[MUSIC PLAYING] DREW SANOCKI: Welcome to module 3, lesson 1. In this module I focus on how to grow your second multiplier, your average order value or AOV. And in this lesson I want to talk about your optimizing your offer. There really four ways to optimize your offer for increased AOV. The first is by increasing prices. This is Robert Smith founder of Vista Equity Partners. Mr. Smith has created three $10 billion private equity funds through the use of one simple tactic.
He buys companies and he increases the price for what they charge. Vista's premise is that demand is more inelastic than we think. This might hold true for your own business. You might run a pricing experiment on a high demand proprietary product. We test that a 15% price increase on t-shirts at Karmaloop, the increase generated more revenue. So we increased prices another 15% and that worked too and this was this was a commodity product.
The second way to optimize your offer is to increase the average order quantities. Think of Costco, Costco spends nothing on advertising, it charges a fee to shop there, it has incredibly bad margins and it generates $100 billion in revenue all because of volume. So think of ways you can push more high volume orders through your business. In your Google Analytics, you can see if your current customers are already buying more than one of the same item.
Odds are they are. So a volume discount, with the discount threshold set above the current average quantity per order will work wonders through your AOV. It will not only improve the customer experience, it will also give you efficiencies of scale on customer service and fulfillment. So AOV will increase but so will your margins. And the third way to hack your offer for increased AOV is through bundling.
Companies from McDonald's to Microsoft show us that this can not only increase purchase amounts but also benefit the customer. When I buy a happy meal when I put it right down here, I'm a happy guy even if I probably could have made do with just a burger. And as was the case with quantity incentives you've got all the efficiencies of scale involved with sending more products to one customer. The fourth and final way to optimize your offer is just a catch all for everything else that I've seen work.
Gamification, loyalty programs, price anchoring, financing, even the use of one 800 numbers. These all work that are worth experimenting with. The 800 number in particular is a great pro tip. At my own retail and at Karmaloop as soon as we rolled out that 800 number the AOVs that came via the phone were about twice the AOVs on site. To recap what we talked about today, there's some quick ways to optimize your existing product lineup to increase your AOV.
And in the next lesson, I'm going to go into a little more depth on how to use cross-selling and upselling to achieve the same outcome. [MUSIC PLAYING]