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Definition
An AOV target is the average order value a store plans for, set so that a typical order covers its fixed costs and leaves room for acquisition. It turns a margin question into a basket size goal.
AOV floor = fixed cost per order / contribution margin rate before order costsExample with made-up numbers: Packing, a shipping subsidy and a fixed fee cost 8 per order, and products keep 40 percent of each sale before those order costs. AOV floor = 8 / 0.40 = 20. At a target of 25, an order keeps 25 x 0.40 = 10 before order costs, which leaves 2 per order for acquisition and profit.
How to use it
The simplest floor divides the fixed cost of an order by the contribution margin rate before order costs. Fixed order costs are the costs that do not shrink with a small basket, such as packing, a shipping subsidy or a fixed fee per transaction. Below the floor, every order loses money before any ad cost is counted.
Treat the floor as a minimum, not as the target. Set the target above it, so that some margin is left to pay for acquisition, and review it when shipping prices, fees or product costs change. A free shipping threshold is often set with the same target in mind.
