eCommerce brands often look at metrics to understand operational health. The usual metrics include conversion rate and average order value (AOV), both of which are necessary, but don’t paint the whole picture.
Conversion rate, for example, tells us how many visitors are converting, but it doesn’t tell us how much money each customer is spending on the website. AOV tells us the average cart value, but it only considers customers who complete a purchase.
Now, here’s where the problem arises. An eCommerce brand can have a high conversion rate, but if the average order value is low, the overall revenue will be low. Similarly, an online retailer can have a high AOV but a low conversion rate, which will also result in lower than ideal revenues.
Average Revenue Per Visitor (ARPV) bridges the two metrics. A high ARPV means the website has a good conversion rate and a high AOV. Also, a low ARPV can be a broad indicator that something is wrong with your website. This could be high amounts of non-intent traffic or an issue with your conversion funnel.
Sounds like a lot, doesn’t it? Here’s a guide to ARPV, how to measure it, and what conclusions to draw under various circumstances.
How Is ARPV Calculated?
To calculate ARPV, we need to divide the total revenue earned in a specific time period by the total visitors in the same period.
ARPV = Total revenue / Total visitors
Let us presume that an eCommerce site generated 1,00,000$ in a month, and had a total of 3,500 people visiting the website.
Hence, the ARPV will be:
ARPV = 1,00,000 / 3,500 = 28.85$ per visitor
ARVP essentially takes into account unique website visitors only. Hence, it is a great metric to determine the average revenue generated by every new visitor.
This formula is most useful when trying to understand how many site visitors actually make a purchase and contribute to the revenue. In other words, ARPV in this case can be improved by bringing in more visitors who convert, or by increasing the revenue generated in the entire month.
There’s another formula to calculate ARPV, one that also allows us to see a different picture with the same data.
ARPV = Conversion rate x Average Order Value
So, if the current conversion rate is 12% and the AOV is Rs. 600, the ARVP will be:
ARPV = 12% x 600 = 72$
Here, we see a different nuance in the calculation. A conversion rate of 12% needs to be compared with the industry standard to understand if it is higher or lower than average. If it is reasonably good, we can get to work on the other half of the equation- increasing the AOV.
Likewise, the ARPV number itself has a lot to offer- it can be measured against the total ad spend in the month to understand if we’re breaking even and turning a profit. It can also be measured against total marketing spend in the month to understand which campaigns create maximum value.
Four Ways To Increase ARPV
Having discussed the formulas for calculating ARPV and the importance of doing so, we now need to understand which problems to solve, and where to begin. Here are some things to try, categorised by ease as low-hanging fruit, and long-term strategy.
1. Long-term Strategy: Target the Right Audience
ARPV is directly proportional to the quality of traffic. Attracting the right traffic to your site plays the most crucial role in increasing the ARPV.
Now, how do you identify and target the right customers? The right customers are those who are genuinely interested in buying your product.
Here’s where detailed research and an in-depth understanding of your target customer come into the picture. Considering demographic parameters like age and location, and layering this up with interests and preferences, can help you understand your audiences both qualitatively and quantitatively.
Once you know the traits of your ideal customers, create a buyer persona that represents your perfect customer. This will help you target the right audience and thereby boost your ARPV.
2. Low-hanging Fruit: Try Active Selling Tactics
Selling tactics like discounts on abandoned carts are only useful for a small cohort of audiences. Instead, opting for active selling tactics can cover a larger visitor base. Here are a few things to try:
Scarcity: It involves creating a fear of missing out (FOMO) in the consumer’s mind. Using offers like “Only 5 Pieces Left” and “Running Out of Stock” can help you sell more.
Urgency: As an extension of scarcity, urgency can cause people to complete the purchase faster instead of spending too much time deliberating.
3. Long-term Strategy: Prioritize The User Experience
88% of users won’t return to a website after a bad user experience. If your website isn’t user-friendly, visitors will bounce away, resulting in a low ARPV. Hence, it’s vital to make your site easy to navigate and more responsive.
Here are some things you can do to improve your visitor’s experience:
Offer personalized product recommendations.
Make the website light, organized, and easy to navigate.
Improve your page loading time, and reduce the need for bulty elements and code that take forever to load.
Pay extra attention to mobile responsiveness.
Ensure an easy path to conversion with guest checkout, multiple payment methods, and clear shipping information.
Since over 50% of eCommerce purchases are made on mobile devices, ensure that this strategy also involves a review of your mobile shopping experience.
4. Low-hanging Fruit: Create a Risk-Free Shopping Environment
Providing a risk-free environment to your shoppers is a quick yet significant step you can take to increase your sales and ARVP. In the decision stage, customers want to make sure they buy the right product. If the product isn’t as per their needs, they can return it seamlessly and get a full refund.
85% of customers won’t buy from a retailer after a bad return experience. Hence, be sure to highlight your return policy to provide customers with a sense of security.
Some other techniques to instill trust in customers’ minds are:
Providing social proof (product ratings and reviews)
Having an interactive, responsive chat feature
Since ARPV is largely dependent on the behavior of new site visitors, building trust is a step that can be taken immediately, and provides both short-term and long-term benefits.
Bringing traffic to the website is just the first step- we must quickly follow this up with increasing conversion percentages. In that context, ARPV is a helpful metric that can serve as a guiding force for all your campaigns while also being extremely quick to measure, and intuitive to understand.
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