What the threshold is meant to do
A free-shipping threshold is a trade-off, not a discount. Below the threshold, you absorb delivery cost and may improve checkout conversion. Set it higher, and some shoppers may add another item, increasing average order value (AOV); others may abandon the basket or choose paid delivery. The right threshold is the point where the extra gross profit from larger baskets and retained orders compensates for delivery cost and any lost conversions.
Use each measure for a different decision. Conversion indicates whether the shipping charge is creating checkout friction. AOV shows whether the threshold is changing basket size. Contribution margin shows whether larger orders still leave enough after product, delivery and advertising costs. Revenue alone cannot answer that question, particularly when returns or cancellations are involved. ORVX calculates realized revenue from delivered orders, derives gross and net profit margins from a product cost model, and reports contribution after advertising by product and collection. That lets you assess the threshold against profitable orders, not just completed checkouts or sales value.
Start with the order economics
Before setting a free-shipping threshold, define the economics of one delivered order. Record the selling price, product cost, payment fees, fulfilment labour or fees, packaging, delivery charge and expected returns cost. Keep VAT treatment consistent: GOV.UK says, “A UK business must register for VAT when its taxable turnover for the last 12 months goes over £90,000, the VAT threshold.” (Source: GOV.UK (HM Revenue & Customs)).
Revenue is the amount attributable to delivered orders, not a label for profitability. Gross margin subtracts product cost from revenue; it does not normally include delivery, packaging, payment or returns. Contribution margin subtracts the variable costs required to make and deliver the order, so it is the relevant measure for deciding how much free shipping the basket can absorb. Treat advertising separately unless your definition explicitly includes it.
For illustration only, a £40 delivered basket with £12 product cost, £1.20 payment fees, £2 fulfilment, £0.80 packaging, £3.50 delivery and £2 expected returns cost contributes £18.50 before advertising. A £28 gross profit figure would overstate what is available to fund free shipping.
| Measure | Calculation | Use it when |
|---|---|---|
| Revenue | Delivered-order sales | Checking sales volume |
| Gross margin | Revenue minus product cost | Assessing product pricing |
| Contribution margin | Revenue minus variable order costs | Testing shipping economics |
Worked example with sample numbers
This example is illustrative. It uses sample numbers for a haircare store selling in the UK. They are made up to show the method, they are not a benchmark, and your own figures will differ.
Formula: Lowest safe basket = (delivery + packing + fixed fee) / (gross margin rate - percentage fee - minimum margin you will accept).
| Basket without tax | Margin before delivery | After absorbing delivery | Share of basket |
|---|---|---|---|
| £16.87 | £11.60 | £7.53 | 44.6% |
| £22.49 | £15.54 | £11.47 | 51.0% |
| £33.74 | £23.43 | £19.36 | 57.4% |
| £44.98 | £31.32 | £27.25 | 60.6% |
Run the same sum with your own numbers in the free calculator, or browse guides for sellers in the UK and more haircare guides.
General information only: tax, duty and import rules change and depend on your situation, so check with an accountant or the official source before acting.
Eligible Shopify stores can see these numbers for their own store through the Founding 10,000 offer.
Finding the lowest safe threshold
Test each candidate threshold against two baskets: an order just below it, where you pay for delivery, and an order just above it, where delivery is free. For each basket, calculate margin available as realised revenue minus product cost, payment fees, fulfilment costs and any other order-level costs. Compare that amount with the actual delivery cost. A threshold is not safe if the near-below basket cannot fund the delivery charge, or if the near-above basket loses too much margin because the customer qualifies for free delivery.
Use delivered orders for this test, not placed orders that were later cancelled or returned. ORVX calculates realised revenue from delivered orders only, then derives gross profit and net profit from the product cost model. If advertising is material, also check contribution after advertising: gross margin shows whether the order works before acquisition cost, while contribution shows whether it works after it. Use the former to assess delivery affordability and the latter to decide whether the threshold is sustainable for paid traffic. Read the separate worked example line by line, then repeat the calculation for each threshold under consideration.
Which products can lift the basket
Assess candidates by incremental contribution: extra realised revenue less product cost, discount, payment fee, fulfilment labour, packaging and additional delivery cost. Replenishment items suit repeat demand only if margin survives shipping; check product-level contribution and repeat behaviour. A £12 shampoo with £4 product cost and £1.50 incremental handling contributes £6.50 before other order costs. Bundles suit prices yielding more contribution than separate sales; include packaging, kitting time and discount.
Compare threshold options in one table
Compare candidates using delivered orders, not orders that were cancelled or returned. The figures below are illustrative; replace them with your store’s results. Qualifying-order share shows how many delivered orders receive free shipping. Delivery cost shows the average shipping cost you absorb on those orders. Contribution after delivery shows what remains after product and order costs, including shipping. Basket value shows whether the threshold is attracting genuinely larger baskets or merely shifting existing orders.
Act on qualifying-order share when a threshold changes eligibility sharply; investigate conversion and add-on behaviour before raising it again. Act on delivery cost when courier, parcel-size or destination mix is eroding margin. Use contribution after delivery as the safety check for whether a candidate is economically viable. Use basket value when deciding whether merchandising can move customers over the threshold without relying on discounts.
| Threshold | Qualifying delivered orders | Average delivery cost absorbed | Contribution after delivery | Average basket value |
|---|---|---|---|---|
| £30 | 68% | £2.70 | £10.40 | £34 |
| £40 | 46% | £3.10 | £13.20 | £45 |
| £50 | 29% | £3.55 | £15.60 | £57 |
Measuring the result after launch
Record a baseline for the same number of weeks, keeping traffic source, promotion, seasonality and product mix visible. Compare delivered orders, split qualifying (at or above the threshold) and non-qualifying baskets, and report overall results. Keep definitions consistent: conversion = orders/sessions; average order value = realised revenue/delivered orders; contribution = realised revenue less product cost, payment fees, fulfilment, packaging, your shipping, discounts and allocated advertising. Report shipping subsidy separately.
- Conversion: compare overall conversion and below-threshold versus qualifying sessions to distinguish checkout completion from basket shifting.
- Order value and contribution: report both per delivered order by group; a £6 increase is useful only if added costs are below £6.
- Shipping subsidy: show absorbed shipping per order and total by group; act when extra qualifying contribution does not cover absorbed delivery.
- Returns: report return rate by units and refund value against revenue by group. Recheck contribution after refunds; higher returns require a different decision.
| Measure | Overall | Qualifying orders | Non-qualifying orders |
|---|---|---|---|
| Conversion rate | Before vs after | Before vs after | Before vs after |
| Average order value | Realised revenue ÷ delivered orders | Same calculation | Same calculation |
| Contribution per order | After all listed costs | Same calculation | Same calculation |
| Shipping subsidy | Total and per order | Total and per order | Total and per order |
| Returns | Unit rate and refund value | Unit rate and refund value | Unit rate and refund value |
A defensible free-shipping threshold is the lowest amount that leaves enough contribution after product, payment, fulfilment, packaging, delivery and expected returns. Compare several thresholds, use relevant basket-building products to help customers reach one, and change the offer only when the resulting order economics support it.
Sources
- VAT registration: when to register (GOV.UK (HM Revenue & Customs), checked 26 October 2026).
How this page was made: drafted with AI from a brief, then checked by automated rules for arithmetic, sources and duplication. The sample numbers were calculated, not reported.