Free Shipping Threshold & AOV Calculator
Find out whether bigger baskets will pay for the shipping you give away.
How the Free Shipping Threshold Calculator Works
Free shipping is not free. You either absorb the carrier cost or give up the shipping fee you used to collect. A threshold only makes sense if the extra products customers add to qualify earn more margin than the shipping you now cover.
Enter your current average order value, your average product cost as a share of price, the shipping fee you charge today, what shipping actually costs you, the threshold you want to try, and the share of orders you expect to grow to that threshold. The tool compares profit per 100 orders before and after the change, shows the blended average order value, and calculates the lowest threshold at which an upgrading order earns as much as an order did before.
Key Formulas Behind This Tool
- Margin Rate: 1 - Average Unit COGS %
- Old Profit per Order: (AOV x Margin Rate) + Shipping Fee Charged - Actual Shipping Cost
- Upgraded Order Profit: (Threshold x Margin Rate) - Actual Shipping Cost
- New Profit per 100 Orders: 100 x [(Upgrade % x Upgraded Order Profit) + ((1 - Upgrade %) x Old Profit per Order)]
- New Blended AOV: (Upgrade % x Threshold) + ((1 - Upgrade %) x Current AOV)
- Recommended Minimum Threshold: AOV + (Shipping Fee Charged / Margin Rate)
Frequently Asked Questions (FAQ)
How does a free shipping threshold raise profit?
Customers whose carts are slightly below the threshold add items to qualify. Their larger orders bring extra product margin, and that margin has to be bigger than the shipping fee you stop collecting plus any shipping cost you now absorb.
What is the recommended minimum threshold?
It is your average order value plus the shipping fee divided by your margin rate (one minus COGS %). At that threshold an upgrading order earns the same profit as an average order did before. Set the threshold above it so that upgraders earn more than before.
What does "expected % of orders upgrading" mean?
It is the share of orders you expect to grow to the threshold value. It changes how much total profit moves, but not the recommended minimum threshold. Be cautious with this number and test your estimate against past data after launch.
What happens if I set the threshold at or below my current AOV?
Most orders would already qualify, so you would give away shipping on orders that were already paying for it and gain little or no basket growth. The calculator treats all orders as qualifying and shows the profit you would lose.
Does the model include extra conversions from free shipping?
No. Free shipping often lifts conversion rate as well, and that benefit comes on top of this result. The calculator measures only the basket-size effect, so it is a conservative view.