
Measurable – AOV is tracked and compared before and after implementing up-sell and cross-sell strategies.
Achievable – Yes, by using effective product bundling, offering incentives for higher value purchases, and implementing targeted marketing strategies for new customers.
Relevant – Yes. This goal is aligned with the overall business goal of increasing revenue and customer lifetime value.
Timed – Within six months of implementing the new marketing and sales strategies.
Limitations of using AOV of First Purchases
While the Average Order Value (AOV) of First Purchases is a crucial metric for gauging customer spending in an ecommerce setting, it has its limitations when used in business analysis:
- Doesn’t Reflect the Full Customer Journey: The AOV of First Purchases only provides a snapshot of the average spending at a specific point in time, that is, the first purchase. It doesn’t capture the entirety of a customer’s purchasing journey or lifetime value, which might be more indicative of long-term customer value.
- Can Be Influenced by Outliers: A few very high or very low first orders can skew this metric, potentially giving a distorted perception of typical customer spending. For instance, a single large bulk order as a first purchase can push up the AOV of First Purchases, but that doesn’t necessarily mean all customers are spending more on their first order.
- No Insight into Purchase Frequency: A high AOV of First Purchases is great, but if customers only purchase once and never return, it might not be as valuable as a lower AOV from customers who make repeat purchases. Frequency can play a huge role in total revenue.
- Subject to Seasonal Variations: This metric can vary seasonally, especially during sales or holiday periods. It’s important to compare AOV of First Purchases from similar periods to get an accurate picture.
- Not Indicative of Profitability: A higher AOV of First Purchases doesn’t always mean higher profits. If discounts or costly items are driving up this metric, the profit margins might actually be lower.
- Overemphasis Can Lead to Neglecting Other Metrics: While trying to increase AOV of First Purchases, businesses might overlook other essential metrics like conversion rate, customer acquisition cost, or retention rates. Balance is key.
- Lacks Context Without Additional Metrics: AOV of First Purchases in isolation doesn’t provide a full picture. For example, a low AOV for initial purchases might be concerning, but if the business has a high purchase frequency and strong retention, it might not be a problem.
In conclusion, while AOV of first purchases is a valuable metric in the arsenal of ecommerce KPIs, it should be used alongside other metrics to gain a comprehensive understanding of a company’s performance. It shouldn’t be the only metric used to make strategic decisions.
KPIs and metrics relevant to AOV of First Purchases
Several other metrics align with the AOV of First Purchases, providing a holistic understanding of customer acquisition and revenue potential:
- Customer Acquisition Cost (CAC): Analyzing CAC in conjunction with AOV of First Purchases helps determine the efficiency of acquiring new customers based on their initial spending.
- Conversion Rate: Evaluating the conversion rate of new customers can offer insights into the effectiveness of turning first-time visitors into paying customers.
- Retention Rate: Understanding how many first-time customers return for subsequent purchases provides valuable information about the longevity of customer relationships and potential improvements in AOV over time.
- New Customer Ratio: This metric calculates the proportion of new customers among all orders. It provides context for the AOV of First Purchases by showing how significant new customer orders are to the overall business.
- Product Affinity Analysis: By analyzing which products are frequently purchased together by new customers, businesses can optimize product bundles and recommendations to increase the AOV of their initial purchases.
Final thoughts
First purchase AOV is a critical metric that enables ecommerce businesses to tailor their customer acquisition strategies. By offering personalized incentives, bundled offers, and tailored recommendations, businesses can encourage new customers to make higher-value purchases. This not only increases initial revenue from new customers, but also sets the stage for potential future transactions. Understanding and optimizing first-time purchase AOV is a critical step in maximizing revenue potential and cultivating customer loyalty.
AOV of First Purchases FAQ
What is AOV of First Purchases?
AOV of First Purchases represents the average amount spent by customers during their initial order on an ecommerce platform.
Why is AOV of First Purchases important for my ecommerce business?
AOV of First Purchases provides insights into the spending behavior of new customers, allowing businesses to assess marketing effectiveness, allocate resources efficiently, and optimize customer acquisition strategies.
How can I increase the AOV of First Purchases?
To increase AOV of First Purchases, consider offering welcome discounts, creating bundle deals, recommending complementary products, setting free shipping thresholds, and integrating loyalty programs for new customers.
What other metrics are relevant to AOV of First Purchases?
Metrics such as Customer Acquisition Cost (CAC), Conversion Rate, Retention Rate, New Customer Ratio, and Product Affinity Analysis provide complementary insights to AOV of First Purchases, aiding in a comprehensive understanding of customer acquisition and revenue potential.
Is a high AOV of First Purchases always desirable?
While a higher AOV of First Purchases generally indicates more profitable initial transactions, it’s crucial to consider the balance between acquisition costs and revenue. A higher AOV doesn’t necessarily guarantee sustainable profitability if customer acquisition costs are disproportionately high.