Unit price is the pack price divided by what it contains: a 3.00 pack of 500 g is 0.006 per gram, and a 5.00 pack of 1,000 g is 0.005 — 16.7 per cent cheaper per gram. That comparison is necessary and not sufficient, because a bigger pack is only a saving if it gets used. Food that spoils with 30 per cent remaining was not cheaper at all; it was 30 per cent more expensive than the small pack.
The same logic runs on the selling side. A free-shipping threshold looks like a discount and behaves like a margin decision, and setting it against revenue rather than margin is how it costs more than it earns.
How do you compare packs properly?
By unit price first, and then by three questions the unit price cannot answer.
- Will it be used before it degrades? Applies to food, paint, adhesives and anything with a shelf life.
- Is there somewhere to put it? Storage is a real cost in a small kitchen and a real cost in a warehouse.
- What does it cost in cash now? A saving of 16.7 per cent per gram is not a saving if the larger outlay displaces something else.
Unit price also gets harder when the units differ. Comparing a 500 g pack with a 12-pack of 40 g sachets means converting both to the same denominator, and the sachets are usually more expensive per gram by a margin that the shelf label does not make obvious.
Where does a free-shipping threshold have to sit?
Above the point where the gross margin on the order covers the postage. At a 45 per cent margin, a 6 shipping cost needs 13.33 of order value just to break even on the shipping alone — which is well below any sensible threshold.
The threshold that changes behaviour is a different number: 15 to 20 per cent above your current average order value. That is close enough that a customer will add something to reach it, and far enough that most orders do not qualify by accident.
What are the two ways it goes wrong?
They bracket the right answer from either side.
- Too low. You subsidise orders that would have happened anyway, and the cost comes straight off the bottom line with no behaviour change to show for it.
- Too high. Nobody reaches it, so it does not shift anything and reads as an excuse for expensive delivery.
The measurement that settles it is the distribution of order values rather than the average. A shop with a tight cluster of orders around 40 wants a threshold near 48; a shop with a bimodal split at 15 and 90 wants a threshold that serves one of those groups, and possibly a different offer for the other.
Does raising the average order value beat winning more orders?
Usually, because it costs nothing to acquire. Raising the average by 10 per cent through bundling, a threshold or a well-placed upsell drops straight to contribution, whereas winning 10 per cent more orders costs acquisition on every one of them.
Average order value is revenue divided by order count — 48,000 across 800 orders is an AOV of 60. If those orders came from 600 customers, revenue per customer is 80 at 1.33 orders each, and that second figure is the one that tells you whether the shop has repeat business.
What does the threshold do to the average?
It pulls orders upward toward it and creates a visible cluster just above the line. That is the mechanism working, and it also means the average order value after the threshold is not comparable with the one before it — so the threshold cannot be re-derived from the new average without moving it every quarter.
Set it from the pre-threshold distribution, then leave it alone long enough to measure. Chasing it upward each time the average rises is a loop that ends with a threshold nobody reaches.
Questions people ask
Is the biggest pack always cheapest per unit? No. Promotional pricing on a mid-size pack regularly beats the largest one, which is why the shelf label is worth reading rather than assuming.
Should the threshold include VAT? Present it as the customer sees it, which for consumers is the inclusive figure. Calculate whether it pays using ex-VAT margin on both sides.
Does free shipping have to be free? Not necessarily — a reduced rate above a threshold captures much of the behaviour change at a fraction of the cost, and is worth testing before committing to free.
What if shipping cost varies by destination? Set the threshold on the most common destination and treat the rest as a separate rule. A single national threshold that has to cover an expensive island destination is a threshold set too high for everyone.
Do I include the shipping cost I charge? In the threshold arithmetic, the relevant figure is what shipping costs you, not what you charge. Once the order qualifies you charge nothing, so the whole cost lands on margin.
Compare per unit, then ask whether it gets used; set the threshold on margin, then above the average. The unit price calculator handles the pack comparison, and the free shipping threshold calculator works out where the line has to sit for a given margin and postage cost.