Are you trying to increase your average order value (AOV)? This episode is for you! Caden Thompson, one of our brilliant Google Ads Strategists, sits down with Nathan Perdriau to discuss AOV—its complexities, common misconceptions marketers have about it, what you should understand, and how you should approach it so you can make informed decisions for the success of your Google Ads campaigns. Listen to this episode to learn about:

- How simply looking at the AOV in Shopify doesn't provide actionable insights

- The nuances of AOV

- New customer AOV vs. returning customer AOV

- Strategies to increase AOV

- Relationship between initial purchase price and repeat purchase rates

Nathan Perdriau is the Co-Founder and Head of Paid Media at Blue Sense Digital; connect with him and Blue Sense Digital here:

Blue Sense Digital website: https://www.bluesensedigital.com.au/

Nathan on LinkedIn:  

 / nathan-perdriau  

YouTube channel:   

 / @bluesensedigital  

Podcast:   

 / @blues-brothers-podcast  

Related videos:

💣 Deep Dive Into Contribution Margin and Why It's Important in Marketing:   

 • 💣 Deep Dive Into Contribution Margin ...  

💰 Why You Should Increase Your Average Order Value (AOV):   

 • 💰 Why You Should Increase Your Averag...  

🔥 The Move to a One-Click World and How It’s Changing the Agency Space:   

 • 🔥 The Move to a One-Click World and H...  

🚀 Measuring Ad Success: Key Business Metrics Beyond CPA and ROAS:   

 • 🚀 Measuring Ad Success: Key Business ...  

🚀 Mastering Key Business Metrics to Boost Revenue:   

 • 🚀 Mastering Key Business Metrics to B...  

0:00 Intro

0:21 Is AOV the Solution?

5:23 New customer AOV vs returning customer AOV

8:32 The common misconception marketers have about AOV

12:56 Relationship between product pricing and repeat purchase rates

👉 Get free guides, templates, SOPs, checklists, and worksheets to help you grow your business: https://sol8.com/free-stuff/

👉 Get our latest content every Monday, straight to your inbox. Sign up for our newsletter: https://sol8.com/newsletter/

👉 Join our You vs. Google Mastermind to get exclusive access to weekly calls and Q&A sessions, insider resources and training, and a private Slack group: https://youvsgoogle.com/

🔥 Get your copy of You vs. Google: The (Very) Unauthorized Guide to Google Ads

on Amazon here: https://www.amazon.com/dp/B0BWSNLNRN

👉 WOULD LIKE TO SCALE AND GROW YOUR BUSINESS WITH PPC?

Sign up for a FREE Action Plan today: https://sol8.com/ap/

Solutions 8 is a global authority in the Google Ads space and one of the world's leading PPC agencies.

Our YouTube channel is dedicated to sharing our most effective marketing strategies to help you achieve your business goals.

--------------------------------------------------

Connect with Kasim here: https://smartlink.metricool.com/publi...

⬇️️ You can find us here ⬇️️:

Website: https://sol8.com/

Twitter:  

 / solutions_8  

Instagram:  

 / solutions_8  

Facebook:  

 / solutions8llc  

LinkedIn:  

 / solutions-8  

#googleads #digitalmarketing #googleadsbestpractices #ppc

Average order value in Shopify, that metric by itself doesn't

2

really tell you anything in terms

of actionables off the back end.

3

And so when you look at that number and 80

or 90, it's not really telling you much.

4

And so you can break

it down a step further.

5

Hey, how's it going, everyone?

6

So we're back again with Nathan.

7

and he just been, getting blown

up by all the comments and

8

like people reaching out to us.

9

we want to hear more about what's going

on with PNLs, how to understand and

10

demystify everything that CFOs talk about.

11

and so when it comes to marketing, it's

not just about running Google ads a

12

certain way or Facebook ads a certain way.

13

It's about actually

understanding the business.

14

and so Nathan's a really good resource

for both me and other people at

15

Solutions 8, to have chats about,

more of the, back and finance side

16

of things and how that kind of comes

into, place with, marketing as a whole.

17

now I think we're going

to talk more about AOV.

18

and when I think of AV, I just think of

average order value, the type of customer

19

and more of the psychology behind it.

20

But, yeah, I just wanted to hear your

thoughts on that and also welcome back

21

and, yeah, let's jump right into it.

22

Thank you.

23

Thank you for having me back.

24

Looking forward to it.

25

I thought AV would be a good topic

for this video because I think it

26

encapsulates well, the lack of a deep

understanding of e commerce analytics.

27

by most e commerce operators, as

well as even, performance marketers

28

that are actually in the field.

29

And this isn't to say that you need

to have this deep of an understanding

30

of each individual metric, but it

should help you uncover that if you

31

do have an AOV problem, or if you've

tried to increase average order value

32

in the past through a threshold or

through a bundle, and it hasn't worked

33

like what we're about to run through

should hopefully contextualize why.

34

All right.

35

and give you a better understanding of all

of the levers on the average order value

36

and how complex it actually is so that you

can make a more educated decision on how

37

you're going to try to fix it or whether

you even need to fix it within the context

38

of the unit economics of your brand.

39

So to start would be, average

order value in Shopify.

40

That metric by itself doesn't

really tell you anything in terms

41

of actionables off the back end.

42

And so when you look at

that number and 80 or 90.

43

It's not really telling you much.

44

And so you can break it down a step

further and you can look at new customer

45

AOV versus returning customer AOV.

46

And that starts to tell you a

little bit more because those

47

two numbers are very different.

48

And for almost every

brand, they're different.

49

And the reason they're different

is because Of usually two parts.

50

The first part is customers don't

have the ability to return and

51

spend more money because of the way

that the product suite is set up.

52

And so they might sell a wallet, but

then the only product that anyone

53

can come back and buy is like a pen.

54

And so the returning customer

average order value was really

55

low, but the first time customer

average order value was really high.

56

Or vice versa, maybe they do have a really

large skew of products and they have, I

57

don't know, a thousand different products.

58

What will always be the case is returning

customers will have a higher AOV.

59

And that's because they have

increased purchasing power because

60

they already trust the brand.

61

They've experienced the brand,

they liked it, they're coming back,

62

they're willing to spend more.

63

and so they're much more

likely to be upsold and spend

64

two, 300 on the initial 150.

65

And so now you start to have a little bit

more of a nuanced understanding of, okay.

66

When we say increase AOV, we're really

trying to increase either new customer

67

AOV or returning customer AOV, and they're

two very different problems because the

68

consumer psychology on returning customers

is very different from the consumer

69

psychology on people that are just

entering into the brand and the website.

70

it goes even a step further to

that, which is that AOV is a mean.

71

So it's an average output of the dataset,

but the average tells you nothing

72

because it doesn't show you the cohort

distribution of the customers over the,

73

the cohort of customers over pricing.

74

And so when you look at the actual

cohort, your majority of brands,

75

once again, you'll usually see that

there's a bimodal distribution.

76

And so average order value

doesn't look like up to 80 and

77

then back down on the other side.

78

It'll be a peak at 40

and then a peak at 100.

79

And so now if you think that there's a

peak at 40 and a peak at 100 and you're

80

trying to move an 80 AOV, you're not

going to move it correctly because you

81

don't understand where the cohorts sit.

82

If you want to move 80 up to 100, and

we've done this for multiple times for

83

multiple brands, it's not by setting

a 100 free shipping threshold, it's by

84

setting a 50 free shipping threshold.

85

And you get that doesn't.

86

Why that doesn't make sense because you're

sitting at way under what it currently is.

87

But it's because we're

moving the lower cohort up.

88

And if we can drag that bottom cohort

upwards to 60 to 70 dollars, then

89

suddenly the average moves to 100.

90

it's only through looking at cohort

distributions and then breaking it

91

down by new customer and returning

customer that you can start to make

92

really educated decisions on how you're

actually pulling individual audiences and

93

moving them around on that cohort graph.

94

I guess more so a question for, agencies,

because, I would think email marketing

95

is probably more geared towards return,

whereas pay is gonna be more geared

96

towards, actual top of funnel traffic.

97

have you had instances or have, said,

Hey, like we need to increase our

98

bottom of funnel on, let's say Facebook.

99

Or, and that actually translates

to, an increased AOV on, the top

100

line numbers for return customers.

101

Or do you think that's something that

people should leave more so for like

102

sales and email and that side of things?

103

Yeah.

104

for sure.

105

I've seen it.

106

it depends.

107

It's very brand specific.

108

generally as a marketer on paid

ads, I would be KPI'ing yourselves

109

around first time customer AOV.

110

returning customer AOV is normally

going to be predictive of where you're

111

driving traffic to through emails.

112

And so if you're driving traffic to lower

end products or to individual product

113

pages, you'll generally see lower AOVs.

114

It doesn't allow the consumer to increase

the discoverability of other products.

115

so that's a really interesting

insight in itself, which is that.

116

Consumers that come from email are already

highly likely to buy because they've

117

already experienced the brand, they've

made the click, they're very high intent.

118

If you silo them into a single

product, they're just going

119

to buy the single product.

120

But if you drop them onto a collection

page where there's now 10 products,

121

normally, in regular, buying psychology,

you would go, that's too many options,

122

they're not going to be able to choose.

123

But in this instance, they're

already super high intent.

124

And so now, it's not going to go,

they can't choose, it's going to go,

125

how many are they going to choose?

126

And so that's when you start to

see an increase in like units per

127

transaction within individual orders.

128

And that's when you'll see the

uplift in returning customer AOV.

129

it makes sense.

130

cause of the same mindset of,

we're paying for all this traffic.

131

Let's maximize the potential of

the traffic, let's try to optimize

132

for new customers, not repeat

customers and trying to increase AOV.

133

We have other channels for that, right?

134

obviously you can run email

sales, all that kind of stuff.

135

Yeah.

136

But I think one of the most interesting

points too, that I think we can maybe,

137

I guess just be aware of, is that when

someone buys more of your product,

138

depending on what business you have,

so if it's a clothing brand, let's

139

say, you can pair other products

together in the remarketing side of it.

140

So the hero product might be like,

a shirt or, pants, whatever the case

141

may be, bundle that all together.

142

And then on the return you have, like

you said, that full collection, to

143

where they say, oh, complete the,

the look by getting, this, and this.

144

and then it makes a lot of sense

from a returning standpoint versus,

145

just purely going after the same

customer again and again, because

146

clothing is extremely competitive.

147

and so I think it makes a lot of sense

on just trying to get the entry point

148

AOV up, because I assume if someone buys

more on the first time order, they're

149

going to buy more on the second time

order if it's, a product like that.

150

And this is a really common misconception

that I see a lot, which is, Okay, you

151

shouldn't optimize for the highest

average order value on first purchase

152

because that's smaller end product that's

only 40 that might drive better LTV.

153

Not true.

154

Like it's never true.

155

it's so rarely the case because if you're

looking at lifetime contribution margin,

156

you're not If you maximize first order

contribution margin, most instances,

157

that's 50 percent of the lifetime anyway.

158

And so if you can make sure you're getting

as much revenue or as much margin on

159

that first order, that's significantly

going to inflate the LTV of that product.

160

And so it's very rarely the case that

you'll go, okay, a 40 product is going

161

to drive better LTV than an 80 product.

162

Just maximize for average order

value on first purchase, because

163

that scenario is so unlikely.

164

Okay.

165

and then what you were talking about

there was really like the next level of

166

average order value, which I don't think

many people look at, but intuitively a

167

lot of people understand it, which is

that to increase average order value,

168

we need to have more items in cart.

169

We need to have people buying more,

we need them buying two, or we need

170

them putting other products into

their carts that have increases.

171

Fundamentally, you can calculate average

order value at an individual unit level.

172

Based on average unit retail, which

is the average price of a product,

173

times units per transaction, which

is how many products are in the cart,

174

plus 1 minus return rates, plus 1

minus discount rates, so that's just

175

taking returns off, taking discounts

off, and then plus shipping collected.

176

Because within e commerce,

you also collect shipping.

177

And so that's a part of

the average order value.

178

equation and the final

number that you get.

179

And so when you start to look at

those five levers, because anytime

180

you have a metric and you're trying to

move it, it all depends on the levers

181

that are the subsets of that metric.

182

Shipping collected, not really

much control over returns, not

183

really much control over discounts.

184

You can control, and that's what

we talked about in the last video.

185

So I would make sure you're

not discounting too heavily.

186

average unit retail, so the price,

you've got control of that, but most

187

brands don't want to move their pricing.

188

And also, it's risky because of

the elasticity of demand that might

189

exist with their current price.

190

And so that's, that is a lever,

I understand that you can

191

change that, but not a huge one.

192

And so what you're ultimately left

with is units per transaction.

193

If you want to increase average

order value, you need to

194

increase units per transaction.

195

And so if you can track units per

transaction as an Ecom operator as

196

well, and then you can KPI around that's

going to be the predictor of what your

197

average order value ends up looking like.

198

and then you can get really nuanced with

this, was like, I just feel my brain

199

exploding with information, topics to

talk about, but no, it makes sense.

200

I think from a implementation standpoint,

something as simple as with the mindset,

201

like you just said of like increasing the

overall products that you're trying to

202

get someone to have added to their cart.

203

I'm trying to increase the amount of

investment they have put into the actual

204

company, because yeah, like for some

reason people think Oh no, they spent

205

more money, so they're not going to

spend more on the second transaction.

206

It's like people's money with you

is investing in like your company.

207

Is not a finite number, It's variable.

208

You don't know the

situation of the person.

209

You don't know if this is going

to be like, they're testing it out

210

and then they want to get more.

211

it could be a one off by we don't

have that information, right?

212

So why not just maximize that

first initial touch point?

213

And then just by the basis of

psychology, if someone's more

214

invested in your brand itself.

215

They're going to buy again, if it's

a good product and that's the key,

216

obviously is having a good product,

but you still get that, from a initial

217

marketing standpoint, you get that profit

up front and then you can use that to

218

increase, scale, wherever the case may

be, just makes things a lot easier.

219

And then the return AOV is obviously a

whole nother, area, like you were talking

220

about, that's more of, like you could say

the icing on top of your leverage points.

221

to focus on outside of just the,

paid marketing set of things.

222

completely makes sense.

223

But, I can just see how, we can rabbit

hole on this for hours and hours.

224

maybe we'll have another though,

talking about AOV and like sales.

225

I think that might be cool.

226

but yeah.

227

Anything else you wanted to

add to, the topic of AOV?

228

No, the only one is you made a really

interesting point there and I might

229

actually go and pull some data on

it, which is that, what you said was.

230

the higher price the item that,

consumer buys on first purchase,

231

the higher likelihood of repeat

purchase rates being higher.

232

and I think that's actually a really

interesting concept because technically

233

speaking, the higher price an item is

across a brand, generally speaking,

234

the more value the product's driving,

because pricing of a product is generally

235

indicative of the value of the product.

236

And so if people are buying a more

valuable product, it generally

237

should drive them more value.

238

And so then they should likely.

239

Repeated higher purchase rates.

240

And so I'm actually going to pull data

on that to see if that actually holds

241

across like 10 to 20 different brands.

242

But that's really interesting is

drive people to the premium product.

243

Cause if they experienced the premium

product, they're more likely to buy it

244

now because they had a better experience.

245

it all depends on your

business model too, right?

246

If you have a consumable,

then makes a lot of sense.

247

If you have a one off buy, then

probably doesn't make as much sense.

248

So I think that's another caveat

to add to the equation is.

249

Making sure it's the right business

for that to actually be possible.

250

But, yeah, I think it

makes a lot of sense.

251

So a lot of levers to pull outside

of just marketing, not just in

252

the marketing side of things.

253

So if you're a business owner and you're

like, Hey, I want to try to squeeze more.

254

I don't think this agency is

doing X, Y, Z, or, there's

255

something that I want to change.

256

Then, cause I know I have a

lot of business owners that

257

say I want to change something.

258

Like we need to move something.

259

We need to have an adjustment.

260

It's like focus on these concepts to

then change the back end of the business.

261

And then have that trickle out to,

for example, the marketing side of it.

262

I think that makes a lot of sense.

263

Yeah.

264

So anyways, thanks again guys.

265

And we'll probably have some more

videos coming out here soon, whenever

266

you guys want to learn more about

financial stuff and have your head

267

explode, Nathan's the guy for you.

268

where can they find you?

269

blue sense digital on YouTube.

270

So I'll give you the link.

271

It'll be in the description,

blues brothers podcast.

272

If you want to listen to that long

format and then my LinkedIn, which

273

is Nathan Padreo, alright, perfect.

274

Thanks again.

275

See you guys.

276

Thanks Caden..