How Important is Average Order Size?
Catalog executives always seem to have a great deal of interest in their average order size. They become concerned when they see it decrease. What's more, catalogers often spend time trying to artificially increase the average order size without really understanding the implications of doing so. That's why I want to provide a good understanding of what's behind the average order size and other measurements that might be more important to your analysis.
Yes, average order size is important. However, monitoring your response rate and the change (i.e., growth) of your 12-month buyer file are much more important than worrying about the average order size. Oftentimes, a decrease in the average order size can result in an increase in response rate. Or, a large increase in the size of the average order can actually lower your response rate, resulting in fewer orders. So again, worrying about the average order size shouldn't be a primary concern.
Average Order Size vs. Response Rate
In the chart below, which offer is better, A or B? The results shown are identical in terms of the sales, revenue and RPC (revenue per catalog). However, the response rates and average order sizes vary. An operations person might prefer to offer "A" since there are fewer orders to pick and pack. However, offer "B" is better from a marketing viewpoint because the higher response rates result in a greater number of new buyers in the 12-month bucket. In the example below, we added 267 additional names to the 12-month buyer file. Increasing the average order size isn't as important as increasing the response rate. Offers shouldn't be structured to increase the average order because these offers will generally be at the expense of the response rate.
What Really Determines the Average Order Size
Average order size is determined by your merchandise assortment. It's the makeup of your SKUs and the number of line items purchased per order. It's a result of how you merchandise and assort your catalog. It's "merchandising" not "marketing" driven. Average order is a function of the lowest-priced items, not the highest price.
Stephen R. Lett spent the first 25 years of his career in executive-level positions at both business-to-business and business-to-consumer catalog companies, including Monarch Marketing Systems, Tandy Corp., Edmund Scientific Co., The Drawing Board and Country Curtains. Additionally, he owned... the Writewell Co., and started (and owned) The Write Touch.
He also taught direct marketing at Indiana University. Today, Steve owns Lett Direct, a catalog and internet consulting firm specializing in circulation planning, plan execution, analysis, as well as internet marketing and email marketing. He’s the winner of a Silver Mail Box Award from the Direct Marketing Association (DMA), is a past chairman of the DMA’s Catalog Council, and a former member of the DMA’s Committee on Ethical Business Practices. Steve also writes a monthly column in Catalog Success Magazine.