How a high average order value (AOV) affects your return on ad spend (ROAS)

In the world of e-commerce and digital marketing, average order value (AOV) and return on ad spend (ROAS) are two key indicators that determine the success of your advertising strategies. Many companies focus heavily on ROAS to measure the efficiency of their advertising spending. But a strong focus on AOV can also result in significant gains without the need for an extremely high ROAS. In this post, we'll discuss how an increased AOV can enable you to achieve profitable results, even if your ROAS is moderate.

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The impact of AOV on profitability

The average order value is an important indicator of how much money customers spend on average when making a purchase. A higher AOV means that every customer is spending more money in your shop, which directly results in higher revenue per transaction. This has the advantage that you don't need as many transactions to generate significant revenue, and your marketing spending can be allocated more efficiently.

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Less pressure on ROAS

If your AOV is high, you can afford to work with a lower ROAS and still be profitable. For example, an ROAS of 1.8 to 2x may not be considered particularly high, especially when industry standards are higher. However, if your AOV is strong, that seemingly lower ROAS can still result in high overall profits. A high AOV gives you more flexibility in your pricing and advertising budgeting, as every customer you convert contributes more to your overall revenue.

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Strategies to increase AOV

To increase your AOV, you can use various strategies. Cross-selling and upselling are proven ways to get customers to buy more items per purchase or opt for higher-quality alternatives. Bundled offers and volume discounts can also boost AOV by offering customers an incentive to buy more to benefit from a better deal.

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Implementation and measurement

In order to successfully implement these strategies, it is important that you analyze your data precisely and understand which products have the potential for higher order values. It is also crucial to continuously monitor and measure the impact of these changes on AOV to ensure that the implemented strategies deliver the desired results.

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Conclusion

Focusing on average order value as the main metric of success can be an effective strategy to maximize profitability without necessarily having to maximize ROAS. A strong AOV allows you to offset lower ROAS levels and still achieve healthy profit margins of 20-40%. By increasing the average order values of your customers, you can create a solid basis for sustainable growth and profitability in your business.