How to calculate AOV (hint: you may be under-reporting)

Joe Vancena
March 1, 2023


What's going on to our agency partners, Joe, from status with another lightweight insight that we're sharing with you in this newsletter.

The headline is, if you're working with a brand that offers exchanges, you might be over-reporting purchase frequency and under-reporting average order value.

Here's what I mean. When we're looking at a O V and L t LTV of a customer using status, we naturally look into the tech stack and see exchange orders.

And when we're looking at order history of a customer, what we find is that exchanges often create a second order.

The second order appears as another order in their order count, right? So I am now a customer that looks like I've placed two orders.

In reality, I've only placed one and the other. So I'm now a customer with two orders and my second order is only worth $7.

So not only are you looking at me as a customer who's placed an order twice and treating me as such, you're also seeing that my AOV is likely half as much as it should be.

It's just being underreported because the second order comes through with sales tax only. So step one is just awareness. There aren't a ton of great solutions for this.

This happens with all the major returns and exchanges platforms, but awareness is step one. Here's something you can do to help.

If you're using a tool that enables you to filter a o v calculations by orders and order name, you can filter out XC dash right.

Many brands will have a unique prefix on exchange orders that you can filter out. If you don't have that luxury or you don't have a unique order number order prefix, you can use a hack here with Shopify Flow.

So this is a Shopify flow that automatically tags, exchange orders. What you'll be looking for is either a name that includes a prefix, right, like XC dash put on exchange orders, or a discount code that's used to pay for the order in loop's case it's loop dash discount, like happy returns in Returnly

They all have their own methods, but you're looking for a unique quality about this order, exchange order that you can then recognize and tag.

So what I've done here is anytime an exchange order comes through, I automatically tag it with exchange. Now, when I'm using Lifetime Lee or another tool, I can now filter out my a O V calculation to not include or include orders that have the exchange tag on it.

So one insight for you today, I hope this is helpful. We are working to help solve this on our side as well.

But in the meantime, sharing this insight with you so you can have the conversation with your brands. Thanks for watching.

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