Every business owner should have a good understanding of the term Average Transaction Value, or ATV for short. Understanding your ATV can help you to increase profits and grow more quickly.

What is average transaction value (ATV)?

Average Transaction Value may sound complicated, but it’s actually pretty simple. ATVs meaning in retail is just the average amount a customer spends in one transaction with you. This, however, has nothing to do with the average number of transactions a customer makes, which is important to remember.

How to calculate average transaction value

To figure out the ATV for your business, add up the value of all of your transactions during your chosen time frame. This could be for a certain week, month or quarter. Then just divide the total by the number of transactions your business had during the same time period.

We can summarise how to calculate average transaction value in a simple formula:

ATV = Sales Value ÷ No. of Transactions

Say, for instance, that your business earns £5,000 in one day from 10 sales. In this example, your ATV would be £500 (£5,000 / 10 = £500). Or say that in a month you made 100 sales totalling £15,000. In this circumstance, your ATV would be £150 (£15,000 / 100 = £150).

As you can see, the ATV calculation is a pretty simple one. However, it's important to remember that your ATV can change often - sometimes on a daily basis - so it's important to keep track of it and check in on it regularly. It might also vary within different customer segments, or be skewed by one, so it’s worth spending a little time looking into it to understand the purchasing habits of your customers. 

Why is average transaction value important to your business?

There are a few reasons why ATV can be so important for business owners to understand: 

Estimating Customer Value

Firstly, your ATV can give you insight into how much each customer is worth to your business. If you know that each customer spends an average of £300 with you in their first month, that can help you make other business decisions, like how much you’d like to spend to get a new customer. 

Spotting trends in your performance

ATV can be a good metric to track over time to see if your business is growing or declining. A decreasing ATV could be an indication of having prices that are too high or that customers are not finding enough value in your products. Meanwhile, a high ATV may indicate that customers are spending more money on each purchase, in turn leading to higher profits. Being able to track and evaluate your ATV over time can give you a better understanding of your business’s overall performance. Our small business growth calculator also provides insights on scaling growth.

Assistance with estimating ROI

ATV can be helpful when estimating your return on investment (ROI). This is because ATV takes into account not only the number of sales you make but also the average amount of money spent per sale. Therefore, a higher ATV means that you are potentially making more profit per sale. This is important to consider when making marketing and advertising decisions, as you want to make sure that your campaigns are driving high-value customers who are likely to spend more money.

Maximising revenue

By understanding your ATV, you can make strategic decisions to boost your revenue. For example, if you notice that customers are spending less money than normal per transaction, you may want to consider running a promotion or offering a discount to encourage them to spend more. Alternatively, if you have a high ATV, you could look into ways to increase the average amount spent per transaction, such as upselling or cross-selling products.

Benchmarking

ATV can also be useful for benchmarking. Your ATV can help you compare your business’s performance to that of other businesses in your industry. If you notice that your ATV is lower than average, it could be an indication that you need to rethink your prices or the value you are offering to customers. On the other hand, if your ATV is higher than average, it could mean that you are doing something right and you could try and identify what it is and build on it to make sure your ATV stays high.

How iwocaPay can help

iwocaPay makes it easy for business owners to increase their ATV by helping their customers spend more with them. iwocaPay gives your customers the chance to spread the cost of purchases easily. That means they can make larger purchases even if they don’t have the funds in full ready to go, so you can easily maximise your ATV for any given period without needing to factor in your customers' cash flow.

Giving your customers the choice to pay in flexible instalments, gives them more of an incentive to make bigger orders and to make them more often. And what's more - iwocaPay pays you the full amount right away - so you’ll reap the rewards of that higher ATV instantly

With iwocaPay, helping your customers spend more is quick and easy. 

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