How to understand average order value

Definition

Average order value is the typical ticket a shop earns from one completed customer order. On the books, this is a sales metric built from revenue, not an account you debit or credit.

A gift shop that rings 200 tickets totaling $8,000 has a $40 typical ticket. The $8,000 is the sales total; the $40 is that total divided by the count of orders.

This figure is a ratio you compute after the register closes. It is not cash in the drawer, and it is not a named line on the Income Statement.

The billed ticket still sits in accounts receivable until the card batch settles. The average does not change that unpaid balance.

Where it shows up

Balance Sheet: Related to the receivables that follow those orders.

P&L: Related to how much revenue sits in a typical order.

See also: Revenue · Sales Order · Gross Margin

When you look at your Income Statement, this metric is not a printed line. You compute it from the period's sales total and the count of completed orders.

When the figure is high, a typical basket is larger. When it is low, customers are buying smaller tickets even if more people walked in.

The Balance Sheet does not store this average. Unpaid tickets sit in accounts receivable at the invoice amount, not at the average.

On the Statement of Cash Flows, collecting those receivables is an operating inflow. The typical ticket itself does not move cash.

How it works

Pick a period you can close. Add the sales from completed orders, then divide by the number of those orders.

That quotient is the typical ticket. A walk-in that buys a $6 card and a $54 vase together is one $60 order, not two tickets.

Returns and sales discounts change the numerator if you measure from net revenue. If you measure from gross revenue, those cuts stay out of the average.

Stay with one definition for the month. Mixing a billed average with a collected average will make the weeks look like they jumped.

A sales order is the internal record of what the customer confirmed. The average uses completed orders, not open quotes that never rang.

Do not treat a customer deposit as a finished ticket. The average should wait until the order is delivered and earned.

A higher average can come from add-on items next to the register. It can also come from fewer tiny tickets, even when the same people still walk in.

Watch the count as well as the dollars. Ten $80 tickets and one $800 party order are not the same shop week.

This metric does not tell you what the shop kept after product cost. It only tells you how large a typical order was.

Keep the order list that supports the count. Anyone tying the register to the P&L should be able to see which tickets went into the average.

Example

A gift shop rings 200 orders in June for $8,000 of sales. The typical ticket is $40.

One Saturday a bride buys $320 of favors in a single checkout. That one order lifts the week's average even if most walk-ins still buy a $12 candle.

If the shop later refunds a $40 frame from a different ticket, the owner has to decide whether June's average uses net sales. Using the $8,000 billed total keeps the typical ticket at $40; using net sales after the refund drops it a few cents.

A $6 card sold alone is its own order. Bundling that card with a $54 vase at one register tap is one $60 order.

The Income Statement still shows the $8,000, or the leftover after any return. The $40 is a computed figure, not a posted account.

There is no average-order-value account to debit. The books already recorded the sales; this metric is just the score.

Common mix-ups

This metric is not total sales. Total sales are the period's revenue; this figure is that total divided by the number of orders.

This metric is not cash collected. A $60 ticket sitting in receivables is still a $60 order, even before the card batch settles.

This metric is not profit per ticket. Profit is what remains after costs, and this figure is only the typical sale size.

Related terms

• Revenue: The total value of goods and services the business earned in a period.
• Sales Order: The internal record of a customer's confirmed order.
• Gross Revenue: Total billed sales before returns, discounts, and allowances.
• Sell-Through Rate: The share of received inventory sold within a period.
• Customer Acquisition Cost: The average sales and marketing spend needed to win one customer.
• Contribution Margin: Revenue minus variable costs, showing what is left to cover fixed costs.
• Invoice: The document that bills a customer and creates a receivable.
• Gross Margin: Gross profit expressed as a percentage of revenue.