Dropshipping is a method of selling e-commerce products without having to own inventory. We’ll be explaining drop shipping in this article.
Dropshipping: What does it mean?
Dropshipping is one of the most popular shipping models in modern times. Dropshipping allows a company to operate without its inventory and does not require a warehouse.
Dropshipping does not require that products be shipped to customers.
Who then does all that?
Its retail partners or drop-ship suppliers manage the supply chain. The supplier would distribute or manufacture the products, maintain inventory, and ship it to you on your behalf.
Dropshipping is where a store owner sells a product, but doesn’t keep it in the store.
The vendor purchases the product from him and then asks for the shipping address. The store owner does not see the product he sells.
He simply passes on the orders to vendors as he gets them.
It is crucial to understand how your online store is performing so that you can develop your ecommerce business. You need to be familiar with the key metrics that will help you understand your online store’s current status and identify areas where you can improve. The Average Order Value (AOV) is one of the most important metrics. It is actually one of the most important metrics in the entire ecommerce industry.
What is the Average Order Value (AOV), and how does it relate to your order?
The average order value (AOV), an ecommerce metric, shows how much each customer spends on each transaction in your online store. How do you calculate the average order value? You need to divide your total revenues by the number order in order to calculate the average order value for your store.
Let’s take an example. Let’s suppose that you have a total revenue in April of $25,000 and that your total orders account for 1,000. Your average order value would then be $25.
Your average order value is measured by the revenue per order, not the revenue per customer.
An essential component of any online business is the AOV. It shows your customers’ purchasing habits. You will need to figure out how to get your customers to buy more or more expensive products in order to increase your AOV.
You’ll get more profit if you invest more in this metric. Additionally, key indicators such as ROI and ROAS (return of adspend) will increase.
The most important aspects of your business: AOV
The increase in your AOV will not only boost your revenue but also impact other aspects of your business.
You can evaluate your current AOV to determine if there are any areas you should improve. You’ll also get a better understanding of your customers and their behaviour. When assessing the state of your business, AOV is an important metric.
Conversion costs
You are likely losing revenue if you have high conversion costs and a low average order value. If conversion costs are $30 but your average order value is $30 or less, it’s a sign that your business is struggling and you should change your business strategy immediately.
Your AOV should be at least twice as high as your conversion or customer acquisition costs.
Advertising
How much advertising are you spending and how does it affect your average order value?
If your expenses are higher than AOV, it is likely that it will cost you too much to get a customer. You must always check to see if you are making any profit after the sale has been closed. Think about your options.
- Advertising costs
- Shipping costs (if applicable)
- Ordering products
Pricing strategy
Your AOV can be affected by the price of your products. Your pricing can be adjusted depending on whether your online shop is luxury or economy. It can be detrimental to your entire business if you are somewhere in the middle.
Because it provides metrics that allow you to measure and understand the value of each customer, average order value is important. It also helps you assess the effectiveness of your marketing strategies.
How to increase your average order value (AOV).
These strategies can help ecommerce companies increase their average order value.
- Shipping free of charge
Offering free shipping is one of the best ways to increase your average order value. You can offer free shipping for orders above $60.
Experienced ecommerce entrepreneurs say it’s best to set a threshold that is 30% higher than your AOV. If your AOV is $100 you can add the 30% to get $130 shipping threshold.
This idea can be used in a smart way by adding notifications to customers’ carts when the total order doesn’t reach the required amount to qualify for free shipping.
- Product discounts
Discounts are another way to increase your AOV. This is where it’s important to set a minimum purchase amount to get a discount. A minimum of $5 off a purchase of $50.
Volume discounts are also possible. You can get $5 off your purchase of $50 or more, $15 off your purchase of $100, $25 off your purchase $150, and $25 off your purchase of $150 or more.
- Bundle deals
If your goal is to increase your customer’s purchase of products, this will be a great option. Bundle products at a lower price than all the products separately.
You might also offer incentives to purchase a certain amount of products. You should make sure that the price of the products you give away is affordable by other products to ensure that your profits don’t suffer.
- Gift certificates
You can give a gift certificate with a specific amount to customers who have made a successful purchase. Gift cards can be a great way to ensure customers return for more purchases. Remember that gift cards should not be free.
- Offers for the first time
A one-time coupon code can be offered to new customers to your online shop.
- Cross-sell or upsell complimentary products
Your customers will be more satisfied if you offer product suggestions. But don’t add any random items to your customers’ shopping cart. Choose products that complement and go well together. These could be accessories or add-ons, or products that are more costly and meet more needs.
- Make a loyalty program
This strategy will help you increase your average order value and build a relationship with your customers. This will help retain customers and encourage them to make future purchases, thereby increasing your average order value.
You can create a loyalty program to build a customer base that is easier to market to and cheaper.
These strategies should not be implemented simultaneously. Segmenting your customer base is a smarter approach. Segmenting your customer base by product type is a smarter way to go. You can offer big spenders the chance to join a loyalty programme, while smaller spenders could be targeted with cross-selling and upselling. You can now target different customer groups with different offers, and find what works best for you online store.
