Creative & Offers
How to calculate a profitable free shipping threshold
A profitable threshold needs to generate enough additional contribution to cover the shipping cost you take on.
Step 1: Know current AOV and contribution
Assume:
- Current AOV: $60
- Contribution before shipping subsidy: 45%
- Average shipping cost: $8
Current contribution before paid shipping is $27.
Step 2: Test a threshold
Set free shipping at $80. If customers add $20 of products with 45% contribution, that adds $9 contribution.
The extra $9 roughly covers the $8 shipping cost, leaving a small improvement before considering any conversion lift.
Step 3: Model behaviour
Not every customer will increase basket size. Some $80+ customers already existed and now receive free shipping they previously paid for. Include that subsidy cost.
Step 4: Test live results
Measure:
- AOV
- Conversion rate
- Percentage of orders above threshold
- Shipping subsidy
- Contribution per visitor
The threshold is profitable when the combined AOV/conversion lift exceeds the additional shipping cost.
Model a threshold against your real order data
If you'd like to model a threshold against your real Shopify basket distribution rather than guess one, contact us.