Why Median Order Value Matters: Rethinking Shopify eCommerce Metrics
Updated July 25, 2023.
Understanding and effectively leveraging key performance indicators (KPIs) is increasingly crucial for ecommerce businesses.
Ecommerce platforms, like Shopify, provide their merchants with a wealth of data, including metrics like Average Order Value (AOV).
However, as valuable as AOV can be, there's a case to be made for considering another important metric: the Median Order Value (MOV).
AOV has long been a staple in eCommerce performance measurement. Yet, AOV's sensitivity to outliers or extreme values makes it less suited for certain types of analysis. It is in these situations that the Median Order Value (MOV) can provide greater insights.
Understanding AOV Skewness: A Shopify Case Study?
Consider a Shopify store that sells handbags.
Let’s assume that during a specific month it got 99 orders of $100 each (so an AOV of $100). Then, one day, a buyer makes single extravagant purchase of $10,000. How does that impact the AOV for that month? It will change significantly and would be jump towards $199.
Does this major change reflect the overall state of the business in that month? Yes.
Does this number still accurately reflect the spending behavior of the buyers of the store? No.
The Importance of Median Order Value for Shopify Merchants
The Median Order Value (MOV) comes into play as a robust metric for understanding the 'typical' customer's behavior. Unlike AOV, the MOV is less impacted by outlier values, resulting in a more accurate representation of spending habits.
In the scenario above, the MOV would be $100, a far more realistic figure for most customers' spending. This number is calculated by ordering the values and identifying the middle value.
Therefore, the MOV for this Shopify store would be $100, a figure that is more representative of the typical order and not skewed by the single large purchase.
Using Median Order Value: Practical Applications for Shopify Retailers
MOV can be especially insightful for Shopify merchants when it comes to evaluating the return on investment (ROI) or Return on Ad Spend (ROAS) of their marketing efforts. Basing marketing ROI calculations on an inflated AOV could lead to overestimation of campaign effectiveness and risk of overspending on customer acquisition. Instead, referencing MOV can lead to more balanced and profitable marketing strategies.
Similarly, assessing initiatives like customer profiling or segmentation, Conversion Rate Optimization (CRO) tactics or leveraging a new app on your store can benefit from using MOV.
Since AOV is susceptible to outliers, it may overshadow the true nature of your buyers or the impact of these initiatives on core performance.
Why is AOV More Popular than MOV in Ecommerce Analysis
So why isn’t MOV used an mentioned as often as AOV?
AOV has gained popularity as it's straightforward to calculate and is a concept familiar to many. Additionally, most analytical platforms and dashboards, including Shopify's, only offer AOV, making it the de facto standard.
In addition - A Median is not a very intuitive metric to comprehend, calculate and articulate. It’s also not very commonly used on people’s day to day lives outside of their business (whereas Average is everywhere).
Choosing Between MOV and AOV: When to Use Which for Shopify Analytics
The key lies in embracing Median Order Value alongside Average Order Value to make smarter, data-driven decisions.
That said, here is a generalization of what each metric is better used for:
Using MOV can offer a more nuanced understanding of customer behavior. In other words, if you’d like to know WHO your customers or what is their typical purchase behavior is and how it changes across time/initiatives - use MOV.
Simultaneously, AOV is a better proxy for the overall state of your business as it provides a normalized view of your revenue (normalized to the number of buyers). It can also be leveraged for long-term analysis and large-scale performance as in large numbers the outliers has less of an impact and the AOV and MOV will likely be closer. In other words - If you’d like to get a high level snapshot of HOW your store is doing from an overall business perspective - use AOV.
The Key to Ecommerce Success: Balancing MOV and AOV Metrics in Shopify
The future of eCommerce, especially for platforms like Shopify, demands a balanced approach to metrics. The combination of MOV and AOV can help you make robust, informed decisions.
Remember to use AOV for long-term forecasts and larger scale overall performances, while employing MOV for smaller scale and “typical customer” nuanced analyses. This strategy will ensure your decisions are well-informed and data-driven.
As always, we welcome any questions or different perspectives on the AOV vs. MOV discussion, feel free to share and/or reach out to continue the conversation!