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One of our biggest customers reached out to ask about their lower than normal AOV for January 2024.
They were wondering if it was just them, or if it was everyone?
Turns out it’s everyone.
Across shops doing over $10 million in annual revenue, AOV was down about 20% in January 2024 compared to 2023.
This was true across all industries, too (except for Fashion Accessories and Health & Beauty, that remained relatively the same as last year).
At first glance, this looks a little scary. Bad, even.
But when we dig a little deeper, we can see something interesting happening… and it’s not necessarily a bad thing that AOV is down. It’s probably just that TikTok is taking up a higher portion of the advertising budget for these brands. In fact, we found that TikTok’s conversion share (% of purchases from a given paid channel) is up 20% over last January.
The reality is, TikTok is a better platform for advertising lower ticket items.
You might be thinking, “I don’t want to focus on low ticket items”, but we’re here to tell you it might be a good idea, if you consider TikTok as an acquisition funnel to drive lifetime value.
Read on to see what we mean!
While AOV may be down from last year, both conversion rate and clickthrough rate are up, with an 18% and 10% increase respectively.
While the order values may be smaller overall, there’s still a ton of purchasing happening on the platform. Additionally, TikTok’s conversion share is now 20% higher than it was last January. That means TikTok is taking more market share from big ol’ Meta.
Meta still has a much higher AOV (around $103). But if it costs you way more to acquire those customers, is it worth it to advertise those higher AOV products to brand new customers?
The beauty of TikTok as a marketing platform is that they’re making it easy for brands to reach millions of potential customers. We believe it’s a ‘strike while the iron is hot’ situation, as TikTok is ramping up its ad platform with hopes of drawing in new advertisers. It’s an especially good time to start up now, since the 2% commission plus 30 cents per transaction fee for merchants is scheduled to increase to 8% in July 2024.
The metrics are enticing, too. For our cohort of brands doing over $10 million a year in annual GMV, TikTok cost-per-acquisition (CPA) is down 43% from last January. Not only is this a huge drop, it’s less than a third of what it costs to acquire a new customer on Meta. With click-through rate also up 10% year-over-year, it’s clear the ads are landing with interested parties.
It costs less and there’s lots of clicks: so you can utilize this platform to grab customers at a lower cost. Then, the real fun begins.
But first, to get the most out of advertising on any social media platform, brands need to be tuned in to why people are using that platform.
When it comes to TikTok, users are coming to the platform to be entertained. And they’re coming in huge waves of humans (and potential customers).
What truly draws people in is the For You Page (affectionately known as the FYP) which utilizes algorithms to understand the type of content you want to see. Since the algorithm does such a good job curating content customers like to see, there's a great opportunity to serve ads a customer might be interested in based on targeting and demographics.
There’s tons of people on TikTok, and the numbers don’t lie:
People who use TikTok are on it, maybe all of the time (listen, I have time limits set. It might be a problem). This gives brands an opportunity to reach a highly engaged audience that’s actively searching for new and exciting content.
Besides the FYP, brands have an opportunity to create challenges, tap into existing viral moments (that might include dancing, but it’s worth it), or collaborating with the right influencers to reach more of their target audience.
A captive audience is a great place to promote your brand, and treating TikTok as a place to find long term customers is a great way to look at it.
If brands utilize TikTok as a place to acquire new customers on the cheap, they’ll be given access to over 116 million people in the USA. The wisest way to do this is to build communities, raise awareness, and introduce new customers to the brand. As long as videos (and video ads) are entertaining and relevant, they will find their target audience.
A brand should use their lowest ticket items to advertise on TikTok, which seems counterintuitive.
However, brands should align with the tendencies of the audience, and on TikTok, customers are making lower value purchases more frequently. For this reason, TikTok is well-primed for top-of-funnel traffic. If a brand uses TikTok to advertise the cheapest items and drives net new customers, they can then turn their attention to driving long-term value from that cohort through the rest of the year.
First purchase has been made? Fantastic. Even if it was a low value purchase, the value of acquiring that customer is what needs to be prioritized. There are a few steps to follow to keep your LTV:CAC ratio nice and healthy.
At Triple Whale, we create segments using the Smart Customer Data Platform (SCDP). You can create segments based on the referring channel for visitors or customers who made a purchase.
Once your audience is created, you can export it to other platforms, like Meta or Klaviyo, to run targeted ads to this cohort.
The “TikTok Purchasers” cohort is very valuable now for marketing on other platforms. For example, when sending out SMS/Email campaigns through Klaviyo, you’re hitting existing customers. There’s an ability to be even more intimate/targeted with your content to ensure it converts. The same goes for Meta/Facebook: instead of spending a lot more to acquire a new customer, you’re marketing to someone who is already familiar with your brand, and hopefully had a great experience with their first purchase.
The result? Cheaper acquisition of customers for first purchases. Less money spent on Meta to drive a secondary purchase. Add in your first-class products, packaging, shipping, and customer service, and you’ve got the winning combination to keep driving customers into your funnel and then keeping them long term.
TikTok Shop may be spinning up record sales, but there’s only one issue: TikTok doesn’t provide a merchant with the contact information for the person who made the purchase, only the shipping address. Which means if you’re shipping a customer’s purchase made through the Shop, you’ll have to get creative to drive traffic to your main website (where you keep more of the profit), and to add them to your remarketing funnels.
A few ideas:
Once these targets enter their information into the lead generation form or make a purchase on your website instead of TikTok Shop, you include these low-cost customer acquisitions into your remarketing pipeline.
At first glance, average order value being significantly lower than last year can be a cause for concern.
When we took a closer look at brands doing over $10 million in annual GMV, we found that while AOV was down, click-through rate and conversion rates were high for TikTok. By utilizing TikTok as a top-of-funnel channel and securing customers at a lower cost with lower AOV orders, you can then turn around and remarket to these customers in other channels like email/SMS marketing.
It’s a better move to stack your funnel with new customers at a lower acquisition cost than trying to grab them through more expensive channels like Facebook. And we’re all about keeping your sales funnels happy long term!
Want to see what Triple Whale can do for your brand? Take a tour to see exactly how Triple Whale Attribution works!
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