Average Transaction Value
A sales KPI used to assess the efficiency of the sales process and the store’s sales team is average transaction value (ATV), also known as average order value, in e-commerce. Higher ATVs can be delivered for the company by the sales team on the floor if they are more skilled.
When you multiply the total value of all transactions for a specific time by the sum of those sales, you get your ATV. It is available for viewing daily, weekly, monthly, quarterly, and annually. Management can use important information from your ATV to improve business decisions and help you plan and change course to meet objectives.
Calculating the Average Transaction Value
Divide the total sales by the number of transactions during the period you are measuring (day, month, year, etc.) to determine the average transaction value (ATV).
We use a simple divide function that divides the sales value by the number of transactions to calculate the Average Transaction Value in Excel. This method involves creating your sales data, entering it into an excel sheet, and performing the division.
Average Transaction Value = Total Value of Sales / Number of Total Sales
Importance and Benefits of Average Transaction Value
Knowing your ATV can help you determine the best pricing strategies for new and used products because knowledge is power.
Calculating ATV lets you see how a marketing promotion will affect your revenue overall as you plan your promotions and markdowns. This can help you locate sweet spots for promotional pricing to draw customers without depriving you of revenue. In addition, your ATV can be beneficial in illuminating the effects of having lower-priced products, so you can use it to inform product strategies.
For instance, you need to determine how much your overall revenue declines if you sell five different jackets; one is significantly less expensive than the others. By looking at that in terms of ATV, you can more clearly see the ripple effects, positive or negative. Your business is about getting a good return on investment (ROI) because it’s not just for fun.
Higher ATVs can offset some acquisition costs for customers, such as marketing and operational costs, and have a widespread impact on profit. Your average total costs (ATC) will increase as you increase ATV with each– or nearly every– customer, increasing your marketing and sales costs.
Example of Benefits
Finding out what works and doesn’t for your product plan is part of understanding your ATV. For example, you need to determine how much your lower-end pricing affects your overall sales if you sell various items at different price points. In addition, you can assess the effectiveness of your company’s product strategy by knowing your ATV. For example, it may indicate that you should consider other options if you don’t like the number you see when comparing the ATV.
You can evaluate your pricing strategy by being aware of your ATV. For example, you can calculate the ATV for a promotion’s duration if your company decides to run it for that length to determine its overall impact.
How to Improve Average Transaction Value
The idea of upselling is timeless and relatively simple to put into practice. It encourages your customers to upgrade their selected products to more expensive options by utilizing your current products and your sales expertise( human personnel and algorithm).
Customers will receive more value from their purchase in the long run if they spend a little bit more on even one higher-quality item, and your ATV will rise automatically.
In addition to giving you more insight into customer behavior to help with marketing strategy, you can adjust your regular merchandising strategies to promote more high-ticket items consistently. For example, cross-selling is similar to upselling in that it builds on already-existing items in customers’ carts. Still, it suggests nearby products related to the prior purchase rather than pushing them into a more expensive version of that product.
Customers frequently hesitate to purchase because of the thought of paying for shipping.
Customers will be more likely to make purchases and spend more to meet that threshold if free shipping is offered on orders( at a minimum point to protect profit margins), automatically increasing ATV.
Increasing your bottom line results in higher overall income and profit. Simply put, as the value of your transactions rises, so will your overall profit.
You can proactively raise your ATV and set up your business for continued success by implementing thoughtful strategies.
An Example of Average Transaction Value
A new financial services company sells 200 basic subscriptions for $6 and 80 premium subscriptions for $20 monthly. The total sales close at $2,800 monthly with 280 total sales.
The average transaction value for the company’s first month stays at $10 per sale.
In Conclusion
ATV is a tool for evaluating the overall success of your business. It can be challenging to find customers, and each customer’s company incurs costs. You will get a higher return on investment( ROI) on your sales and marketing efforts if you increase your average transaction value( ATV) with each client. To find ways to increase the amount your customers spend in a single transaction, keep track of your ATV and speak with your sales and finance departments. If you satisfy your customers’ needs, they can meet yours.
