How to Set a Free Postage Threshold That Still Leaves a Profit

Work out the order value at which you can afford to offer free postage, so the offer pushes buyers to add an item instead of eating your profit.

Free postage is a cost, not a gift

When you offer free postage, you still pay the postage. It comes straight out of the profit on the order. A threshold such as "free postage over $30" limits that cost to bigger orders, where the profit is large enough to cover it. All numbers below are invented examples.

Step 1: Know your margin before postage

Say you sell an item for $15.00 that costs you $6.00 to make or buy. Profit is $15 - $6 = $9.00, a margin of $9 / $15 = 60%. Say the parcel costs you $4.00 to send (use your own real figure from your carrier's price list).

Step 2: See what free postage does to one small order

If a customer buys one item and you pay the $4.00:

Profit: $9.00 - $4.00 = $5.00.
Margin: $5 / $15 = 33.3%.

Your margin fell from 60% to 33.3% on that order. If every order is one item and every order ships free, you earn $5 instead of $9 on each, which is 44.4% less profit ($4 / $9).

Step 3: Pick a floor margin and solve for the threshold

Choose the lowest margin you will accept after postage. Here we pick 45%. With a 60% margin before postage, an order of value V leaves 0.60 x V - $4.00 in profit. We need that to be at least 0.45 x V.

0.60V - 4 is at least 0.45V
0.15V is at least 4
V is at least 4 / 0.15 = $26.67

Round up to $27. Check it: profit before postage is 0.60 x $27 = $16.20. After postage it is $12.20. Margin is $12.20 / $27 = 45.2%. Check a lower value to be sure: at $26, profit is $15.60 - $4.00 = $11.60, margin 44.6%, just under the floor.

Step 4: Compare with real baskets

With $15 items, here is what you keep when postage is free:

1 item, $15: profit $5.00, margin 33.3%. Below your floor.
2 items, $30: profit $18.00 - $4.00 = $14.00, margin 14 / 30 = 46.7%.
3 items, $45: profit $27.00 - $4.00 = $23.00, margin 23 / 45 = 51.1%.

A threshold of $30 fits this shop: two items clear the floor, and a one-item buyer sees how close they are and may add a second. If your heavier orders cost more to post, redo the sum with that postage figure.

Step 5: Check it after a month

A threshold only works if people respond to it. After a month, look at your average order value and your orders just under the threshold. If most orders still sit below it, the offer is costing you nothing but also changing nothing, and you can try a lower or clearer one. If a lot of orders land exactly at the threshold and your margin holds above the floor, keep it.

Common mistakes

Using a guessed postage cost. Weigh a packed parcel and use the real price.
Forgetting packaging. Boxes and padding belong in the cost per order.
Setting the threshold below the order value you worked out in Step 3. Run the sum in Step 3 first.
Never revisiting it. Postage and product costs change.

Put your own prices, costs and postage into the free profit margin calculator on this site to see what each order size leaves you. The Back Office Kit (for Microsoft Excel) keeps your product costs and prices in one place, so the margin is worked out for you.

For a different way to think about it, see our guide on whether you should offer free shipping.

This was one sum

The Back Office Kit runs all of them, for every product, together.

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The dashboard tab of the Back Office Kit: revenue, profit, cash, stock value and items to reorder.