Opinion
Free shipping threshold: how to set it without killing your margin
Work out your free shipping threshold with AOV + shipping ÷ margin. What it comes to at 25, 35 and 50% margin, why it must sit above your average order and when to move it.
“Free shipping on orders over €40.” Plenty of online shops have a line like this in their header, and quite often the number was picked because it looked neat. Customers love it. Margins, less so.
Free shipping is never actually free; you simply pay for it instead of the customer. So the real question is not whether to offer it, but where to set the threshold so that it still makes you money. The maths takes five minutes. The answer is usually higher than you would like.
Why free shipping matters so much
Extra costs at checkout are the most common reason shoppers abandon a purchase. Baymard Institute, which has tracked checkout behaviour for years, reports that 40% of shoppers left because extra costs were too high, meaning shipping, taxes or fees. Its average cart abandonment rate, based on 50 studies, stands at 70.22%. Seven out of ten baskets never make it to payment.
Price is not the whole story, though. Delivery speed, a choice of parcel lockers or pickup points and a carrier people trust all play a part. A generous threshold with a slow, inflexible delivery option will still lose sales.
Who really pays for free shipping
When the customer does not pay for delivery, the cost comes out of your margin. On a €40 order with a 35% margin you keep €14 of gross profit. A €4 shipping fee takes almost a third of it, before packaging, payment fees and your time at the packing table.
The bigger catch is elsewhere. Free delivery also goes to customers who would have spent above the threshold anyway, and on those orders you gain nothing. With 300 orders a month and a third of them already over the line, that is 100 parcels at €4, or about €400 a month. New customers or larger baskets have to earn that back. Otherwise it is just a gift.
Free shipping threshold: the formula
A free shipping threshold should sit high enough that a customer who tops up their basket generates at least as much extra margin as the delivery costs. That gives the formula our free shipping ROI calculator is built on:
threshold = average order value (AOV) + shipping cost ÷ margin
Example: AOV €40, shipping costs you €4, margin 35%. €4 ÷ 0.35 is €11.43, so the threshold works out at €51.43. Round it up to €55; it reads better and keeps you on the safe side. The table shows how strongly margin moves the number.
| Margin | Shipping ÷ margin | Threshold (AOV €40, shipping €4) |
|---|---|---|
| 25% | €16 | €56 → €60 |
| 35% | €11.43 | €51.43 → €55 |
| 50% | €8 | €48 → €50 |
Note that the threshold always sits above your average order. A shop offering “free shipping over €40” with an AOV of €45 is effectively giving it to nearly everyone and asking nothing in return.
When to set it lower, and when higher
The formula is a starting point rather than a rule carved in stone. There are good reasons to move away from it in both directions.
Lower
- High margins and repeat purchases. Cosmetics, pet food, household consumables. If a customer comes back every month, the first order can break even.
- Competitors run a much lower threshold and your customers compare. You may have to match them and find the margin elsewhere.
- Cheap delivery to lockers and pickup points. Free delivery only to a locker costs less than a courier to the door, so that option can have its own, lower threshold.
Higher
- Heavy or bulky goods. When a parcel costs €8 or more to send, the formula pushes the threshold right up. As it should.
- High return rates. Fashion, footwear. You pay for delivery in full but never see the margin on the items that come back.
- Cash on delivery. Keep the COD surcharge outside free shipping, even above the threshold.
The mistakes that eat margin most often
- A threshold below the average order. The most common one and the most expensive. It motivates nobody; you just pay for most deliveries.
- Free shipping on everything, everywhere. Domestic courier, neighbouring countries and the rest of the EU on one threshold. A cross-border parcel costs a very different amount.
- A threshold nobody touched after carriers raised prices. Carriers adjust rates almost every year, and a threshold based on an old price list quietly takes more from profit than you think.
- Using margin before discounts. The formula needs the margin you actually keep after promotions and voucher codes. Not the list-price one.
Cheaper shipping = a lower threshold
The fastest way to lower the threshold without losing money is to pay less for delivery. Every euro saved per parcel lowers the threshold by one euro divided by your margin, which at 35% is almost three euros.
Smaller shops usually get better rates through multi-carrier platforms such as Sendcloud, which negotiate volume prices with several carriers and print every label from one place. The options are compared in our Sendcloud vs Packlink vs direct contracts guide, and label workflows are covered in shipping label automation. If you are weighing outsourced logistics instead, see fulfilment for small online stores.
How to tell whether your threshold works
After setting a threshold, track three numbers for at least a month, ideally two. No heavy analytics needed; an order export will do.
- Average order value. If the threshold works, AOV goes up.
- How many orders land just above the threshold. A cluster of orders a few euros over the line is a good sign: people are adding items to qualify. Socks, refills, some small extra.
- Shipping costs as a share of revenue. Growing faster than revenue? The threshold is too low.
Run your own figures through the free shipping ROI calculator, and check how much you could save on delivery overall with the shipping savings calculator.
Before you change the threshold in your shop admin
- Work from AOV and real margin. Threshold = AOV + shipping ÷ margin, rounded up. Never below your average order.
- Split by delivery method. Lockers can have a lower threshold than home delivery; cross-border orders need their own.
- Recalculate with every new carrier price list. A free shipping strategy needs watching. Set-and-forget does not work.
More resources for merchants are in our e-commerce section.
Quick facts
Free shipping threshold: how to set it without killing your margin
schedule Updated
Summary
A free shipping threshold can be calculated with a simple formula: threshold = average order value (AOV) + shipping cost ÷ gross margin. A customer who tops up their basket to reach the threshold then generates enough extra margin to pay for the delivery the shop absorbs. For a store with an AOV of €40, a 35% margin and €4 shipping, the threshold comes out at about €51.43, rounded up to €55. The lower the margin, the higher the threshold has to be: roughly €60 at 25% margin and €50 at 50%. Free shipping also costs money on orders that would have exceeded the threshold anyway, so it only pays off when it brings enough new orders or larger baskets. According to Baymard Institute, 40% of shoppers abandon checkout because extra costs such as shipping, taxes or fees are too high. The most common mistakes are a threshold below the average order, one flat threshold for every destination and delivery method, and a threshold nobody recalculates after carrier price rises.
- Threshold formula
- Threshold = AOV + shipping cost ÷ margin
- Example store (AOV €40, shipping €4)
- 25% margin → about €60, 35% → €55, 50% → €50
- Checkout abandonment due to extra costs
- 40% of shoppers (Baymard Institute; shipping, taxes, fees)
- Average cart abandonment rate
- 70.22% (Baymard Institute, average of 50 studies)
- Orders already above the threshold
- Get free delivery with no extra margin; a pure cost to the shop