Commerce operations
AOV (average order value)
AOV is total revenue divided by number of orders over a period, measuring how much a customer spends per transaction.
It is the most frequently gamed ecommerce metric. Free-shipping thresholds, bundles and post-purchase upsells all raise it, but raising it by discounting more heavily to hit a threshold can lower contribution margin per order at the same time.
Read it alongside contribution margin and units per order. AOV rising while margin per order falls is a common and initially invisible pattern.
The free-shipping threshold is where this usually happens. Set it at $75 against a $60 AOV and customers do add an item to clear it — AOV rises, which looks like a win. But you are now absorbing shipping on orders that previously paid it, and the added item is frequently the cheapest, lowest-margin thing in the catalog. The threshold pays back only if the margin on the incremental item exceeds the shipping you just gave away, which is a calculation worth doing before setting the number rather than after.