Average Orders per Month per Customer is a critical Key Performance Indicator (KPI) that provides insight into the buying frequency of customers on an ecommerce platform.
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This metric measures customer engagement by reflecting how often they place orders within a month. Ecommerce businesses that monitor this KPI can better understand customer behavior, forecast sales, manage inventory more effectively, and tailor marketing efforts to encourage repeat business.
Key Takeaways
- Definition: Average orders per month per customer is a metric that measures how often customers place orders within a month on an ecommerce platform.
- Calculation: It is calculated by dividing the total number of paid orders in a month by the total number of active customers in the same month.
- Strategic Importance: This metric helps businesses understand customer behavior, forecast sales, manage inventory, and tailor marketing efforts to encourage repeat purchases.
- Optimization Strategies: To increase average orders per month per customer, strategies such as improving customer engagement and experience, launching subscription services, providing exclusive offers, and leveraging feedback and personalization can be used.
- Limitations: This metric has limitations, including limited insight into customer value, potential misinterpretation of growth, overlooking customer segmentation, and not accounting for profit margins or seasonal buying patterns.
- Complementary Metrics: It should be used in conjunction with other metrics such as customer acquisition cost (CAC), repeat purchase rate, customer lifetime value (CLV), conversion rate, and order value for a complete understanding of customer behavior and ecommerce performance.
Why does Average Orders per Month per Customer matter for your business?
This metric is pivotal for several reasons:
- Customer Retention: Frequent orders suggest higher customer retention, indicating satisfied customers and effective loyalty programs.
- Demand Forecasting: Regular order patterns enable accurate demand forecasting, which is crucial for inventory management and supply chain optimization.
- Marketing Effectiveness: Understanding the frequency of orders can help in evaluating the success of marketing campaigns aimed at encouraging repeat purchases.
- Revenue Predictability: A consistent average order frequency aids in predicting monthly revenue streams.
- Product Lifecycle Management: Tracking how often products are purchased can inform decisions regarding product life cycles and the introduction of new items.
How to calculate Average Orders per Month per Customer ?
Explanation of the parts of the formula:
- Total Paid Orders per Month represents the number of orders that were not only placed but also paid for within a given month. These are confirmed sales where the transaction has been completed and payment has been received.
- Total Active Customers per Month is the count of unique customers who have made at least one purchase during the month. This does not include customers who only browsed the site without making any purchase.
- The result of dividing the total paid orders by the total number of active customers gives us the Average Orders per Month per Customer, which is a measure of how often, on average, a customer places an order in a month.
The Average Orders per Month per Customer metric provides insights into customer purchasing habits and the frequency of orders, which can help an ecommerce business in inventory planning, forecasting demand, and managing supply chain operations.
Example Scenario
Let’s say in the month of April:
- Your ecommerce store had a total of 1,200 paid orders.
- There were 300 unique active customers who made purchases in April.
Insert the numbers from the example scenario into the formula:
- Average Orders per Month per Customer = Total Paid Orders per Month / Total Active Customers per Month
- Average Orders per Month per Customer = 1,200 / 300
- Average Orders per Month per Customer = 4 orders per customer.
This indicates that, on average, each active customer placed 4 orders during the month of April.
Tips and recommendations for increasing Average Orders per Month per Customer
Improve Customer Engagement
One of the most effective ways to increase your average orders per month per customer is to improve your customer engagement strategies. This can be achieved by developing an effective communication plan that includes personalized emails, interactive social media content, and engaging loyalty programs. These programs should be designed not only to reward repeat customers, but also to encourage them to make more frequent purchases. By regularly interacting with your customers and making them feel valued, you’re more likely to see an increase in repeat orders.
Improve the customer experience
Another key strategy for increasing your average orders per month per customer is to refine their overall experience with your platform. This means ensuring that every interaction your customer has with your business is seamless and enjoyable. Whether it’s the ease of navigation on your site, the efficiency of the checkout process, or the speed and effectiveness of customer service responses, a positive experience can lead a customer to order more frequently. It’s important to pay attention to all aspects of the customer journey and remove any obstacles that might prevent a customer from making a purchase.
Launch subscription services
For businesses that offer products that are needed on a regular basis, introducing a subscription service can be a game changer. This service allows customers to automatically receive their preferred products at set intervals without having to manually order each time. It’s not only convenient for the customer, but it also ensures a consistent and predictable order frequency for you. With this service, customers don’t have to worry about running out of their favorite products, increasing the likelihood of consistent monthly orders.
Exclusive offers and memberships
To encourage more frequent purchases, consider offering exclusive offers or memberships. These can include members-only discounts, early access to new products, or even special gifts for customers’ birthdays or anniversaries. Such incentives can make customers feel special and valued, encouraging them to order more often. Plus, these exclusive offers make customers feel like they’re part of an elite group, which can build loyalty and increase order frequency.
Feedback and personalization
Finally, using customer feedback and personalizing the shopping experience can significantly increase your average orders per month per customer. By analyzing past purchases and using that data to recommend similar products, you’re providing a tailored shopping experience that makes customers feel understood and cared for. In addition, feedback can help you understand what your customers want more of and what areas you can improve. By addressing these concerns and needs, you’re likely to see an increase in repeat orders.
Examples of use
Loyalty Program Analysis
- Scenario: An online grocery store wants to determine the effectiveness of its loyalty program in encouraging repeat purchases.
- Use Case Application: The store calculates the Average Orders per Month per Customer for members of the loyalty program versus non-members to assess the impact of program perks on order frequency.
Product Restock Notifications
- Scenario: A skincare ecommerce business notices that customers tend to repurchase certain products after a specific time.
- Use Case Application: The company sets up automated restock reminders for customers based on the average interval between orders, thereby prompting them to reorder before they run out.
Subscription Model Benefits
- Scenario: A pet food company observes that customers generally order once a month.
- Use Case Application: The company offers a subscription model where customers can subscribe to have pet food delivered automatically every month, possibly at a discounted rate.
Flash Sales Events
- Scenario: An electronics retailer identifies that the average number of orders per customer increases during sale events.
- Use Case Application: The retailer strategically plans flash sales throughout the year to boost the monthly ordering frequency, targeting specifically those customers with historically lower purchase frequencies.
Customer Segmentation Strategies
- Scenario: A fashion ecommerce platform finds that certain customer segments have a higher average monthly order frequency than others.
- Use Case Application: The platform uses this data to tailor its marketing efforts, targeting high-frequency segments with more aggressive campaigns while nurturing lower-frequency segments with incentives to increase their purchase rate.
Average Orders per Month per Customer SMART goal example
Specific – Increase the average number of orders per customer per month by 20% to improve customer retention and increase revenue from the current average of 2 orders to 2.4 orders.
Measurable – The average number of orders per customer will be tracked monthly through the eCommerce platform’s analytics dashboard to monitor progress towards the goal.
Achievable – Yes, by implementing targeted marketing strategies such as email campaigns, personalized offers, loyalty programs, and improving the user experience to encourage repeat purchases.
Relevant – Yes. This goal aligns with the business objective of increasing customer loyalty and revenue without increasing marketing spend proportionately.
Timed – Within the next 12 months, so that strategies can be developed and implemented, and customer buying patterns can be monitored throughout the year.
Limitations of using Average Orders per Month per Customer
While average orders per month per customer is an important metric for assessing customer retention and sales consistency in an e-commerce context, it has several limitations when used for comprehensive business analysis:
- Limited Insight into Customer Value: Average Orders per Month per Customer measures how often customers place orders but doesn’t directly indicate the monetary value of those orders or the customers’ long-term value.
- Not Reflective of Customer Loyalty: This metric does not distinguish between repeat customers and those who place multiple orders within a short timeframe, potentially overestimating customer loyalty and lifetime value.
- Potential Misinterpretation of Growth: An increase in the average number of orders per month may not always equate to business growth, especially if the orders are of low value or if the increase is driven by a temporary marketing campaign.
- Doesn’t Account for Profit Margins: More frequent orders do not necessarily translate to increased profitability, especially if the orders have thin margins or if fulfillment costs are high.
- Impact of Seasonal Buying Patterns: Like most ecommerce metrics, it can be affected by seasonality, with certain months possibly inflating the average due to holiday shopping or sales events.
- May Encourage Inefficient Marketing Spend: Focusing on increasing order frequency might lead to spending on aggressive marketing tactics that could attract low-value orders instead of sustainable customer relationships.
- Risk of Resource Misallocation: Without considering the cost to serve each customer, businesses might allocate resources inefficiently, catering to customers that do not significantly contribute to the bottom line.
- Overlooking Customer Segmentation: This metric alone does not address different behaviors within customer segments, such as distinguishing between those who make numerous small purchases and those who make fewer but larger purchases.
In essence, while tracking average orders per month per customer provides valuable insight into purchase frequency, it must be balanced with other metrics to truly understand customer behavior, profitability, and business health.
KPIs and metrics relevant to Average Orders per Month per Customer
- Customer Acquisition Cost (CAC): This metric helps you understand the cost of acquiring a new customer and can be used alongside the average orders per month to determine the overall profitability of retaining customers versus acquiring new ones.
- Repeat Purchase Rate: This measures the percentage of customers who come back to make another purchase and can give context to the average order frequency.
- Customer Lifetime Value (CLV): CLV predicts the total value a business can reasonably expect from a single customer account. It shows how vital repeat orders are over the customer’s lifespan.
- Conversion Rate: The percentage of visitors to your website that complete a desired goal (a conversion) out of the total number of visitors. A high conversion rate is indicative of successful marketing and web design.
- Order Value: Understanding the average order value (AOV) in conjunction with the average orders per month can provide deeper insights into revenue projections and customer spending habits.
Final thoughts
Monitoring average orders per month per customer allows ecommerce businesses to make informed decisions about marketing, product management, and customer service strategies. By continuously analyzing this metric, businesses can drive growth, improve customer satisfaction, and ultimately increase their bottom line. It’s not just about how many customers you have, but how often they engage with your business. By fostering customer loyalty and maximizing order frequency, companies can achieve sustainable growth in the competitive e-commerce landscape.
Average Orders per Month per Customer FAQ
What does Average Orders per Month per Customer mean?
Average Orders per Month per Customer measures the average number of orders placed by each customer in a month. This reflects the frequency of purchases and helps gauge customer engagement with your business.
Why is this metric important for an ecommerce business?
This metric provides insights into customer loyalty and purchasing habits. Tracking it can help you understand how often customers return to make purchases, which is vital for maintaining a steady revenue flow and for customer relationship management.
How can I improve Average Orders per Month per Customer?
You can improve this metric by implementing loyalty programs, offering discounts on future purchases, or creating subscription-based purchasing options. Additionally, personalized marketing efforts can encourage more frequent purchases.
Can this metric help with inventory management?
Yes, by understanding the frequency of orders, you can predict demand more accurately, which aids in efficient inventory management and reduces the risk of stockouts or excess inventory.
If Average Orders per Month per Customer is low, what should I look into?
A low average may indicate customer dissatisfaction, poor customer retention, or issues with the product or service offering. It’s important to investigate these areas and conduct customer feedback sessions to identify and address underlying issues.