Free Shipping Threshold Calculator
The obvious threshold is your average order value plus the shipping cost. That number is wrong, and it is wrong in the expensive direction. Because order value is not profit, the real break-even threshold is average order value + shipping cost ÷ contribution margin — and at typical margins that is roughly a third higher than the guess.
| Threshold maths | Value |
|---|---|
| Profit-neutral (break-even) threshold | — |
| As a multiple of your average order | — |
| Shipping as a share of the qualifying order | — |
| Your current threshold | — |
| Gap to break-even | — |
| Profit on an order at your threshold | — |
| Profit on a normal order (buyer pays shipping) | — |
| Shortfall per free-shipped order | — |
| Monthly view | Value |
|---|---|
| Orders per month | — |
| Orders that qualify for free shipping | — |
| Shipping cost you absorb | — |
| Profit before the policy | — |
| Profit with the policy | — |
| Average order value needed to fund it | — |
Why the obvious answer is wrong
The intuitive threshold is "average order plus what shipping costs me": $60 + $7.50 = $67.50. It feels obviously right, and it is short by $4.88 on every free-shipped order.
The reason is that order value is not profit. When you absorb $7.50 of shipping, you do not need $7.50 of extra revenue — you need enough extra revenue that your margin on it covers $7.50. At a 35% contribution margin, that is $7.50 ÷ 0.35 = $21.43 of extra order value. Add it to the average order and you get the real number:
| Value | |
|---|---|
| Average order value | $60.00 |
| Shipping absorbed per free-shipped order | $7.50 |
| Contribution margin | 35% |
| Extra order value needed to pay for shipping | $7.50 ÷ 0.35 = $21.43 |
| Profit-neutral threshold | $81.43 |
So the formula is one line, and it is a division problem, not an addition problem:
threshold = average order value + shipping cost ÷ contribution margin
Check it from the other direction: an $81.43 order earns $28.50 of contribution margin, minus $7.50 of shipping, leaves $21.00 — exactly what a normal $60 order earns when the buyer pays shipping. That is what "profit-neutral" means: the free-shipping customer spends more, and you keep precisely as much as before. Not more. As much.
Which raises the honest question: if the break-even threshold leaves you with the same profit as before, why do it at all? Because of what it does to conversion and to the orders just below the line. That is a separate bet, and the calculator below lets you price it.
What a threshold does to each order
Hold the average order at $60 and shipping at $7.50, and move the threshold. Contribution margin is 35%, so a normal order earns $21.00.
| Threshold | Profit per free-shipped order | Shortfall vs a normal order |
|---|---|---|
| $40 | $6.50 | −$14.50 |
| $50 | $10.00 | −$11.00 |
| $60 | $13.50 | −$7.50 |
| $70 | $17.00 | −$4.00 |
| $80 | $20.50 | −$0.50 |
| $85 | $22.25 | +$1.25 |
Read the middle row. A $60 threshold is the single most common choice — "free shipping on orders over $60, that's our average order" — and it quietly gives away $7.50 on every order that qualifies. Not on a few: on every one. The revenue line does not move. Nothing looks wrong until someone compares profit per order across months.
At $85 you are finally ahead, but only by $1.25, and you have raised the bar so high that far fewer baskets clear it. That trade — a smaller subsidy paid on fewer orders — is the whole design problem, and it is why the threshold is a pricing decision rather than a rounding decision.
The table nobody prints: shipping cost against margin
Every cell is average order value + shipping ÷ margin, with the average order held at $60. This is where thin-margin stores discover that free shipping is not a marketing tactic they can afford.
| Shipping cost | 20% margin | 30% margin | 40% margin | 50% margin |
|---|---|---|---|---|
| $5.00 | $85.00 | $76.67 | $72.50 | $70.00 |
| $7.50 | $97.50 | $85.00 | $78.75 | $75.00 |
| $10.00 | $110.00 | $93.33 | $85.00 | $80.00 |
| $15.00 | $135.00 | $110.00 | $97.50 | $90.00 |
The top-left and bottom-left cells are the point. At a 20% margin with $15 shipping, the break-even threshold is $135 — more than twice your average order. You would either qualify almost nobody, or qualify everyone and lose money on each of them. A store at 50% margin with $5 shipping needs only $70. Same policy, same shipping bill, wildly different affordability, and the only variable that changed is margin.
The flip side is encouraging: raising margin is the cheapest way to make free shipping viable. Going from 30% to 40% margin drops the threshold from $85.00 to $78.75 without touching your shipping contract.
The number to check before you launch: blended AOV
The formula above answers a per-order question — "does a free-shipped order still earn what a normal order earns?" But only some orders qualify, so the lift you actually need across your whole business is smaller:
required AOV = current AOV + (share of orders that qualify × shipping ÷ margin)
With 55% of orders qualifying at $60 average order, $7.50 shipping and a 35% margin, your average order must reach $71.79 — an 19.6% lift — for total profit to stay flat. In the default example that is 275 orders a month absorbing $7.50 each: $2,062.50 of shipping, against $10,500 of monthly profit before the policy. Free shipping consumes 19.6% of your profit before it earns anything back.
That is the bar to argue with. If you believe free shipping lifts average order value by more than 19.6%, the policy pays for itself. If you believe it lifts conversion but not basket size, it does not — and the honest version of that bet is that you are buying conversion with margin, which may still be right, but should be a decision rather than a default.
Two ways this policy fails
Too low. The subsidy lands on orders that were going to convert at full price anyway. You pay for behaviour you already had. This is the common failure, because a low threshold shows an immediate bump in "free shipping" badges and an immediate drop in profit per order that is easy to attribute to something else.
Too high. Almost nobody qualifies, so you carry the cost of advertising a benefit that rarely triggers — and you may lose the marginal basket that would have crossed a lower bar. The orders just below the threshold are where all the value is; set it so far above your average order that the gap is unbridgeable and you have bought nothing.
The formula gives you the floor, not the answer. The answer is the floor plus a judgement about how much of your profit you are willing to spend on conversion — and that judgement is worth making explicitly, in dollars, once a year, instead of never.
Frequently asked questions
Does this formula work for a percentage-of-order shipping cost?
Yes, if you convert it. A carrier charging 8% of order value at a $60 average order costs $4.80, so enter $4.80. The formula assumes a fixed cost per shipment, which is true for most flat-rate and weight-tiered rates within a zone; for rates that scale with order value, the break-even threshold becomes a ratio rather than a dollar figure and the simple division overstates the shipping cost at high order values.
Should the threshold include tax and shipping in the qualifying total?
Exclude tax — it is not yours. Include shipping only if your threshold counts the pre-shipping subtotal, which is the usual implementation. If your platform counts shipping towards the threshold, customers can cross it by paying for faster delivery, and the subsidy then applies to baskets that were never large enough to deserve it.
What about the customers who abandon because shipping is not free?
That is the real argument for the policy, and it is not in the formula. The subsidy has a visible cost — $2,062.50 a month in the default example — and an invisible benefit — baskets that would have abandoned. Since you cannot measure the second directly, the practical approach is to test the threshold on one market or one traffic segment and compare revenue per session, not conversion rate alone.
Why does a higher margin make free shipping so much cheaper?
Because the margin is the exchange rate between revenue and the money that can actually pay for shipping. At 50% margin, $7.50 of shipping costs $15.00 of order value; at 20% margin the same $7.50 costs $37.50. Nothing about the shipping changed. This is why two stores can run identical free-shipping offers and only one of them can afford it.
Last reviewed: October 2026. Assumes a fixed shipping cost per order, a constant contribution margin, and that the threshold applies to the pre-shipping subtotal. Excludes tax, returns, and any change in conversion rate caused by the policy itself — see the FAQ for how to think about those.