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Does a free shipping threshold pay off? How to calculate it
You'll calculate whether a free shipping threshold improves your store's bottom line, set its level based on your order value distribution and plan a test of the change.
Short answer
The key answer
A threshold pays off when the margin from products customers add to reach it, plus the margin from orders that wouldn't have happened without free shipping, is greater than the shipping fees you give up. Calculate this on your order value distribution, not on the average alone. Two groups matter most: orders just below the threshold, and orders that already exceed it today, because those will get free shipping without any change in behavior.
- Four numbers you need for the calculation
- The cost and gain of a threshold in a worked example
- A threshold level matched to order values and product prices
Key terms in plain language
- Order value distribution
- A breakdown of how many orders fall into successive value ranges, e.g. PLN 140 to PLN 159.
- Margin
- The part of the price left after subtracting the cost of goods and handling. In your calculation, note which costs you include.
1. Gather four numbers from your store data.
For the calculation, you need: the order value distribution from recent months, the store's actual shipping cost for the most frequently chosen delivery options, the share of product value left after the cost of goods and handling, and the amount customers currently pay for shipping. You can build the distribution from an order export in your store's admin panel: group orders into ranges, e.g. every PLN 20, and count how many fall into each.
Shipping costs matter to customers' decisions. In a Baymard Institute survey of US shoppers who abandoned a cart for a reason other than just browsing, 40% cited extra costs that were too high, such as shipping, taxes and fees. That's a reason to take a closer look at shipping, but not proof that free shipping will pay off for every store. You have to calculate that using your own numbers.
2. Check how many orders sit close to the threshold.
Average order value isn't enough. A store with a PLN 180 average may have many orders of PLN 60 and a few of PLN 600. For the threshold, three groups matter: orders far below the threshold, which customers are unlikely to increase; orders just below it, which are easy to top up with one product; and orders already above it. The last group will get free shipping without any change in behavior, so for the store they're a pure cost.
Worked example: a store has 1,000 orders a month and is considering a PLN 200 threshold. 600 orders are below PLN 150, 150 orders are between PLN 150 and PLN 199, and 250 orders are PLN 200 or more. Today customers pay PLN 15 for shipping, and the store pays the carrier PLN 12. After introducing the threshold, the store loses the PLN 15 fee on every order above the threshold and still pays the carrier.
| Order value | Number of orders | What changes with a PLN 200 threshold |
|---|---|---|
| Below PLN 150 | 600 | No change, the customer still pays for shipping |
| PLN 150 to PLN 199 | 150 | Some customers add a product to reach the threshold |
| PLN 200 or more | 250 | The store loses the shipping fee: PLN 15 per order |
3. Calculate how many new orders the threshold has to bring in.
The cost of the threshold is the shipping fees lost on orders that already exceed it today: 250 × PLN 15 = PLN 3,750 a month. The gain is the margin on products added by customers just below the threshold. Let's assume 60 of those 150 customers add a product worth PLN 50 on average. At a 40% margin, the store earns PLN 20 on it but loses the PLN 15 shipping fee, leaving PLN 5 per order, or PLN 300 in total. After this part of the calculation, the store is PLN 3,450 in the red.
The missing amount has to be covered by new orders that wouldn't have happened without free shipping. If such an order averages PLN 210, at a 40% margin it yields PLN 84, and PLN 72 after paying the carrier. To make up PLN 3,450, you need about 48 additional orders a month, or almost 5% more than today. If the test shows fewer, the threshold lowers the store's bottom line, even if average order value goes up.
| Calculation item | Worked example |
|---|---|
| Lost shipping fees | 250 × PLN 15 = PLN 3,750 |
| Added products after the lost fee | 60 × PLN 5 = PLN 300 |
| Result before new orders | a loss of PLN 3,450 |
| Contribution of one new order | PLN 84 margin minus PLN 12 for the carrier = PLN 72 |
| New orders needed to break even | PLN 3,450 / PLN 72, or about 48 |
4. Match the threshold level to order values and product prices.
The calculation from the previous step shows how to set the threshold. The more orders already exceed it today, the higher its cost. The more orders sit just below it, the better the chance of customers adding products. So run the calculation for several levels, e.g. every PLN 25, and compare how many new orders each option needs.
Also check what customers can top up their cart with. A threshold works when the missing amount can be covered by one sensible product, not three random ones. If your store has no products priced close to the typical gap, customers are more likely to give up than add something they don't need. Consider other options too: free shipping only to parcel lockers, a reduced fee instead of zero, or a threshold that applies for a limited time.
5. Test the change and judge it by margin.
Introduce the threshold for a set period and compare the period after the change with a comparable period before it, with no promotions or major campaigns in either. Check the number of orders, conversion, order value distribution, the share of orders above the threshold, shipping cost per order and profit after costs. Simply noting that "average order value went up" isn't enough, because average order value can grow even when profit falls.
Watch returns too. Products added only to reach the threshold may come back more often. In Flowpeek, you can set a target for average order value in the eCommerce goals section and track it next to conversion on a single screen. You still calculate the order value distribution and margin from your store data.
Common mistakes
Deciding based on the average alone
The average hides how many orders already exceed the threshold today. Those orders create a cost without any change in customer behavior.
Judging by the rise in average order value
Average order value can grow while profit falls. Judge the change by margin and number of orders.
Ignoring the actual shipping cost
Count the cost the store pays, including packaging, not just the fee from the customer price list.
For your next review
Checklist
- I have the order value distribution from recent months, grouped into ranges.
- I know the store's shipping cost and the amount customers currently pay.
- I've calculated the cost of the threshold and the number of new orders needed to break even.
- The store has products customers can use to close the typical gap to the threshold.
- The test has a comparable reference period and is judged by margin, not just by order value.
Now your store
Calculate the threshold for two levels.
- 1
From your order export, build a value distribution in ranges of PLN 20 or PLN 25.
- 2
For two threshold levels, calculate the lost fees, the margin from added products and the number of new orders needed.
- 3
Pick the option that requires a smaller increase and plan its test with an assessment date.
From report to decision
Example comparison of two thresholds
A worked example using made-up numbers and the assumptions from this guide: PLN 15 fee, PLN 12 for the carrier, 40% margin, an added product worth PLN 50.
- PLN 200 threshold
- 250 orders already above the threshold: a cost of PLN 3,750. After added products, a loss of PLN 3,450. With a PLN 72 contribution, about 48 new orders are needed.
- PLN 250 threshold
- Let's assume 140 orders above the threshold: a cost of PLN 2,100. 50 customers add a product, which gives PLN 250. A loss of PLN 1,850. A new order here averages PLN 260 with a PLN 92 contribution, so about 20 new orders are needed.
- Next steps
- The higher threshold requires a smaller increase in orders. However, we check whether customers in the PLN 200 to PLN 249 range have something to top up their cart with.
- Test
- A PLN 250 threshold for six weeks, compared with six comparable weeks before the change. Judged by margin and number of orders.
The choice of threshold follows from a calculation you can verify after the test. If there are fewer new orders than needed, you know right away that the threshold has to be changed or withdrawn.
Questions and answers
How high should a free shipping threshold be?
There's no single amount. Calculate several options on your own order distribution and pick the one that needs the smallest increase in orders, provided you have products that let customers top up their cart.
Does a free shipping threshold increase average order value?
It can, because some customers add products. But that doesn't settle whether it pays off. Check whether the additional margin covers the lost shipping fees.
Can free shipping with no threshold pay off?
Only if the additional orders and margin cover the shipping cost of all orders. Calculate it with the same formula, assuming you lose the fee on every order.
From knowledge to report
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