First Order Value

The traffic on your website is high. The conversion rates are good. But are your order values great as well? The Average Order Value (AOV) is a useful metric that you should monitor as your business grows. Typically, this is one of the first KPIs you should try to improve to increase your revenue or optimize the return on your marketing efforts. But let's dig a little deeper into the AOV analysis and have a look at the impact of the first order's average value on the order count.

Definitions

First of all, let's define what Average Order Value (AOV) means: it is the sum of total Gross Revenue divided by the number of orders placed by the customer throughout their lifecycle.

AOV = ∑ Sum of Gross Revenue / Number of Orders

Using this report, you will find out if there is a correlation between the order value of the first order and the total number of orders your customers will make throughout their lifecycle, considering that AOV has a direct impact on their LTV.

But before diving into data analysis, let's make sure that we are on the same page:

In the data table below the chart, you can see how the percentiles are defined, the average amount of orders within each percentile, and how many customers fall within each group, and their LTV:

How it Works

First of all, this report takes a look at all your customers' first orders and classifies their order values: it divides them into equal-sized groups, building percentiles. Then it numerically ranks a customer based on their first order value and it places them into the different percentiles according to their AOV. 

Finally, it is only a matter of calculating the average number of orders for all the customers within each percentile.

Let's have a look at an example by considering a sample dataset of customer transactions: 

For each percentile the average order count is calculated:

Use Cases

While searching for relevant KPIs, it is always a good idea to choose AOV as one of them: it provides a lot of insights and is focused on the customers that have already bought from your store.

So, by taking a look at this report you will get the answer to some of the most frequently asked questions:

• Is there a correlation between the initial basket size and the total number of orders a customer will make in his customer life cycle? If so, how big is it?
• Acquiring customers with higher AOV (for example, while setting a minimum amount for free shipping) is having an effect on retention? Or is it just causing one-time buyers that make a big first purchase and then churn?
• Does it make sense to have orders with small baskets? 
• Customers with higher AOVs have more orders throughout their life cycle, but how many customers fall within this percentile? Is it a relevant part of my customer base?

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