How to set a free shipping threshold that pays for itself

"Free shipping on orders over $50" is one of the oldest tricks in e-commerce, and one of the best. Customers hate paying for shipping, and many will add one more item to avoid it. But a free shipping threshold only helps if it's set right. Set it too low and you pay for everyone's parcels. Set it too high and nobody reaches it. In this post, we show you how to find the right number for your shop, with a simple formula, real examples and the mistakes to avoid.

Why a free shipping threshold works

A threshold turns shipping from a cost the customer pays into a goal they can reach. A customer with $52 in the cart and a $60 limit doesn't think "$8 shipping". They think "I'm only $8 away from free shipping", and go looking for something to add.

That extra item is where your money comes from. You pay the shipping, but the customer pays for a bigger order, and the margin on the extra spend covers the parcel. Done right, your average order value goes up and your shipping costs pay for themselves.

The formula: how much extra must a customer spend?

Everything starts with one question: how much more does a customer need to buy for your margin on it to pay for the shipping?

extra spend needed = shipping cost ÷ margin

Say your average order is $60, shipping costs you $8 per parcel, and your gross margin is 40% (all prices in this post are before sales tax or VAT). Then:

• Extra spend needed: $8 ÷ 0.40 = $20
• Break-even threshold: $60 + $20 = $80

At $80, a customer who would normally spend $60 adds $20 more. Your 40% margin on that $20 is $8, exactly the cost of the shipping. Anything above $80 earns you more than before. Anything below, and free shipping costs you money on an average order.

A table for your margin

Here is how much extra a customer must spend for free shipping to pay for itself, depending on your shipping cost and margin:

Add the number to your average order value, and you have your break-even threshold. The lower your margin, the further customers must stretch. With a 30% margin and $12 shipping, a $60 average order needs a $100 threshold just to break even.

How to set your free shipping threshold, step by step

1. Find your average order value. Your revenue divided by your number of orders, for the last 3 to 6 months. Leave out unusual months like Black Friday.
2. Find your real shipping cost per order. What you pay the carrier, plus packaging. Use the average, not your cheapest rate.
3. Find your gross margin. The share of the price that's left after the cost of the product. If you're not sure, our free margin calculator works it out.
4. Calculate your break-even threshold with the formula above.
5. Aim 15–30% above your average order. Close enough that customers can reach it with one more item, far enough that they have to add something. With a $60 average order, that's $69–$78.
6. Take the higher of the two numbers and round it to a normal shop price, like $79 or $89. In the example, break-even is $80, so $89 is a good threshold.

Our free free shipping threshold calculator does all six steps for you, including VAT and price endings.

What if break-even is far above your average order?

Sometimes the numbers don't work. If your margin is low or your shipping is expensive, the break-even threshold can end up 50% or more above your average order. Few customers will stretch that far, so the threshold won't change much. You have three options:

• Lower the shipping price instead. "Shipping $3.95 on orders over $60" can work better than free shipping nobody reaches.
• Offer free shipping on selected products, such as small, light items with good margins.
• Make the bundle bigger. If customers often buy two of something, a bundle or a "buy 3" offer can lift the average order closer to your threshold.

5 free shipping mistakes that cost you money

1. A threshold below your average order

If your average order is $60 and you offer free shipping over $40, most of your customers get free shipping without buying anything extra. You simply pay their shipping. The threshold should always be above your average order value.

2. Forgetting the orders that were already above the limit

Customers who would have spent $120 anyway now get free shipping too. That's a real cost, and the more big orders you have, the bigger it is. Take it into account when you look at the results: compare your total shipping costs before and after, not just the orders that crossed the line.

3. Hiding the threshold until checkout

A threshold only changes behaviour if customers know about it while they shop. If they first see it on the checkout page, it's too late to add anything. Show it on every page: in an announcement bar at the top of the site, on product pages and in the cart.

4. Not showing how close the customer is

"Free shipping over $89" is good. "You're only $14 away from free shipping" is better. A message in the cart that shows the remaining amount turns the threshold into a small goal. Many cart and theme settings can show this, and it's worth turning on.

5. Setting it once and never checking

Your prices, carrier rates and average order change over time. A threshold that was right last year might be too low today. Check it at least twice a year, and always before the holiday season.

How to measure if your threshold works

Give a new threshold at least 30 days, then compare with the 30 days before. Look at:

• Average order value. It should go up. If it doesn't, the threshold is too high or not visible enough.
• Orders just above the threshold. A cluster of orders between $89 and $100 is a good sign: customers are adding items to reach it.
• Conversion rate. Free shipping often lifts it. A drop can mean customers feel the limit is out of reach.
• Shipping costs as a share of revenue. This is the number that tells you whether free shipping pays for itself.

Free shipping or a discount?

A discount lowers the price of every order, including the ones that would have happened anyway. A free shipping threshold asks the customer to spend more first. That's why it's often the cheaper way to give customers a reason to buy. We worked through the numbers in What does a 10% discount really cost your webshop?

The two can also work together. Free shipping over a limit keeps your average order up all year, and a small, well-timed reward can bring customers back. If you want to give out codes without teaching customers to wait for them, read about earned discount codes.

Free shipping and the holiday season

November and December are when a good threshold earns the most. Gift buyers often have several items in mind, and a clear limit nudges them to buy everything in one order. Remember to show your last order date for delivery before Christmas too. Our guide to Christmas shipping deadlines shows how.

Questions about free shipping thresholds

What is a good free shipping threshold?

One that's above your break-even point and 15–30% above your average order value. For a shop with a $60 average order, $8 shipping and a 40% margin, that's around $89.

Should my free shipping threshold include tax?

Use the price your customers see. In the US, prices are usually shown before sales tax, so the threshold is too. In countries where prices include VAT, the threshold should include VAT, and the extra spend needed goes up by the VAT rate.

Does free shipping increase sales?

It often increases conversion and average order value, because unexpected shipping costs are one of the most common reasons customers leave at checkout. But it only increases profit if the threshold is high enough for the extra spend to cover the shipping.

Find your number in two minutes

You don't need a spreadsheet. Enter your average order, shipping cost and margin in our free shipping threshold calculator, and you get a threshold that pays for itself. Then put it where every visitor sees it, with a free announcement bar from mojitiles. Create a free account and it's on your site in a few minutes. 🚚