As an ecommerce business, it is important to have a comprehensive view of your marketing efforts and their effectiveness. Many businesses rely on Average Transaction Value (ATV) to measure the success of their campaigns, but this metric can be limited and easily influenced by outliers. This is where Value Per Transaction (VPT) comes into play.) VPT offers a more holistic approach that takes into account a variety of value types, including lifetime value, average order amount, and ancillary revenue. This allows businesses to better optimize and maximize the potential of their transaction experience.
The Limitations of Average Transaction Value
ATV is calculated by dividing the total value of all transactions by the number of transactions or sales.
ATV = Total Value of all Transactions / # of transactions or sales
However, this approach can be misleading, as a few high or low value orders can significantly affect the data set, especially when there’s a range of products that span a wide price range. For example, say 9 customers purchase a product for $5 on your site on a given day, and 1 customer makes a $200 purchase, the ATV for this day would be $25 – which doesn’t fully capture the full story, or provide an accurate picture of these transactions. ATV assumes that all customers and data points are equal, which is not the case. By only considering the value of goods or services and results, ATV limits the ability to accurately measure performance.
Furthermore, ATV represents the value if all customers and data points were equal, but this is not the case. By treating each customer identically, businesses sacrifice the potential for long-term profits in the transaction. We know that all customers are different, so basing campaign effectiveness on the average of all transactions only provides a small piece of the full picture. Companies miss out on including important value points such as a customer’s lifetime value, or potential ancillary revenue in the transaction.
While ATV can be an important piece in optimizing campaigns, it is ultimately limiting since it only takes into account the value of goods or services and results, limiting the ability to have a holistic performance measurement.
Understanding All Value Types of Your Ecommerce Experience
VPT bridges the gap in ATV by taking into account a customer’s lifetime value, or the entire period of their relationship with a business beyond just their initial transaction. This is calculated by multiplying the value of the customer to the business by their average lifespan. This helps companies identify how much revenue they can expect to earn from a customer over the life of their relationship with the company. It also considers average order value, or the average dollar amount spent per order, and ancillary revenue, or additional income generated from a transaction beyond the sale of goods or services.
Increasing the value of your existing customers is a great way to drive long-term growth. With VPT taken into account, businesses can promote loyalty programs, personalized offers, referral perks, spending rewards, and engaging content, customer relationships are strengthened and lifetime value increases. It is important to factor this key metric into campaign performance evaluations, so companies can capture the full potential of a customer. By including these value types, VPT provides a more complete understanding of the effectiveness of a marketing strategy.
For example, if Jenny purchases a $5 product on an ecommerce retail site – this is usually calculated into the company’s ATV, and that’s all. But if, during her checkout experience, Jenny is shown a relevant offer to opt into the company’s loyalty program, now she is incentivized to spend more or buy more often. Her $5 purchase remains the same, (as does the ATV amount) but her lifetime value as a customer increased, as she is likely to be a repeat customer. Lifetime value considers the full potential of each customer beyond the initial sale.
While ATV can be useful in some cases, VPT offers a more comprehensive approach to measuring the performance of ecommerce campaigns. By considering a variety of value types, businesses can better optimize and maximize the potential of their customers’ transaction experiences.
Bringing It All Together with VPT
As described above, there are numerous value opportunities to consider that go far beyond calculating averages. Value Per Transaction is a unifying metric that gives clear insight into the entire spectrum of customers interacting with your site by capturing each of these additional value types. Using VPT, businesses can optimize and maximize on the full potential of their transaction experience. Calculating the actual value per transaction is critical to ensuring that accurate comparisons are made between internal vs. external marketing objectives and short-term vs. long-term value for each customer.
Optimizing and unlocking relevancy with customers in the buying mindset
There are thousands of software providers helping ecommerce companies to locate prospects, optimize the customer journey, and nurture conversion. Once they reach the checkout process however, the optimization usually ends. Rokt has a laser focus on the transaction moment. We help our partners unlock more value throughout their transaction by measuring and optimizing to VPT across competing objectives and personalizing the experience for each of your customers. Value is maximized for each customer by dynamically changing the user’s experience based on what is in their cart as well as who they are (i.e. demographic information, previous interactions, and purchase behavior). We optimize which offers are presented, design elements, the language used for each offer, the price and promotion of the offer, and more strategically based on what the user is most likely to engage with, thereby increasing VPT.
Rokt’s partners use VPT as a north star metric that encompasses their sophisticated marketing mix, allowing them to optimize performance across the board and maximize the value of, and experience for, each individual customer in the transaction moment.
We’ve condensed this information for your convenience here. Want to learn more about how Rokt can help you strategically optimize your Value Per Transaction? Reach out now to firstname.lastname@example.org or request a demo.