Free shipping threshold calculator
A threshold at or below the current average order value gives free shipping to orders that were coming anyway, which is pure cost. The point of a threshold is to move the basket, so it wants to sit above the current average: close enough that adding one more item gets there, far enough that most orders do not already qualify. The suggestion here is your average plus fifteen per cent, a starting position rather than a derived optimum.
A free-shipping threshold has to cover the postage out of gross margin, not out of revenue. On the figures above, a 45% margin turns 6 of postage into 13.33 of order value before the order makes anything at all, and the suggestion of 51.75 is simply the current average plus fifteen per cent.
How to set a free shipping threshold
Start with the row labelled the bare minimum, because it is the only figure here that comes from arithmetic rather than convention. At a 45% margin, six of postage eats the entire gross profit on an order of 13.33. Below that, a free-shipping order is a loss; at exactly that value it is a wash. Nobody should set a threshold there, but knowing where the floor sits tells you how much room the decision actually has.
The suggested threshold is a rule of thumb, and the panel is explicit about it: your average order value plus fifteen per cent. The uplift row therefore reads 15% whenever that rule wins, because it is describing the rule and not a finding about your shop. Fifteen per cent is a sensible opening bid rather than an optimum. Treat it as the number you start testing from.
Now the part the panel makes visible and most advice skips. Compare the two profit rows. A typical 45 order makes 20.25 today. An order that lands exactly on the 51.75 threshold makes 17.29, because you have handed back six of postage to buy 6.75 of extra basket. Moving an order up to the threshold makes you less money than leaving it alone, and the threshold only starts paying above the point where the extra margin covers the postage in full. You can find that point from your own two numbers: take today’s profit, add the shipping cost, and divide by the margin. Here that is (20.25 + 6) ÷ 0.45, or 58.33. Any converted order below 58.33 is worse for you than the average order it replaced.
Which does not make 51.75 wrong, because the threshold is not really priced off one order. It is priced off a distribution. Every order that was already going to clear the bar now gets six of free postage for nothing, and every order that would have been abandoned at checkout over a delivery charge now arrives. This panel models neither, and no threshold calculator can, because both depend on the shape of your own basket data. Pull the histogram of order values before you set the number: the fraction sitting just below your candidate threshold is the population you are trying to move, and the fraction already above it is the bill.
Two failure modes bracket the sensible range. Too low, and you subsidise orders that were coming anyway, straight off the bottom line, without moving a single basket. Too high, and nobody reaches it, so it changes nothing and reads to a customer as expensive delivery with extra steps. What a working threshold looks like afterwards is a visible pile-up of orders just above it. If the distribution stays smooth through the threshold after a month, it is not shifting behaviour and the number is the wrong one.
Margin is doing quiet work in all of this. The figure to enter is the margin on the incremental basket, not your blended average, because the item somebody adds to reach the threshold is often a lower-margin accessory rather than a second copy of your best product. Enter the blended margin and the threshold comes out too low. And if your margin is thin enough that the bare minimum lands near or above your average order value, free shipping is the wrong instrument entirely: a flat rate, or a shipping charge that falls at a threshold rather than vanishing, keeps more of the effect at less of the cost.
What people use it for
- Introducing free shipping to a webshop
- Reviewing a threshold that is not moving average order value
- Deciding between free shipping and a flat rate
- Modelling the margin impact before committing
- Finding the order value at which a converted basket stops costing you money
- Checking whether a thin margin rules the offer out altogether
Questions
Above the point where margin covers the postage, and above your current average order value. The suggestion here adds fifteen per cent to that average as a starting position.
It is a convention this tool applies, not a derivation from your figures. Nothing in your inputs makes fifteen the right number, so treat it as a first candidate to test.
Shipping cost divided by gross margin: the order value at which gross profit exactly cancels the postage. It is a floor, not a threshold.
Because at the threshold you are paying the postage. Buying 6.75 of extra basket at a 45% margin returns about three, and the postage costs six.
Above the value where the extra margin covers the whole shipping cost. Add the shipping cost to your current profit and divide by the margin: on these figures, 58.33.
Not necessarily. That figure ignores the orders you win from customers who would have abandoned over a delivery charge, and the orders you already had that now ship free. Both push the answer in opposite directions.
A threshold reliably increases average order value where it is set above the current average. Unconditional free shipping mostly transfers margin to customers without changing what they buy.
The margin on whatever people add to reach the threshold, which is usually lower than your blended average. Using the blended figure produces a threshold that is too low.
Many shops do. It removes the checkout surprise that causes abandonment, at the cost of looking more expensive wherever your product is compared on price alone.
Look at the distribution of order values, not the average. A working threshold produces a pile-up of orders just above it. A smooth curve through the threshold means it is not moving anyone.
Then the bare minimum sits high, possibly above your average order value, and free shipping is the wrong instrument. A flat rate, or a reduced rate at a threshold, costs far less for a similar effect.
Decide once and say so at checkout. A threshold measured on the tax-inclusive total is easier for customers to check against the basket they can see, and gives you slightly less margin per qualifying order.
Whenever your average order value, your carrier rates or your product mix move. A threshold set against last year’s basket quietly becomes either free money for customers or an unreachable bar.
A little. A round figure is easier to hold in mind while shopping, which is the whole mechanism. Rounding up also recovers some of the margin the threshold gives away.
No. The calculation runs in the page and nothing is uploaded.