3 AOVs

Rabah gives the skinny on a critical metric, AOV, and talks about why one AOV isn't nearly enough.

What is AOV?

Hey everybody, it's Rabah here. And today, we're going to talk about average order value or AOV. So normally, most people only encounter AOV in the average or the mean form. So that's going to be your total conversion value over total conversions, which isn't bad. The problem is it's an average. And when you look at averages, outliers can skew that average.

So if I took a bunch of people in Austin, I put them in a bar and I said, "Hey, write down how much you make a year," and then we average that all up, that would then give you an average of how much everybody made on average in that bar, which isn't going to be a great representation of the actual salaries that people make. So what we do is actually give you three different cuts of AOV.

So we're going to give you still the average or the mean AOV, which is again, total conversion value over total conversions. Then we're going to give you something called median AOV. So what the median is, it's actually the center of the data set. So 50% of purchase values are higher and 50% of purchase values are lower.

Then we're going to give you a third, which is really important, called the mode AOV. So the mode AOV is going to be the most frequent value in that data set. A way to think of mode AOV is if you threw a bunch of AOV, or purchase values, excuse me, into a bucket, and then you reach down and grabbed a purchase value out of that bucket. Probabilistically speaking, it's going to be a mode AOV or something really close to that.

Why is AOV important?

Now, why is that important? Why do I got to learn all these random statistics? Well, the reason it's important is because a mode AOV is going to be really close to what you're going to get and more representative of a prospecting conversion than the actual average. And so it's normally not a huge deal. So these aren't going to be something we call lean in, lean out metrics.

This is very much so lean out metric where you're not going to check this daily, but it is something that you should be checking either quarterly or when you do take on a new client to audit the account. So let's jump in Triple Whale and see how to do that. So what you're going to do first is fire up your customer insights, and then go to AOV.

So this distribution here is actually not terrible. You you see right here, we have $147 AOV, fantastic, really strong. $116 median AOV, fantastic. And then $117 mode AOV, really pretty strong. This distribution's really healthy, really strong. A mean of about 150, and then a mode of 117. This is a really healthy business that has the economics to make paid media work. Now, again, when I was telling you, this is more of a litmus test than it is you're checking this daily.

So let's look in another account.

So this account has a $43 AOV, mean AOV, that's fantastic, not horrible. You can definitely make that work with paid media. A $39 median, that still gets a little spicy, but there's still some runway there. Now, where you get into real trouble is there's a $19.90 mode AOV. This is going to be really challenging to make work on paid media.

Mean, Median & Mode AOV

I don't care how good of a media buyer you are, it's just going to be really challenging to go into these economic headwinds. So what you can do here is take this data to the client and say, "Hey, you still have a business that can work with paid media, but we really either have to bundle really heavily, we only can promote high margin products, and we really need to figure out a way to boost that mode AOV. Because if not, you're just going to be lighting $100 bills on fire on Facebook."

So to recap, you have three different AOVs in Triple Whale. You have the mean AOV, which is the total conversion value over total conversions. This is, again, the OG AOV that everybody knows. Then we give you the median AOV, that's going to be the center of the data set.

So 50% of purchase values are lower, 50% of purchase values are higher. Again, this is not skewed. The median will not be skewed by outliers. It's fantastic, really good metric. And then finally, the mode AOV, which is going to be the most frequent value in that data set.

And that's ultimately going to be what you're going to get or pretty close to on a prospecting conversion versus that mean AOV. So a way to think about it is a murder scene. You have three different viewpoints on the economics of the business. And this really helps you understand the movement you have in terms of paid media and where you're going to land in terms of those economics. So make sure to check in all your clients and make sure you're checking all three AOVs to understand and deploy your paid media in the most efficacious manner. Thanks again for stopping in.

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