On the Web: Supersize Me
At a movie theater concession stand you'll hear, "Want to make that a jumbo for just a quarter more?" In an airport bar, you can get a bigger beer for just a dollar extra. Car rental companies will upgrade you to a nicer ride for just $7 more per day. You can add 32 gig of extra storage to your iPod for just $80. All these merchants know that getting you to spend just a little bit more will supersize their profits. The same is true on your website.
The Bottom Line
The first column in the chart (at right) shows how much money a typical retailer makes on a $100 order. The example assumes the product cost is 50 percent of the price, and shipping and fulfillment costs take up another 10 percent. The example retailer spends $20 on sales and marketing to generate an order, pays another $16 to cover overhead, and makes a $4 profit on it.
The second column shows what happens when that retailer is able to add $10 (10 percent) to its average order. Cost of goods and fulfillment go up proportionally, but it doesn't cost any more to generate the order; you've already spent whatever it took to get the shopper to check out. Overhead costs also stay fixed; your rent didn't go up just because the average shopper spent more. That 10 percent average order size increase resulted in a 100 percent increase in profits — from $4 to $8 per customer.
For e-commerce sites, there's a second benefit to driving up average order size: The single best predictor of a customer's lifetime value is the dollar amount spent on the first purchase. Increased lifetime value allows you to spend more on new customer acquisition and thus acquire more new customers. Convincing a customer to add to an order is the gift that keeps on giving, at least for the merchant. Supersize me!