Acquiring new customers is difficult, so it’s critical to get them to spend more during every visit. Here’s are some tips to increase the average order size.

After Sales and perhaps Orders, the most important performance metric to monitor is Order Size (also known as Average Order Value or Ticket Value). The calculation is simple: Sales divided by Orders. It helps quantify how effectively you convert visitors into revenue.

But what if your Order Size is stagnant — or declining? Here are some reasons for this and actions you can take to improve your Order Size.

Randomness

As with any performance metric, a certain degree of randomness occurs with Order Size. If you’re looking at this metric for a time period of less than a month or two, you may just be observing random fluctuations that are perfectly normal.

Action to Take: Ignore short-term fluctuations. Look at trends over longer periods of time, typically a quarter or more.

Seasonality

Most businesses have a busy season and a slow season, but there can be other seasonal factors that affect Order Size. For example, a coffee shop may get a boost in Order Size by offering premium-priced Pumpkin Spice Lattes in the fall months. Or back-to-school shoppers may temporarily boost your Order Size in late summer. These are normal, predictable fluctuations.

Action to Take: Boost your advertising when you know customers will buy more. This will deliver a better ROI on your advertising budget.

Declining Items Per Order

A metric closely related to Order Size is Items Per Order (Items Sold divided by Orders).  If this metric is declining, your Order Size is probably declining as well.

Price increases can lower the Items Per Order, as customers may have financial limitations or a “mental block” that limits their spending above a certain level. For example, a customer who isn’t used to paying over $50 for a tank of gas might limit their purchase to $50 for one or both of these reasons — even if they need a full tank of gas. For the same reasons, a cafe visitor may order their usual latte but skip the muffin.

Here’s an example of a price increase for a cupcake shop that had no impact on the number of cupcakes sold in each order. This shows the customer base was not price-sensitive at this new price. A negative trend in this chart would indicate the price increase was too large or perhaps occurred too soon after the last price increase.

Changes to volume discount promotions can also impact the Items Per Order. If a donut shop discontinues its “Buy 5, Get 1 Free” special, the number of customers buying just 3 or 4 donuts (instead of 6) will likely increase. Perhaps this results in greater profitability and is a positive change for the business, but that isn’t always the case.

Action to Take: Carefully analyze changes to prices and promotions to see how they affect customer behavior. It’s easier to notice when you completely lose price-sensitive customers, but use a business intelligence tool to help identify when your loyal customers reduce the number of items purchased.

Alternative Products

In addition to changes to prices and promotions, a downturn in your customers’ disposable income can cause them to buy less expensive products from you, thus lowering your Order Size. 

Examples include customers skipping the extra shot in their latte or buying cheaper tires from your auto shop. These cheaper alternatives allow you to maintain your customer base, but you will generate less revenue from each visit.

Actions to Take: Reduce the price gap between the most expensive and least expensive options for related products. In the latte example, instead of charging $5.00 for the standard latte and $1 for an extra shot, perhaps the prices should be $5.00 and $0.75. Or, if you’re increasing prices, raise the price of the standard latte to $5.25 and reduce the price of the extra shot so the highest-priced product remains at $6.

Another option is to focus on differentiating related products. If customers think “a tire is a tire,” they’re more likely to buy the cheapest one even if they believe the expensive one is slightly better. If they believe the expensive one is much better, you’ll maintain more of those sales during an economic downturn. Highlight the premium features to justify the premium price.

Lack of Premium Products

Along those same lines, make sure you offer clearly differentiated tiers of products. The simplest example is drinks in small, medium and large sizes. Even if no one ever buys the large size, it will help justify a higher price for the medium size. This is often called the decoy effect and works across all product types. The pricing of movie popcorn is a perfect example of this effect.

Premium products may also attract an entirely new audience for your business. Some people have a strong “premium price = higher quality” bias, so they may not visit if your prices are reasonable (and therefore “lower quality” in their minds). This audience tends to have more disposable income, so this is another good way to grow your business.

Action to Take: If your products cluster around a similar price point, add a premium tier of related products.

Lack of Product Diversity

Let’s say you own a coffee shop that only sells premium espresso drinks. This will create exclusivity for your business that may attract a very specific target audience, but it will also turn away potential customers and — more importantly — other members of your customers’ families and circle of friends.

For example, some people may prefer brewed coffee or tea, while kids may prefer hot chocolate or juice. And many may want food options. Expanding your product diversity will increase your Order Size by encouraging families and larger groups of friends to visit your coffee shop.

Actions to Take: Review your product selection to see if you could appeal to a broader audience without impacting your brand and customer experience.

Lost Upsell and Cross-Sell Opportunities

Staff shortages have resulted in new hires who may not be skilled at selling (and upselling), so training is critical. Every customer-facing employee is effectively a salesperson and should be trained like one.

Every small business should have its version of McDonald’s: “Would you like fries with that?”. If you sell running shoes, ask if they need new socks. If you sell take-out food, ask if they want something to drink. 

If your key products don’t have a natural up-sell or cross-sell option, expand your product selection to include these options. Add-on products are often very profitable, so they will increase your Order Size and profitability.

Actions to Take: Train employees to up-sell and cross-sell products and services. Find related add-on products if needed.

Next Steps

Keep an eye on your Order Size, especially after you increase prices or change promotions. Order size is a good measure of your business’s strength, and it can also be an early indicator that something is going wrong.

Next Up: Product Profitability: A Simplified Approach to Quickly Boost Profits

All screenshots are taken from Sprk™ using either fictitious data for illustrative purposes or real data used with permission.