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On the Web : Supersize Me

Want to double your bottom line? Increase average order size by just 10 percent

April 2010 By Larry Kavanagh
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At a movie theater concession stand you'll hear, "Want to make that a jumbo for just a quarter more?" In an airport bar, you can get a bigger beer for just a dollar extra. Car rental companies will upgrade you to a nicer ride for just $7 more per day. You can add 32 gig of extra storage to your iPod for just $80. All these merchants know that getting you to spend just a little bit more will supersize their profits. The same is true on your website.

The Bottom Line
The first column in the chart (at right) shows how much money a typical retailer makes on a $100 order. The example assumes the product cost is 50 percent of the price, and shipping and fulfillment costs take up another 10 percent. The example retailer spends $20 on sales and marketing to generate an order, pays another $16 to cover overhead, and makes a $4 profit on it.

The second column shows what happens when that retailer is able to add $10 (10 percent) to its average order. Cost of goods and fulfillment go up proportionally, but it doesn't cost any more to generate the order; you've already spent whatever it took to get the shopper to check out. Overhead costs also stay fixed; your rent didn't go up just because the average shopper spent more. That 10 percent average order size increase resulted in a 100 percent increase in profits — from $4 to $8 per customer.

For e-commerce sites, there's a second benefit to driving up average order size: The single best predictor of a customer's lifetime value is the dollar amount spent on the first purchase. Increased lifetime value allows you to spend more on new customer acquisition and thus acquire more new customers. Convincing a customer to add to an order is the gift that keeps on giving, at least for the merchant. Supersize me!

Secrets of Supersize
How do you increase average order size on your site? Here are a few techniques:

1. Basic Cross-Selling: Make sure you at least show shoppers "people who bought this also bought that." This cross-sell alone can increase average order size by nearly the magic 10 percent. Make sure you use it in your shopping cart. A number of sites have this feature but use it only on product pages. That's a big missed opportunity — the cart is the No. 1 place shoppers click on cross-sells!

 

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