Free shipping threshold calculator
This calculator sets a free shipping threshold a chosen distance above your current average order value and estimates what it does to revenue and margin. You tell it how many orders you take, what share of them you expect to reach the threshold, what a shipment costs you and your gross margin. It returns the threshold itself, the shipping bill you will absorb, the extra revenue from customers who add items to qualify, and the net effect once margin on that revenue is set against the shipping cost. It is a simplified model. It assumes every qualifying order rises from your current average to exactly the threshold, and it does not model orders that already sat above it.
Free shipping threshold
–
- Shipping cost you absorb per month
- –
- Extra revenue per month
- –
- Net margin effect per month
- –
Plain arithmetic on your inputs. Nothing is sent anywhere. Not a forecast.
How the threshold and the costs are worked out
The threshold is your current average order value raised by the percentage you choose. A 60 dollar average with a 25 percent uplift gives a 75 dollar threshold. The shipping bill is the number of orders that qualify multiplied by your cost per shipment: 800 orders, 40 percent of them qualifying, at 8 dollars each is 2,560 dollars a month. Extra revenue assumes each qualifying order climbed from 60 dollars to 75, so 320 orders times 15 dollars is 4,800 dollars. Net margin applies your gross margin to that extra revenue, 45 percent of 4,800 is 2,160 dollars, and then subtracts the shipping bill, leaving a loss of 400 dollars in this example.
How to read a negative net margin
A negative figure does not mean free shipping is wrong for you. It means that in this model, the margin on the added items does not cover the shipping you gave away. There are two ways to fix it. Raise the threshold so qualifying orders add more, or accept the cost because free shipping also lifts conversion rate, which this tool does not measure. Many stores treat the shipping bill as a marketing cost and judge it against what the same money would buy in ads. Run the conversion rate lift calculator with a modest lift to see whether the two effects together pay.
Getting the share of orders figure right
The share of orders that will reach the threshold is the input that decides everything, and it is the one most people guess. Pull your order values for the last three months and count how many already sit between the current average and the proposed threshold. Those are the customers with a small gap to close, and they are the ones most likely to add an item. Orders far below the threshold will mostly not stretch to it. Orders already above it get free shipping at no gain to you, so a threshold set too low mostly gives money to people who would have paid.
Where this sits in the four levers
A free shipping threshold is an order value tactic first and a conversion tactic second. It raises the average order by giving people a reason to add one more item, and it removes a surprise at checkout that makes people leave. The cost is a lower margin on the orders that qualify. That trade is usually worth making when the threshold sits far enough above the current average that the added items pay the postage, which is exactly what this calculator is checking.
Questions
Related
Want these numbers read for you?
Send your store. The plan runs your real figures through the four levers.