Free shipping threshold calculator
Find the minimum order value at which offering free shipping doesn't cost you margin — and what threshold to set to still hit your profit target.
Enter your per-order shipping cost, gross margin, the profit margin you want to preserve, and your current average order value. The calculator shows where to set your free shipping threshold and what it costs you if you set it too low.
Free shipping threshold calculator inputs and results
How this calculator works
Free shipping is only cost-neutral if the gross profit generated by an order is at least equal to your carrier cost. The break-even threshold is shipping cost divided by gross margin — the order value at which gross profit exactly covers shipping. Below this, every free-shipping order is a guaranteed loss on the shipping line.
The recommended threshold builds in your target profit margin on top. The formula is shipping cost divided by the difference between gross margin and target margin — the order value where gross profit covers both the shipping cost and the margin you want to keep. Setting your free shipping threshold at or above this number means every qualifying order is both margin-positive and profitable relative to your target.
Many retailers deliberately set the threshold slightly above their current average order value — high enough that it creates an incentive to add one more item to qualify, but low enough that most customers can realistically reach it. The conversion benefit from free shipping is well-documented; the risk is setting the threshold so low that the subsidy outweighs it.
About this tool
This tool calculates the minimum order value at which free shipping is margin-neutral or better, given your actual shipping cost and gross margin. Inputs: your per-order shipping cost, gross margin %, target profit margin % (the minimum you want to keep after shipping), and current average order value. Outputs: the break-even order threshold, the recommended threshold that preserves your target margin, and the cost of offering free shipping below your current AOV if you set a threshold too low. Useful for setting a free shipping threshold that improves conversion without silently eroding margin.
Frequently asked questions
How is the break-even threshold calculated?
The break-even threshold is shipping cost divided by gross margin. At this order value, the gross profit generated by the order exactly covers the shipping cost, leaving nothing as net profit but nothing as a loss either. Below this value, every order with free shipping costs you money. Above it, gross profit more than covers shipping and you keep the remainder.
What's the difference between break-even and recommended threshold?
The break-even threshold is where shipping costs you nothing — net contribution is zero. The recommended threshold is the order value at which shipping costs you nothing AND you still keep your target profit margin. If your gross margin is 40% and you want to keep 10% after shipping, free shipping only makes sense above the order value where 40% of the order covers shipping, leaving 10% as profit.
Should I set my threshold at exactly the break-even point?
The break-even is the floor, not the recommendation. Setting the threshold there means every free-shipping order contributes zero net profit — you've covered shipping but kept nothing. In practice, free shipping thresholds are most effective when set slightly above the break-even, using the recommended threshold that builds in your target margin. Many retailers also set the threshold slightly above their average order value to encourage upsell.
Does this account for conversion rate impact?
No. Free shipping consistently improves conversion rates — studies typically put the lift at 20–30% for thresholds set near average order value — but the size of the lift varies too much by category, audience, and competitor behaviour to model reliably from these inputs. This tool focuses on the margin economics in isolation. In practice, the conversion benefit usually justifies the shipping cost at well-chosen thresholds, but quantifying that requires your own A/B test data.
What if I only want to offer free shipping above a certain amount rather than on all orders?
That's exactly what this calculator is for. The recommended threshold is the order value you'd set as the minimum purchase for free shipping eligibility. Orders below it would be charged shipping as normal; orders at or above it get free shipping while still preserving your target margin.