The secret weapons of revenue growth: frequency, average order value (AOV), and conversion.

In the previous article, I mentioned the five obstacles to growth. With practical tips, you can overcome these obstacles. I outlined in that article what you can do to prepare your online store for growth. Then I explained what the four levers of revenue growth are for your online store.

Buying Traffic is the Most Expensive Option
Of the four levers at your disposal, increasing paid marketing channels is by far the most expensive option and certainly not a guarantee for success. That’s why in this article, I share how you can use frequency (the number of times a customer purchases), AOV (the average order value of a customer), and conversion as secret weapons for growth in 2021. Let’s dive deep!

Frequency, AOV, and Conversion as Your Secret Weapons
In this article, I delve into three underutilized levers: increasing frequency, AOV, and conversion. My experience is that 80% of online stores start by buying more traffic and then try to improve conversion.

What if you flipped this process? Start with the frequency and AOV of existing customers, and you’ll be ahead of 80% of your competitors!
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Growth Formula: What Was It Again?

What was it again? The formula for growth is: F x AOV x CR x T = revenue.

You have four growth levers available: Frequency (F), Average Order Value (AOV), Conversion Rate (CR), and Traffic (T).

Example Calculation of the Four Levers

Let’s put this formula into practice. Suppose an online store has 100,000 visitors, the conversion rate is 1%, and each customer places 1 order worth €100:With the formula, the revenue would then be 100,000 X 1% X 1 X €100 = €100,000.

With the formula, the revenue would then be 100,000 X 1% X 1 X €100 = €100,000.

Perhaps you’ve already tried to increase individual levers. You might have bought more traffic or tried to improve your conversion. The big secret of online growth is that increasing the three levers in small steps is much more achievable and yields significantly more results. I will explain this to you using this calculation example.

The Secret to Doubling Revenue in 2021

Albert Einstein referred to this as the 8th wonder of the world: compound interest.
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“Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.” — Albert Einstein

That’s exactly what we’re leveraging to double your revenue by increasing individual levers by just 30%. Here’s the proof:

How Can This Be?
The levers reinforce each other: a 30% increase in customers is step one. But if you manage to increase frequency and average order value, you do that for both new and existing customers.

If you increase the three levers individually by 30%, it results in more than a doubling of your revenue! And that’s without doubling your marketing costs. :)

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Focus on Individual Levers, But Keep the Big Picture in Mind

In my previous article, I mentioned that focus is very important. There is a nuance to this. Don’t get too fixated on one individual lever. Shift your focus from lever to lever. Leverage the 8th wonder of the world.

An Example
Focus for a month on one of your levers, such as conversion. Then concentrate on one of the pages of your funnel. Where are the most opportunities? Once you’ve implemented the improvements, stop. Zoom out and spend a month working on the next growth lever. If you only focus on one individual lever, your efforts will not reinforce each other.

The tips I’m about to share should be viewed within the broader picture of the three growth levers working together.
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Increasing Your Frequency

In the quest for new customers, retaining existing customers is often completely overlooked. Nothing proactive is done to (re)activate this group, while this lever is extremely powerful.
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To Make a Profit, You Need Repeat Customers

The reality is that most online stores make little to no profit on the first sale and only start earning with the second sale, at least if they can move the existing customer to purchase through a cheaper channel.

Break-even on the First Order…
Suppose the cost of acquiring a new customer is €15, and the average order value of their purchase is €30. Your cost price is €15, so your profit at that moment is a simple calculation: €30 - €15 - €15 = exactly zero.

… and Profit on Your Second Order
When you can get a customer to return to the online store through a low-cost channel (like email) and they place a second order for the same product, it looks much better. The cost (for email) is virtually €0. Your cost price remains €15, and the average order value remains €30. In this case, you have €30 - €15 - €0 = €15 profit.

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Repeat Customers Yield a 25-95% Increase in Profit

This research from Harvard Business School shows that a simple 5% increase in customer retention can mean a 25% to 95% increase in your profit. You can read more about that in my previous article.

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Research from American Express shows that repeat customers (over a longer period) have a higher frequency and a higher AOV than newer customers. The intensity increases as you build a relationship with your customers. Additionally, customers with a higher frequency are much quicker to refer others.

An Example:
The customer group that has bought from you a total of 10-20 times visits you more frequently per year, and individual transactions are higher. They purchase more often and spend more compared to the customer group that has bought from you 5-10 times. You build a relationship, and people become loyal customers.

Finally, depending on which research you follow, acquiring a new customer costs you between 5x and 25x more than retaining an existing customer. I rest my case. ;)

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Use Email Marketing Automation to Increase Frequency in 2021

The most effective way to increase your frequency is through email marketing. And not just a newsletter, but triggered emails based on behavior. You can send different emails to customers who have purchased more than 10 times than to new customers. This way, you build a relationship and show that someone is not just a number—even though your customers shop online and don’t see you. Email marketing automation is a whole topic in itself. You can read more about it here.

Increase Your Frequency by Serving Your Customers Better

You’re probably wondering how you can increase frequency yourself. You do this by answering this question:
What does my customer need in the future?

This could be a new need based on their previous purchase or a recurring need. Think of offering complementary products (tennis racket → tennis balls), monthly reminders that they need to replenish a product on time, or implementing a loyalty program where they can earn points.
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Increase Your AOV

Frequency is about increasing the total revenue from one customer. AOV is about individual transactions. How can you ensure that your customer adds more to their shopping cart? Checkout deals in supermarkets are a good example of this.

Increasing AOV is one of the best ways to lower your “break-even” point and increase ROI (return on investment). In short, this can increase your profits or free up extra money for product development or advertising.

How to Calculate AOV
You can find your AOV in Shopify, of course. But before we proceed: how do you calculate AOV?
AOV = (Total Revenue / number of orders)
Total revenue divided by the number of orders. If your revenue is €100,000 and you needed 10,000 orders for that, then the AOV is €10.

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By Increasing Your AOV, You Gain Room to Invest

As early as 2006, Amazon indicated that 35% of their revenue came from the AOV lever. Imagine: a 35% improvement in the revenue of your business with the visitors and customers you already have? Unfortunately, many e-commerce businesses do not focus on this lever at all. Some don’t even know what their AOV is or see AOV as a result instead of a lever for growth. Why? I suspect this is due to what I mentioned earlier: the wrong and absolute assumption that you need more visitors to grow.
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Two Ways to Increase AOV

There are only two ways to increase AOV:

• By getting customers to buy more products per order, or
• By getting customers to buy more expensive products per order.

How you do this can vary from very simple to very complex. To help you get started, here are some options:

• Increase the Threshold for Free Shipping
  A very simple way to do this is to raise the amount for free shipping. For example, take your current AOV, add 10% or 20% to it, and set that as the minimum order amount for free shipping.
• Time or Stock-Sensitive Deals
  This can be done by creating a sense of scarcity with a deal where you receive a discount or an extra gift that is only temporarily available or in limited stock. Think of “Product Drops” with limited editions.
• Cross-Sells
  Show complementary products that are relevant to a visitor. Think of recommendations, checkout deals, shop the look, others also bought, etc.
• Upsells
  Show better (more expensive) versions of the same type of product and motivate visitors to choose the better option.
• Bundles / Sets
  Identify which products are frequently bought together, either directly or after a certain period. Check your data for

Loyalty Program to Increase Both Your AOV and Frequency in 2021

Did you know that adding a Loyalty Program or using email effectively can both have a positive impact on your AOV? Ask me about it if you're curious!

Increasing Your Conversion

Step 1: Research

Before you get started, you first need to know what you're working with. The conversion research is therefore divided into two parts: quantitative and qualitative. A quantitative study is numerical, such as Google Analytics research. What is going wrong (and right), where, when, how often does it happen, and how much does this cost (or how much could it yield)? Once Google Analytics is properly set up (I encounter issues in 95% of cases) and you are 100% sure that your data is accurate, you can start to look at where most people drop off and leave your website.

But then you still don’t know why. With qualitative research, we try to find this out. This could involve user studies, website polls, surveys, and mouse tracking analyses.
“Only after you are 100% sure of the quality of your data can you get to work.”

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Step 2: Analyze

After the research, we have a substantial list of issues and areas for improvement. For example, you might see in analytics that there is a high drop-off rate of visitors at the last step of the checkout. Or from the poll you set up, it emerged that customers find the payment options unclear. In the mouse tracking, you then see that they keep going back and forth between all the options.

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Step 3: Formulate Solutions

Now that you know what’s going wrong and why, you can thoughtfully consider how to best solve the various issues that hinder conversion improvement. Since you can’t tackle everything at once, you’ll need to prioritize your solutions. One way to do this is by using the PIE framework. PIE stands for Potential, Importance, and Ease:

• P = How much improvement is possible?
• I = How important is it?
• E = How much time/money does that improvement cost?

By filling out the PIE score for each point (on a scale of, for example, 1-10), you’ll see which points are the most important. Besides PIE, there are also other frameworks you can use, such as ICE or PXL. Feel free to ask me for more information on this.
“Tip: try to come up with at least two solutions per issue whenever possible. This way, you avoid getting stuck and increase your creativity.”

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Step 4: Implement

Do you encounter bugs or other technical issues, such as low speed or compatibility problems? Great! Because you can address those directly. Those are real quick wins. Other adjustments that relate to influencing the behavior of your visitors are better tested through A/B testing first. This will help you determine whether they indeed represent an improvement for your webshop and your conversion.

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Conclusion

Hopefully, I’ve inspired you with enough tips to start working on your growth in 2021. Avoid the pitfall of wanting to do everything at once. Look for where you can make the biggest impact with the least effort. By maintaining the right focus, you’ll achieve more than trying to do everything at the same time.

Start with frequency and AOV, so you’re ahead of 80% of your competitors. Then focus on increasing your conversion. If you want to read more about this, I’ve created an ultimate checklist to increase your conversion.

You can find the conversion improvement guide here.

As a final step, buy more traffic. This way, you’ll double your revenue without doubling your headaches.
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Good luck!P.S. Want to learn more about the 2x growth formula? We have a free eight-part email course where we dive deeper into this.