How to Make Sure You Have a Profitable Business

average order value important

Whether you are an online boutique or a brick-and-mortar storefront, as a designer you want to fully understand your sales amount per order. It’s one key to making sure that you have a profitable business.

In our previous Average Order Value article, your Average Order Value (AOV) number shows how much money you are making per order during a certain period of time, usually within a month.  Yet, it can tell you so much more.

Your Average Order Value can tell you about your customers.

Do they buy your more expensive products or your least expensive products? Do they buy just one product, three or four products?

Your AOV can also help you see if you are making enough per order to cover all your transaction costs.

These are necessary questions that the AOV can answer so you can become more profitable.  The higher the AOV, the more money you are getting out of your customers and the more they are spending on your products.

Let’s map out an example.

Let’s say your store’s AOV is $60, your transaction costs are $6 and your expenses per order total about $40. That would mean you are making a $14 profit on every transaction or order.

Once you know your AOV, it can help you to see where you can lower your costs so you can increase your profits.

In the previous case, let’s say you are not satisfied with $14 per order, you can focus on lowering the price of your product to drive more profits. We know what you’re thinking—making my product cheaper cannot bring me more money—but we got a surprise for you!

By decreasing  the price for your products, even by a margin of only 5-10%, it may be an incentive for your customers to buy more; and in turn, getting you more sales and increasing your AOV.

[box type=”shadow” align=”aligncenter” ]Your real profits are determined by taking how much you sell and then subtracting your total costs. [/box]

So yes, the price of your product is important, but it is not the end all be all.  The real key is how much of your sales you actually get to keep, that’s what puts the cash in your pocket.

Another way to examine your AOV is by looking at other data such as the amount you make per order versus the amount of visitors that flow through your website.

By using your visitor-to-customer rate (conversion rate), you can see if your website is enticing consumers to buy your products. You could also look into different marketing campaigns that focus on generating a high AOV.

More money in an order means your transaction costs are more spread, leaving you with a bigger bang for your buck and some very happy customers.

Your Average Order Value is much more than just a number, it is a tool that can help you gain a better understanding of your fashion business and examine it so you can take the steps necessary to grow your business to be more successful and profitable.

 

Image via DioBurto

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Francesca LaRaque

Francesca is a recent International Business MBA Graduate from St. Mary’s University College located in London. She is also a graduate from Seton Hall University in New Jersey, with a major in Finance and double minor in Economics and Fine Arts.

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