Acquiring customers is difficult, so getting them to spend more during every visit is the key to the growth of your small business. Here’s how to make that happen.
After Sales and perhaps Orders, the most important performance metric is Order Size (also known as Average Order Value or Ticket Value). The calculation is simple (Sales divided by Orders), but it helps quantify how effectively you convert visitors into revenue.
But what if your Order Size is declining – or not growing fast enough? Here are some reasons for this, as well as actions you can take to improve your Order Size.
#1: The COVID-19 Effect
In the early days of the pandemic, people tried to limit their trips outside the home and ended up buying larger quantities of products during each visit. As a result, the Order Size for some small businesses increased during this time.
But what goes up must come down. Depending on where your business is located, you may have seen a slow decline in Order Size since then or perhaps it was more sudden. Regardless, it’s probably best to ignore changes in this metric that are correlated with the pandemic.
Action to Take: None
#2: Seasonality
Most businesses have a busy season and a slow season, but there can be other seasonal factors that affect Order Size. For example, a coffee shop may get a boost in Order Size by offering premium-priced Pumpkin Spice Lattes in the fall months. Or back-to-school shoppers may temporarily boost your Order Size in late summer. These are normal fluctuations, of course, and can be ignored.
Action to Take: None
#3: Randomness
As with any performance metric, there’s a certain degree of randomness that occurs with your sales. If you’re looking at a metric like Order Size for a time period of less than a month or two, you may just be observing random fluctuations that are perfectly normal.
Action to Take: Look at trends over longer periods of time, typically a quarter or more.
#4: Declining Items Per Order
A metric closely related to Order Size is Items Per Order (Items Sold divided by Orders). If this metric is declining, your Order Size is probably declining as well.
Prices increases can lower the Items Per Order, as customers may have financial limitations or a “mental block” that limits their spending above a certain level. For example, a customer that isn’t used to paying over $50 for a tank of gas might limit their purchase to $50 for one or both of these reasons – even though they need a full tank of gas. For the same reasons, a cafe visitor may order their usual latte but skip the muffin.
Here’s an example of a price increase for a cupcake shop that had no impact on the number of cupcakes included in each order. This shows the customer base is not price-sensitive – at least not at this new price. A negative trend in this chart would indicate the price increase was too large or perhaps occurred too soon after the last price increase.
Changes to volume discount promotions can also impact the Items Per Order. If a donut shop discontinues its “Buy 5, Get 1 Free” special, the number of customers buying just 3 or 4 donuts (instead of 6) will likely increase. Perhaps this results in greater profitability and is a positive change for the business, but that isn’t always the case.
Actions to Take: Carefully analyze changes to prices and promotions to see how they affect customer behavior. It’s easy to notice when you completely lose price-sensitive customers, but it’s not as easy to notice when the remaining customers reduce the number of items purchased.
#5: Selecting Alternative Products
In addition to changes to prices and promotions, a downturn in the disposable income of your customers can cause them to buy less expensive products from you – thus lowering your Order Size.
Examples include customers skipping the extra shot in their latte or buying a cheaper set of tires from your auto shop. You still maintain your customer base, but generate less revenue from each visit because of these cheaper alternatives.
Actions to Take: Reduce the price gap between the most expensive and least expensive options for related products. In the latte example, instead of charging $4.00 for the standard latte and $1 for an extra shot, perhaps the prices should be $4.00 and $0.75. Or if you’re increasing prices, raise the price of the standard latte to $4.25 and reduce the price of the extra shot so the highest-priced product remains at $5.
Another option is to focus on differentiating the related products. If customers think that “a tire is a tire”, they’re more likely to buy the cheapest one even if they believe the expensive one is slightly better. If they believe the expensive one is much better, you’ll maintain more of those sales during an economic downturn.
#6: Lack of Product Diversity
Let’s say you own a coffee shop that only sells premium espresso drinks. This will create exclusivity for your business that may attract a very specific target audience, but it will also turn away potential customers and – more importantly – other members of your customers’ families and circle of friends.
For example, some people may prefer brewed coffee or tea, while kids may prefer hot chocolate or juice. And many may want food options. Expanding your product diversity will increase your Order Size by encouraging families and larger circles of friends to visit your coffee shop.
Actions to Take: Review your product selection to see if you could appeal to a broader audience without impacting your brand and customer experience.
#7: Lost Upsell and Cross-Sell Opportunities
Staff shortages have resulted in new hires that may not be skilled at selling (and upselling), so training is critical. Every customer-facing employee in a small business is effectively a salesperson and should be trained to be one.
Every small business should have its version of McDonald’s “Would you like fries with that?”. If you sell running shoes, ask if they need new socks. If you sell take-out food, ask if they’d like something to drink.
If you don’t have a natural up-sell or cross-sell option for your key products, look into expanding your product selection to include these options. Add-on products are often very profitable, so they will increase your Order Size as well as your profitability.
Actions to Take: Train employees to up-sell and cross-sell products and services. Find related add-on products if needed.
Next Steps
Keep an eye on your Order Size, especially after you increase prices or change promotions. Declining order size can be an early indicator that something is going wrong with your business.
