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How to Set a Free Shipping Threshold That Pays for Itself

By Raúl Vaquerizo Tortosa · Published October 26, 2026

“Free shipping on orders over $50” is one of the most common offers in ecommerce, and one of the most commonly mispriced. Set the threshold too low and you give away shipping revenue on orders that would have been placed anyway. Set it too high and almost nobody reaches it. The right level comes from three numbers you can work out yourself.

The three inputs

  1. Your true shipping cost per order. Not just the label - include surcharges, packaging and the other costs described in the guide on calculating your true shipping cost per order.
  2. What customers pay for shipping today. This is the revenue you give up when an order ships free.
  3. Your margin on extra items. When a customer adds an item to reach the threshold, how much of that extra revenue do you keep after product cost, payment fees and returns? Call this the incremental margin.

Your shipping cost does not change when shipping becomes free - the carrier charges you the same. What changes is that the customer no longer pays their share, so the cost of the offer is the shipping revenue you give up.

The core calculation

An order that grows to reach the threshold must add enough margin to replace the shipping fee you no longer collect:

Extra order value needed = shipping fee given up ÷ incremental margin

Example

All figures are illustrative:

  • Average order value (AOV): $42
  • Shipping fee customers currently pay: $5.95
  • Incremental margin on extra items: 55%

Extra order value needed = $5.95 ÷ 0.55 ≈ $10.82.

So for an average order, the threshold needs to be at least around $42 + $10.82 ≈ $53 before the extra items cover the lost shipping fee.

What happens with a $50 threshold instead? A $42 order that grows to $50 adds $8 of revenue, which yields $8 × 0.55 = $4.40 of margin - but you give up $5.95 of shipping revenue. Each such order is $1.55 worse off.

Don’t forget orders that were already above the threshold

Orders that would have been above the threshold anyway now ship free too, and you gain nothing from them. They are the hidden cost of the offer.

To account for them, look at your current distribution of order values:

  1. Count the orders that are already above the proposed threshold. Each one costs you the shipping fee it used to pay.
  2. Estimate how many orders just below the threshold will move up, and by how much. Each one gains incremental margin minus the shipping fee.
  3. Add any extra orders you expect because free shipping makes buying more attractive, valued at their contribution profit.

The offer pays for itself only if the gains in steps 2 and 3 exceed the losses in step 1. A threshold set a little above your current AOV is a common starting point, because it targets the large group of orders just below it, but your own order data should decide.

Make reaching the threshold easy

A threshold works best when there is an obvious way to reach it:

  • Offer lower-priced add-on products that bring a typical basket over the line.
  • Show the remaining amount in the cart (“$8 away from free shipping”).
  • Avoid thresholds that require a second full-price item when most orders contain one.

Keep heavy and bulky items in mind

Free shipping is costly for items with a high billable weight. Check the dimensional weight of your bulkiest products and consider excluding oversize items, or setting different thresholds by region if shipping costs vary widely by destination.

Test, then measure

  1. Record your current AOV, conversion rate, shipping revenue and margin.
  2. Introduce the threshold for a fixed period.
  3. Compare contribution profit per visitor before and after - not just AOV, which almost always rises and can hide a loss.
  4. Adjust the threshold up or down based on the result.

Use the Shopify profit margin calculator to compare contribution profit per order with and without the shipping fee, and the shipping cost calculator to check what a typical order really costs to send.