Process for calculating free shipping minimum
Setting a free shipping threshold arbitrarily can destroy your margins. Many retailers ask themselves, “What amount would my customer be willing to pay to get free shipping?” That’s not an effective way to set a free shipping minimum. If your average order value is $30 and you set your free shipping minimum at $200, you’re not offering enough value to counteract the increased spend by the customer. Consider the consequences of inadvertently setting a shipping minimum too low where suddenly 75% of orders qualified, but pricing never changed to absorb the cost of shipping. This strategy leaves you to eat the shipping costs. It comes down to calculating different options and testing the results. Here’s a quick formula to help set a free shipping minimum.
- Average Order Value (example, $35)
Calculate Average Order value without shipping costs - Average Shipping Cost (example, $5)
The Share A Refund Reporting Dashboard tracks all shipment data across all carriers in a single excel report to help with quick calculations. Alos, this number should include the direct costs of shipping products like boxes, tape, fulfillment, etc. - Gross Profit Margin (example, 40%)
To calculate subtract Cost of Producing Goods from the Total Sales and divide that number by Total Sales. An example would be to take (100,000-60,000)/100,000. The result is a 40% gross profit margin. - Proposed Minimum Cart Value (example, $40 and $55)
Shipping thresholds are normally set in numbers ending in -0 or -5.
$40.00 – $35.00 = $5.00 * .40 = $2.00 – $5.00 = ($3.00)
$55.00 – $35.00 = $15.00 *.40 = $6.00 – $5.00 = $1.00
Put your free shipping threshold to the test
Test your ideal range of thresholds
Do the A/B test
Will a free shipping minimum increase cart abandonment?
- Customers are conditioned to add more items to their cart to secure free shipping.
- Shoppers spend 30% more per order
- when free shipping is included. On the contrary, a Visual Website Optimizer ecommerce survey states, 28% shoppers abandon carts because of unexpected shipping costs. Multiple studies always find the cost of shipping to be the main reason for cart abandonment. Tracking these metrics alongside your various shipping threshold tests could show you a correlation between shipping costs and cart abandonment, and how to find the optimal target.
