Analyzing Orders in Your Online Store: A Simple Guide
Analyzing your orders will bring a new level of understanding, placing you in a better position to make impactful decisions in your e-commerce business. These are quite simple metrics to follow, ready-made in Datma Analytics and in most other e-commerce analytics products.
Number of orders
It is the first and simplest metric to follow when analyzing your store's performance. The number of orders needs to increase, but not necessarily month on month. Your business may have seasonality, some months with many more orders than others. For example, a store that sells ice cream will have a big discrepancy between the number of orders in summer vs. the number of orders in winter. Best to compare the no. of orders in a month with the same month from the previous year.
To check if your business is growing, make sure your year-on-year (YOY) comparisons are always positive. Every improvement you make in your business compounds, increasing the YOY difference as time passes.
Average Order Value (AOV)
Average Order Value measures the average revenue generated by all the orders placed in your store. The formula is quite simple: add the revenue generated by all orders and divide it by the number of orders. For example, 3,000 orders with a total of $150,000 in revenue results in $50 AOV.
AOV is determined by orders, not customers. If you divide the revenue sum by the number of customers you would get the Purchase Frequency, detailed below. In the case of AOV, we don’t care if a customer has one or more orders. We just need to see, on average, how much revenue an order generates.
The higher your AOV, the more revenue you are generating from each customer, and the easier it is to absorb your marketing investments.
AOV should be monitored daily, weekly, and monthly. A dip or peak needs to be examined closely by looking at the performance of your marketing campaigns, price changes, seasonality, or even store UI changes.
How to increase your AOV:
Minimum Order for free delivery
If your AOV is at $10, setting the free delivery threshold at $15 will incentivize the clients to increase their orders. Just make sure that:
Your cost shipping is covered
The free delivery threshold feels attainable by your customers. Our suggestion is to go 30%-50% above your AOV.
Offer a gift
A variation of free delivery is to offer a gift for orders that are above a certain threshold. Make sure that the gift is something your customers want enough that they’re willing to increase their order for it. Even better if it is complementary to what they already have in their basket. For example, offer a soap as a gift if they have shampoo or hair conditioner in their cart.
Offer a discount
Another variation is to offer a discount if the order is above a certain threshold. It may be a 10% voucher for the next order to encourage recurrency or a 5% discount on the current order.
Upselling is when you recommend to a customer a higher-end version of the product they are interested in. The alternatives are usually presented in the product detail view under titles such as “Recommended products” or “Related to this product”. Keep in mind that the price of the higher-end version should not be highly different from the current product. If a customer is looking at a $20 t-shirt, they are more likely to buy a better version at $25 than one at $50.
Cross-selling is when you recommend products that are supplementary to the one your customer just added to the cart or purchased. For example, if the customer has bought a laptop, recommend a mouse. When done effectively, it both increases the order value and the customer’s satisfaction. The recommendations are usually present in “Customers who bought this item also bought” and “Frequently bought together” sections in the Product Detail Page. You can also use past orders to suggest complementary products via newsletters.
Creating bundles that cost less than if purchased individually is a proven way to increase AOV. The best case scenario is when the bundle is an all-in-one solution to the customer's problem. For example, a product bundle containing a portable grill and charcoal for a barbeque or shampoo and bath salts for a relaxing bath.
Cost per order
Cost per order measures how much money you spend for an order to be placed. It is calculated by dividing the cost of your marketing efforts by the number of orders placed. For example, if you spent $10,000 on marketing and you had 3,456 orders in the same period, your Cost per Order would be $10,000 / 3,456 = $2.89. There is no universal good or bad value. It all depends on the ability of the margin to absorb the investment in marketing.
Segmentation by Marketing Channel, Source, or Campaign will offer granular information about the performance of your acquisition channels. Pair Cost per Order with AOV and your margin to have a more clear picture.
New vs Recurring orders
The split between orders made by new and existing customers guides your marketing investment going forward. Acquiring new is more expensive than retaining existing customers, but you can not grow your business without growing your customer base. The simplest way to determine the balance between the two is to monitor your Cost of Acquisition (CAC) and the orders (and type of orders) each type of customer generates.
Keeping marketing costs under control is a must in any e-commerce business. One simple way to optimize your costs is to look at your orders segmented by traffic channels, marketing sources, Locations, and Time.
Orders by Traffic channels
Every traffic source has, or at least it should have, a cost associated. Pairing that cost with orders provides a clear picture of where to invest more resources. Some costs may be direct, others may be more indirect like investments in content creation for SEO.
Orders by Marketing sources
Some brands fare well with Google, some with Facebook or TikTok. You need to keep experimenting and play with your budget allocation based on performance. Looking at order cost and margin per channel is the simplest way to decide where to increase or decrease your budget.
There can be big differences between different countries or cities. T-shirts surely sell better in warmer countries, while jackets in colder places. Also, your brand recognition may be lower in a specific region, increasing the overall cost. Adjust your marketing accordingly.
Different products sell at different periods of day/week. For example, shopping for household items is usually done in the morning, while impulse shopping is an evening endeavor. Send the newsletter or increase your advertising spend during your best hours to maximize ROI.
Our suggestion is to look at where and when the orders are coming from, at what cost, from whom, and how much revenue they generate on average. These are the basics that any individual that focuses on e-commerce needs to monitor regularly. Use this guide as a starting point.