What Does It Mean?
Transaction value measures how much, on average, customers are spending on each purchase. A higher value usually indicates that consumers are either purchasing more expensive goods, or simply more products during every sale. The KPI is a useful tool for determining pricing and product strategy.
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Why Does It Matter?
While it’s not the most specific measure, understanding your average transaction value (ATV) can give you a good idea of how consumers are interacting with your products. At its core, average transaction value highlights how much consumers are spending at your store, which in turn can help you understand how well your pricing strategy is performing. A low average transaction value is a sign that your products are underpriced, or that you may need to develop better sales tactics to encourage more spending.
How Do You Measure the KPI?
Transaction value is one of the easier measures to determine across the retail business intelligence and analytics space. To find your average transaction value, first calculate your total revenue for the period you’re measuring and divide it by the overall number of transactions handled over the same timeframe.
A high value means your products are being sold in larger quantities, or consumers are purchasing more expensive products. A lower value indicates that your goods are underpriced, or you’re not selling enough per customer.
What Sources Would You Use to Measure the KPI?
ATV values are based almost purely on your sales data. To obtain the most accurate reading, you can use data from your POS and digital storefronts, as well as your CRM, which can include the total number of customers and their spending history.
Give Me an Example…
Let’s imagine you’ve noticed that your store is selling well in general, but you seem to be losing money on each customer. Alternatively, it could be that you have hundreds of customers daily, but they seem to be spending minimal amounts at your store.
Instead of wasting time tracking each individual purchase record, you can use the average transaction value to see how much each customer is roughly spending. This way, you can determine if your products are priced appropriately, or whether you need to identify ways to expand your individual sales such as bundles, upsells, and other tactics.
What Benchmark/Indicators Should I Use?
- Total revenues
- Number of purchases total
- Total number of customers
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