When talking about the Average Purchase Value, it is referred to the average sales value of each processed sales transaction. Basically, it shows you what’s the average amount that is currently spent on one of your products or services, in an individual transaction.
Depending on, for example, the length of the average contract or your business model, you can calculate the Average Purchase Value for a day, a week, a month, a year, or even in regard with the overall contract – in case there is one.
The Basics of Average Purchase Value
When accessing your KPI dashboard, you may see the Average Purchase Value in about two different ways. You can, for example, see it as showing the average dollar amount spent for a certain period, under which you’ll have a graphic marking the increase and decrease over the said period.
Of course, you might also see the second part of the information, namely, the statistics graphic, as a simple percentage, which marks the increase – or decrease – in Average Purchase Value, compared to the previous period.
In order to come up with the Average Purchase Value of your business – in case it is not shown within your KPI dashboard -, you just have to divide the total value of orders by the numbers of orders your business has over a certain period of time.
Naturally, depending on the current Average Purchase Value of your business, you can use it to determine a couple of things that might be beneficial to your future sales.
Understanding the Average Purchase Value
First, by analyzing this metric, you will be provided with essential information about the average first-time order of one of your new customers. You can determine when this metric increased and, therefore, see which pricing/ offer/ discount has persuaded one of your viewers to buy your product or service.
Moreover, whether you sell a service or product, you will probably be a bit pressured by competitive pricing. This means that the pricing of your products and services will try to compete with other ones that are currently on the market.
The Average Purchase Value will help you see if this pressure of competitive pricing is a good thing for your business – it will show you if it is driving the deal size down or not. With this kind of help, you will be able to predict and plan the pricing of certain items/ services and, therefore, come up with a strategy to increase the Average Purchase Value.
The Bottom Line
Basically, this metric helps the team that manages a certain business to predict the future of their sales and come up with revenue projections as well. A careful analysis of the Average Purchase Value will reveal the purchasing behavior of your consumers.
What does this mean? It means that you will know exactly what product/ service you should be marketing/ advertising in the future.
After putting your strategy into practice, you should see your average order value increasing, but while keeping the same number of customers – this means that, with a successful strategy, you will also notice an increase in sales revenue, which is exactly just what you wanted.