What is Average Transaction Value?
Average Transaction Value (ATV), aka Average Order Value (AOV) in ecommerce, is a sales KPI used to measure the effectiveness of the sales process and the sales team in the store. The more skilled the sales team on the floor, the higher ATV they can deliver for the business.
It is usually combined with other retail KPIs, such as UPT (units per transaction) & conversion as part of the daily generated sales reports monitored by the retail or ecommerce manager.
Average Transaction Value Formula
To calculate Average Transaction Value (ATV), you divide the total sales by the number of transaction in the period your are measuring for (day, month, year,..etc).
ATV = Sales ÷ No. of Transactions
For example, a store generated sales of 225,000$ during the month of January and the total transactions that took place during the same month were 945 transactions.
ATV = 225,000$ ÷ 945 = 238$
So the ATV for the month of January was 238$.
You can also calculate Average Transaction Value in excel by generating your sales data and entering them in an excel sheet and then using a simple divide function that divides the sales value by the number of transactions as shown here.
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Average Order Value in Ecommerce
Average Order Value (AOV) is the same KPI as Average Transaction Value (ATV), but the term is more widely used in ecommerce.
It follows the same formula and calculation method
AOV = Sales ÷ No. of Orders
Importance of Average Transaction Value
Evaluating Performance
Calculating Average Transaction Value and Average Oder Value is important because it allows us to evaluate the efficiency of the sales process and the sales team. It is used as a KPI with a specific target to be tracked and given to the respective people responsible for this function in the business.
Tracking this KPI then allows us to apply tweaks & best practices to the process and then measure how this has affected ATV and translated into higher sales.
For example, a retail business might invest in a sales training program for its team.
One of the ways to evaluate the outcome of such program is to see how ATV has changed after applying the new sales tactics.
Improving Profits
With the majority of the costs associated with a retail business being fixed, improving ATV, and subsequently sales, would mean most of the increase will translate into profits
In fact, this is a very simple and easy way to increase profits. Customers are already coming into your store, and you have probably spent on marketing to get that foot traffic. So increasing ATV would mean getting more out of each customer that you have already acquired.
Projecting Return on Marketing Spend
This is especially important for ecommerce businesses, since driving traffic to an ecommerce store requires a lot of marketing spend.
In order to calculate the feasibility of your marketing campaigns, you need to be able to predict how much you can make out of the footfall that will be generated from those campaigns.
To calculate the return you will need to know what your average conversion rate is and how much each customer is expected to spend.
Read also our article on Customer Lifetime Value
Factors Affecting Average Transaction Value
We cannot expect to have a common benchmark for Average Transaction Value or Average Order Value, because there are many factors affecting those KPIs and they differ from business to business.
Average Selling Price
Businesses sell different types of products at different price levels. There are high ticket items, such as electronics or furniture and there are low price items, such as grocery items.
The average selling price for a store will hence affect the ATV/AOV and should be taken into consideration.
Units Per Transactions
Since Average Transaction Value is a function of Average Selling Price and the number of units each customer would buy on average, the Units per Transaction (UPT) would be a factor here.
Improving the IPC or UPT by adding more products to the transactions through cross selling would directly affect the Average Transaction Value.
This takes us to the next point…
Product Assortment
Some businesses have a very narrow product assortment, and so they don’t have the ability to sell more items to each customer. This will of course reduce their ATV.
We have seen this in many Shopify stores, which are focused only on one product to sell. This limits the amount a customer can spend at your store in one visit.
Read our detailed analysis for different Shopify stores
On the other hand, businesses that master the retail buying process and know how to add relevant products to their portfolio would have a better chance to up sell & cross sell customers, and so can deliver a higher ATV/AOV.
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More Resources
Thank you for reading this article on Average Transaction Value. We recommend the below free resources as well:
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