What is Average Transaction Value (ATV) and why is it important?
As a merchant, you need to not only have a wealth of data at your fingertips, but to understand exactly how you can use that data to measure success and refine your strategy.
Average transaction value (ATV) is a versatile and valuable metric, and one that, when used correctly, rewards you with essential insights into your products, pricing, and customer behavior - insights you can use to inform key business decisions and boost your return on investment (ROI).
On this page, we’ll explain how to calculate ATV, why it’s important to understand and look at some approaches you can take to increase it.
What does Average Transaction Value mean?
ATV is a measure of the average amount that your customers are spending on each purchase. ATV is such a valuable metric for online merchants as it helps you to understand which price ranges are achieving the highest volume at checkout, which can inform your pricing and product strategy. A higher ATV means your customers are buying either more expensive or a higher volume of products. A lower ATV could signal that your products are underpriced or you’re not selling enough.
How to calculate your Average Transaction Value
ATV is a relatively easy calculation to perform. You simply take the total value of all purchases over a given period and then divide it by the total number of sales over that timeframe, which could be anything from a day to a year. To ensure an accurate result, you can take this data directly from your reporting software.
In practice, your average transaction value calculation might look like this:
- In one month, you generated $10,000 from 25 transactions
- You divide 10,000 by 25 to get your ATV
- Your ATV = $400
Why is an Average Transaction Value important for your business?
So, how to interpret this data? Taken on its own, your $400 ATV doesn’t necessarily tell you much. But if you compare it to previous months or to your KPIs, a more interesting picture emerges.
For example, you might realize you have plenty of customers, but each one is spending such a small amount that your takings aren’t covering your costs. Or you might see that your ATV is steadily dropping from one month to the next. Armed with this information, you can work out a pricing and product strategy that helps you recover from a decline and achieve your business goals.
Let’s look at why ATV is important for your business in more detail:
- Increase your ROI - it costs money to acquire every customer, so the more they spend on each purchase, the better your return on investment. Understanding your ATV allows you to get an idea of how much each customer is spending and to take steps to improve or maintain that number accordingly.
- Improve your product strategy - if you have a smaller ATV than you like, it could be that the products at your lower-priced products are having an outsized influence on your overall revenue. If this is the case, you can amend your product strategy to place a greater emphasis on promoting and selling higher price point products.
- Better manage your pricing strategies - in a similar way, you can also use your ATV to evaluate and adjust your pricing strategy. For Example, if you discount a product for a week, you can calculate the ATV for that week to see the impact of the promotion on your revenue. Or, if you have a general price increase, you can check the ATV for the period leading up to and after the increase to see how it has affected your takings. If customers respond by opting for less expensive items, you might need to rethink your approach
How to increase your Average Transaction Value
As we’ve seen, a higher ATV is generally a sign of a healthy ROI, and a sensible product and pricing strategy. But if your ATV is consistently low, what steps can you take to increase it and your revenue in turn?
- Up-selling - up-selling is simply the strategy of encouraging your customers to choose higher ticket items over their cheaper alternatives. This requires an understanding of your customer and a sensitive approach that doesn’t put them off by coming across as a hard sell. Successful up-selling demonstrates to the consumer that they will gain genuine value by choosing the more expensive item. You can encourage your customers through direct product comparison, earning trust through social proof (showing buyer reviews), or offering discounts or free shipping for higher value products
- Good customer experience - offering a great customer experience should always be a priority, and it should certainly be the cornerstone of any strategy to improve ATV. From being on hand to answer any questions your customer might have about a product to clearly communicating your policies, excellent customer service builds trust, which makes customers feel secure in spending more and returning to shop with you again and again
- Offer alternative payment methods - offering limited payment options can be a big turn off at checkout, especially when it could be the difference between your customer being able to afford an item or not. For example, giving your customers the ability to pay in installments, such as Buy Now, Pay Later (BNPL), means someone who might not be able to afford the full cost of an item up front can pay for it over a more manageable period of time. Likewise, offering the payment methods that are most popular in whichever region you operate in will maximize the chances of a sale, especially for bigger ticket items
How Checkout.com helps your business increase your Average Transaction Value
At Checkout.com, we know all too well how important it is for merchants to be able to understand and improve their ATV. That’s why we make it easy for you to access with clear visibility over your payments and KPIs.
Checkout.com empowers better business decision-making by putting the metrics that matter in the palm of your hand. Contact our sales team today to know more.