Business-to-business (B2B) leaders project that digital channels will provide more than 50% of their revenue in three years. That means that digital commerce will become the leading revenue driver in B2B. But you don’t have to wait three years to start capturing this growth. To get the most out of digital commerce now, look no further than average order value (AOV) – the average that customers spend on orders. Understanding this key metric will help you to increase revenue over time.
What is average order value? And how do you calculate it?
Average order value (AOV) is the average value of all customer orders over a defined time period, such as a day, week, or month. More personalized experiences connect buyers with products they’re more likely to want. You can increase your AOV with effective cross-selling, upselling, and product bundling.
To calculate AOV, divide your commerce revenue by the number of orders. Higher is better, and many things can impact AOV, such as changes to your product mix, promotions, and digital experiences.
The three strategies behind higher average order value: value, volume, and frequency
While B2B orders placed via an ecommerce solution increased by 44% between January 2020 and August 2020, the AOV of self-service orders was estimated to be about half of in-person purchases. That’s likely because customers are still accustomed to in-person interactions and phone calls. But not for long.
As digital commerce becomes the prominent buying channel, there are three components that work together to increase AOV – value, volume, and frequency. Here’s how we think about them:
- Value is derived from your product relationships, price lists, and up-sell and cross-sell opportunities.
- Volume encompasses things like tiered pricing, bundles, and product kits.
- Frequency pertains to everything from your subscription and loyalty programs to your marketing strategy.
The first step is to look at how your average cart size today compares to your other sales channels. With this information in your backpocket, you can start to pull the three levers to increase AOV.
Let’s look at how these strategies work.
By increasing the value of the units in your customer’s cart, you can deliver a significant revenue impact. Use these two tactics:
Put simply, product relationships give customers additional information about products. These include complementary accessories, and required and related items.
For example, imagine that your company supplies computer hardware and accessories to businesses. You have regular customers who order the same popular products time and again. On your digital storefront, you can showcase related products on the product detail page and make it easy for customers to add the products to their cart in one click. Suddenly, your customer who normally buys computer monitors adds screen protectors, wireless keyboards, and docking stations to their order.
B2B companies that slice and dice customers into size, channel, and cost-to-serve segments can use price lists to drive AOV. A digital storefront allows B2B companies to personalize price lists based on negotiated pricing by customer, ordering patterns, strategic importance, and product lines. So, when a customer logs in to the digital storefront, the customer will see a price list with personalized products and costs.
Take the case of a well-known hygiene, health, and nutrition brand I work with. They launched digital commerce with the goal of creating an easy-to-use and engaging omni-channel experience for pharmacies. They told me that they saw a 38% growth in AOV compared to their previous platform, partly due to personalized orders. These are based on browsing and order history. They treat the storefront as more than just an ordering portal. It’s a one-stop shop with helpful information like ordering dashboards and detailed product content.
It may sound obvious, but higher order volumes lead to higher revenue. Even if you have a lower per-unit cost on an item that customers buy in large quantities, your company benefits because high volumes drive AOV. Here’s how to increase units per transaction:
You can use a tiered pricing model to incentivize customers to purchase larger quantities. For example, if a customer buys 1,000 products, they can get a 5% discount, which will drive a higher cart size. Evaluate customer behavior to determine when buyers will be enticed to increase unit volume orders. With Salesforce B2B Commerce, you can apply tiered pricing strategies using price or percentage adjustments, or fix an absolute price based on each quantity tier.
Let’s say you’re a consumer goods company. If a customer is buying snacks for their health food store, chances are they’re interested in healthy drink options, too, like seltzer or sparkling water. With a bundle, customers get a discount when certain SKUs appear in the cart together. Before creating product bundles, evaluate customer behavior to learn which products are typically purchased at the same time.
Product kits work nearly the same way as bundles, except that there is one SKU instead of multiple. Instead of adding multiple products to the cart, the customer adds one set of products sold together that are fulfilled at the same time. Product kits make for a quick and easy buy.
Digital commerce lets customers research products and place orders as often as they need at their convenience. To drive frequency, you need to use your data to understand your customers and their buying behaviors. Once you do, you can influence repeat purchases and drive engagement in these ways:
For B2B companies, subscription buying models are an easy way to ensure reliable repeat ordering – and higher revenue. Customers love it because they can make one buying decision and get a recurring fulfillment and payment option. Automation adds predictability for customers, and helps your business more accurately forecast revenue.
Loyalty programs encourage repeat business and reduce customer churn. Buy-and-earn or learn-and-earn programs incentivize customers to earn rewards that they can redeem for products and services. This may include transactions or interacting with educational materials that boost customer engagement.
Start increasing your AOV for growth and revenue
Digital commerce is here to stay, and your AOV is a key metric that will impact revenue growth. For more tips on how to drive growth, check our guide and discover Salesforce B2B Commerce to quickly build a digital storefront.
This post is part of our series about how to maximize growth opportunities in B2B commerce.