4 Tips for Increasing Your Average Transaction Value

Any basic pricing strategy needs to include a look at your average transaction value (also known by the ATV acronym). Your ATV is an important part of the break-even analysis, as you want to be able to ensure that -- along with COGS (cost of goods sold), fixed costs, and other measures -- you are making enough money on each sale to stay afloat.

Overview: What is the average transaction value (ATV)?

Simply put, an ATV is the amount you get when you divide the total value of transactions for a set period by the total number of those sales. You can look at it on a daily, weekly, monthly, quarterly, and yearly basis.

This will give you your ATV in terms of the average dollar sale amount any given consumer spends with your business in a single transaction or visit.

3 benefits of knowing your average transaction value

Your ATV provides important data that can help drive business decisions and allow you to plan and pivot to accommodate goals. Awareness of your ATV can help you understand and improve:

1. Pricing strategies

Knowledge is power, and having a sense of your ATV can help you figure out your best pricing strategies for new and existing products.

As you plan your promotions and markdowns, calculating ATV lets you see the overall impact a marketing promotion will have on your revenue.

You can use this to find promotional pricing sweet spots that will attract customers but not bleed you of profit.

2. Service and goods strategies

You can also inform product strategies with your ATV as it can be a big help in illuminating the effects of having lower-priced products.

For example, if you offer five different jackets for sale and one of them is significantly cheaper than the rest, you may be unaware of just how much that lower price is dragging down your overall revenue.

By looking at that in terms of ATV, you can more clearly see the ripple effects, positive or negative.

3. Overall ROI

Your business is not just a hobby, so getting a good return on investment (ROI) is essentially what it’s all about.

Having a higher ATV not only impacts profit in a general sense, but it can offset some acquisition costs for customers, which include marketing and operational spend.

As you increase ATV with every -- or almost every -- customer, you automatically get a higher ROI on your marketing and sales costs, helping your average total costs (or ATC value).

How to calculate the average transaction value

Calculating your ATV may sound more intimidating than it actually is. Many e-commerce software solutions may already have analytics for this built in. Doing it on your own, though, is still relatively simple.

1. Calculate your time period parameters

The first step in calculating ATV is to determine the period of time you are evaluating. Whether this is a 7-day, 30-day, full-quarter, or even full-year period is important for consistency. As you will want to compare period over period, they should be equal lengths.

2. Gather your totals

You will be looking at two totals to determine your ATV: your total number of separate transactions and the total dollar amount of those sales during the timeframe that you determined in step one.

3. Divide

Now, to calculate ATV, retail companies and other businesses just need to divide that total dollar value by that total number of transactions. The answer you get is the average dollar amount that each transaction is worth, or your ATV.

For example, if you are looking at the past 30 days and you had $10,000 in sales and 25 total transactions, you would divide $10,000 by 25 to get $400, meaning the average amount spent per order by your customers is $400.

4 ways to improve your ATV

As leads move through your sales conversion funnel, you can and should take active steps to increase the value of each customer and transaction. Use your sales data and market analysis to determine the areas in which you have the most significant room for growth.

Average order values don't just increase by chance, but rather thanks to specific strategies designed to boost sales ATV such as:

1. Upselling

Upselling is a timeless concept that is pretty straightforward to implement. It leverages your existing products and your sales knowledge (human personnel and algorithm) to encourage your customers to upgrade their chosen products to more expensive options.

By having every customer spend just a little more on even a single product for a higher quality item, not only will they get more value out of their order in the long run, but your ATV will automatically go up.

This strategy also helps you fine-tune your regular merchandising strategies to promote more high-ticket items consistently while also giving you more insight into customer behavior to assist with marketing strategy.

2. Cross-selling

Similar to upselling, cross-selling also builds off existing items in customers’ carts but rather than nudging them into a higher-priced version of that product, this suggests adjacent products related to the main purchase.

For example, if someone is buying an espresso maker, you can suggest whole espresso beans, to-go coffee mugs, or machine cleaning tablets to go with it. You likely will be familiar with this concept in online shopping, since this is employed via Amazon’s suggested items feature.

Amazon automatically suggests similar products and related items that customers often buy together. Image source: Author

3. Setting up free shipping thresholds

Selling is a psychological game. Oftentimes, the idea of paying for shipping is what holds customers back from making a purchase.

By offering free shipping on orders (at a minimum threshold to protect profit margins), customers will not only be more likely to purchase but they might spend more to meet that mark, automatically raising ATV.

4. Offering strategic promotions

Impulse promotions can be a quick way to increase ATV at the last stage of the customer journey. It is simple to implement and takes advantage of those final seconds of a conversion funnel.

Offering an additional percentage off products with a point-of-sale (POS) discount is attractive to customers in the form of instant money-saving gratification while padding your bottom line with additional items added to the order.

The higher the ATV, the better your business will do

Increasing your bottom line means increasing income and profit across the board. It's simple mathematics that as your transactions' values increase, so too will your overall profit.

By implementing thoughtful strategies across the board, you can proactively raise your ATV and set up your business for continued success.