What is AOV?

The formula

AOV = net revenue ÷ number of orders

Use the same definition every month. Most mistakes come from mixing bases:

• Revenue: use net revenue, after GST, discounts, cancellations and returns, if you want AOV to tie to your margins. A "GMV AOV" from a dashboard, which includes GST and orders that never turned into revenue, will always look higher.
• Orders: count the orders that make up that revenue. If you take out returned revenue but keep the returned orders in the count, AOV is understated.

Work out AOV for each channel separately. A website, a marketplace and quick commerce usually have very different baskets.

Why it matters

Many costs are fixed per order, not per rupee of sales: packing, the first weight slab of shipping, the gateway's fixed fee, a marketplace's closing fee, and the cost of an RTO. A higher AOV spreads those costs over more revenue, so CM2 as a share of net revenue rises.

AOV also feeds two other measures:

• LTV: lifetime value is roughly AOV × orders per customer × margin per rupee.
• CAC payback: a higher first-order AOV earns back the cost of acquiring a customer sooner.

Ways brands raise it

• Bundles and multi-packs, priced so the bundle still earns a better margin than the single unit after the discount.
• Free-shipping thresholds set a little above the current AOV.
• Cross-sells at checkout of products bought together.
• Larger pack sizes for consumables.

The trap

AOV can rise while profit falls. A deep bundle discount, a threshold that pushes orders into a heavier shipping slab, or a free gift with a high landed cost can all lift AOV and lower contribution margin. Judge every AOV change by its effect on CM2 and CM3 per order, not by AOV alone.