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Why Introduce A Minimum Order Value?

Minimum Order Value

Last year my business introduced a Minimum Order Value.  I thought I would explain what led us to this decision and why we did it.

The True Cost of Processing Orders

It costs money to process an order.  In fact, it probably costs a lot more money than most people realise.  There are Direct Costs associated with processing an order as well as Indirect Costs.

  • Direct Costs are things like Materials and Labour
  • Indirect Costs are things like Insurance and Depreciation

A lot of people don’t think further than Direct Costs.

Last year my company costed order processing, picking, packing, carriage, refunds, re-deliveries and returns.  We crunched some numbers based on the average GP (Gross Profit) of our products.  Our conclusion was that it isn’t worth our while processing an order for less than £50 online and £100 offline.

Why is there a discrepancy between online orders and offline orders?

Online vs Offline Minimum Order Value

Online orders are much less effort to process than offline orders.

When customers place an order online, they undertake a lot of the order processing themselves.  Payment is also taken immediately.

When a customer places an order over the telephone it will be a lot more labour-intensive to process and, if they are on account, we may give them credit which can lead to further complications.

Introducing a Minimum Order Value allowed my business to direct customers to the website if they want to place an order for less than £100.  My Sales Team love this, not because they are lazy, but because they can concentrate on much bigger customers.

The Results

As my company has become more strategic in the way it operates, our Average Order Value has increased considerably, both online and offline.

Online – Average Order Value Increased by 86%

Our Average Order Value for Online Sales increased from £77.11 in August to £143.55 in December – you can see this in the graph:

Average Online Order Value

  • August £77.11
  • September £92.01
  • October £103.67
  • November £106.24
  • December £143.55

Offline – Average Order Value Increased by 67%

Our Average Order Value for Offline Sales increased from £453.23 in August to £755.95 in December – you can see this in the graph:

Average Offline Order Value

The Average Order Value has increased because we aren’t processing small orders any more.  This has made my business more efficient and ultimately more profitable; we aren’t fulfilling orders which are losing us money, freeing up time to focus on more important customers.

Upselling is another benefit.  Since introducing a Minimum Order Value we have noticed increased sales in supplementary products like Safety Glasses and Nitrile Gloves.  People add these these to their basket to get over the £50 threshold.  Our offline sales have also felt the impact of Upselling; customers order larger quantities from us, for example, where they used to buy 50 Litres of a product they may now be buying 100 Litres.

On a related note, we have noticed the number of people complaining fall.  From what I have found, the less people spend, the more they complain.  I discuss this in more detail in this article when I wrote about our decision to stop supplying B2C.  Also, because we are processing fewer orders, we have more time to ‘get it right’.

Key Takeaway

A lot of people who run businesses struggle to get their heads around turning down business but doing ‘more for less’ is a good thing.  Give some thought to how your company can focus on the things which generate the most profit.  And if you are able to, you should definitely consider introducing a Minimum Order Value.

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