AOV & COGS.

AOV (Average Order Value)

Definition:
The average amount spent per order on your platform or store. It’s calculated by dividing total revenue by the number of orders.

Formula:AOV=Total RevenueTotal Number of Orders\text{AOV} = \frac{\text{Total Revenue}}{\text{Total Number of Orders}}AOV=Total Number of OrdersTotal Revenue​

Optimisation Strategies:

1. Upselling and Cross-Selling:
   Encourage customers to purchase complementary products or higher-tier offerings.
2. Bundle Offers:
   Offer discounts on bundles to incentivize purchasing multiple items together.
3. Free Shipping Threshold:
   Encourage customers to spend more to qualify for free shipping.
4. Personalised Recommendations:
   Use data to recommend relevant products during checkout or on product pages.
5. Loyalty Programs:
   Reward higher spending customers with discounts, exclusive access, or points.

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COGS (Cost of Goods Sold)

Definition:
The direct costs incurred in producing or purchasing the goods sold during a specific period. This includes materials, labor, and manufacturing expenses but excludes overhead costs.

Formula:COGS=Opening Inventory+Purchases−Closing Inventory\text{COGS} = \text{Opening Inventory} + \text{Purchases} – \text{Closing Inventory}COGS=Opening Inventory+Purchases−Closing Inventory

Optimisation Strategies:

1. Supplier Negotiations:
   Secure better pricing or bulk discounts with suppliers.
2. Reduce Waste:
   Improve inventory management and production processes to minimize overproduction and spoilage.
3. Streamline Production:
   Automate or optimize workflows to reduce labor and operational costs.
4. Alternative Materials:
   Source cost-effective but high-quality alternatives.
5. Analyze Product Performance:
   Discontinue underperforming products with high COGS.

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Combining AOV & COGS for Optimisation:

• Profit Margin Focus: Prioritize strategies that increase AOV without significantly raising COGS to enhance gross margin.
• Bundle Products Wisely: Pair high-margin products with lower-cost, high-appeal items.
• Dynamic Pricing: Adjust pricing based on demand, seasonality, or customer segment to balance AOV and profitability.
• Customer Lifetime Value (CLV): Retain high-spending customers through quality and satisfaction while ensuring COGS stays controlled.

Here’s an expanded tabular form for AOV & COGS optimisation strategies with elaboration and statistical context:

Aspect	Definition	Strategies	Examples/Stats
AOV	The average revenue per order. AOV=Total RevenueTotal Orders\text{AOV} = \frac{\text{Total Revenue}}{\text{Total Orders}}AOV=Total OrdersTotal Revenue​.
		Upselling and Cross-Selling: Recommend complementary or premium products.	Stat: Upselling increases revenue by 10-30% on average (Forrester).
		Bundle Offers: Incentivize multi-item purchases through discounts.	Example: A fashion retailer bundles shoes & accessories for 15% off, boosting order sizes by 20%.
		Free Shipping Threshold: Encourage higher spends for free shipping.	Stat: Orders increase by 30-50% when free shipping is offered at a threshold.
		Personalized Recommendations: Suggest relevant items based on past behavior.	Example: Amazon’s algorithm drives 35% of sales via recommendations.
		Loyalty Programs: Reward customers who spend above certain thresholds.	Example: Starbucks Rewards users spend 4x more than non-reward customers.
COGS	The cost of producing/purchasing goods sold. COGS=Opening Inventory+Purchases−Closing Inventory\text{COGS} = \text{Opening Inventory} + \text{Purchases} – \text{Closing Inventory}COGS=Opening Inventory+Purchases−Closing Inventory.
		Supplier Negotiations: Secure discounts or favorable terms.	Example: Walmart’s bulk purchasing achieves 15% lower procurement costs.
		Reduce Waste: Streamline inventory and production processes.	Example: Implementing JIT (Just-In-Time) reduced Toyota’s waste by 25%.
		Streamline Production: Automate or optimize manufacturing.	Stat: Automation reduces labor costs by 20-50% in manufacturing.
		Alternative Materials: Source cheaper yet quality inputs.	Example: A company switched to recycled materials, cutting costs by 10% while boosting CSR image.
		Analyze Product Performance: Discontinue high-COGS, low-margin items.	Example: A retail brand increased profits by 8% after pruning its inventory.
Combining AOV & COGS	Enhancing AOV while keeping COGS low to maximize profit margins.
		Profit Margin Focus: Drive high-margin sales.	Example: Starbucks’ high-margin beverages contribute 70% of revenue.
		Bundle High-Margin Items: Pair profitable items with low-cost additions.	Example: McDonald’s combo meals generate 23% higher revenue than à la carte.
		Dynamic Pricing: Adjust prices based on demand and elasticity.	Example: Airlines dynamically price tickets, increasing revenue by 30%.
		Customer Lifetime Value (CLV): Retain profitable customers.	Stat: Increasing CLV by 5% boosts profits by 25-95% (Harvard Business Review).