How to Calculate Free Shipping Thresholds

How to Calculate Free Shipping Thresholds

"How much should my free shipping threshold be?" 

"$19.99"

"$50?"

"$75?"

Image source: Compete.com

In a Compete.com survey, 93% of people stated that a business offering some form of "free shipping" offer would encourage them to purchase more products from that retailer. 

Study after study on cart abandonment, finds that that "shipping fees" is the reason for, in many cases, over 50% of abandoned carts.

Trouble is, we live in a post-Prime era where consumers expect fast free shipping is the standard, but offering it outright is cripplingly expensive. 

A healthy middle-ground both businesses and consumers are have seemed to agree on is the free-shipping threshold.

In fact, 3 out of 4 customers in this UPS survey readily admit to adding more items to their cart just to get free shipping, and 60% of businesses report free shipping with conditions as their most effective marketing tool. 

Which brings us back to the question from the lede - "How much should my free shipping threshold be?"

"How to Calculate a Threshold?" You're Asking The Wrong Questions

When this question arises in various online communities, merchants appear to be approaching the question from the shopper-centric point of view.

From that perspective, they're asking, "would I be willing to spend $50 just to get free shipping?" The trepidation, it seems, is that they want to set the "right price" that consumers will be willing to pay.

There are two major problems with approaching free shipping thresholds this way: 

  1. Research shows we're completely illogical when it comes to judging price.
  2. Setting a free shipping threshold arbitrarily can destroy your margins.

Consider the consequences of inadvertently setting a shipping threshold too low where suddenly 90% of orders qualified but pricing never adjusted to absorb the cost of flat-rate boxes.

Use Data as a Starting Point to Calculate Your Free Shipping Threshold

While it's tempting to fixate on the final number, the best way to arrive at the free shipping threshold is to back away and instead work from what the data tells you is your median average order value.  

When the Shipping Threshold is Too Low

In the scenario, we discussed just a moment ago, the shipping threshold that was set too low in relation to the median average order value. Graphed out, it would look like this. 

Free Shipping Threshold Set Too Low

Businesses who arbitrarily set free shipping thresholds often find themselves eating the cost of free shipping without seeing the additional benefit of increasing average order value. 

This isn't sustainable long-term, and the inevitable outcome for a business in this situation is that they will either:

A. raise their prices
B. increase free shipping costs or
C. remove the threshold altogether

None of these outcomes bode well for customer trust, and can lead to damaging relationships down the road.

When the Shipping Threshold is Too High

Alternatively, the other effect of setting thresholds arbitrarily is that you set it too high, asking customers to spend too much to reach it.


In this scenario, you will certainly find yourself with customers who are increasing order values just to meet the free shipping threshold but don't celebrate yet. 

These customers are likely to be in your most loyal, high-spending base, and while they may be spending more to take advantage of free shipping, they could perceive your threshold as an exploitation of their loyalty rather than a value add.

Setting Your Free Shipping Threshold in the "Goldilox Zone"

Ideally, your free shipping threshold is set just high enough above your median average order value that it pushes people to increase their average order value, but not so high that it makes it feel like it's too much.

When your shipping threshold is set in the "Goldilox zone", you should end up seeing a larger number of higher order values; this is because you're playing to the visitor's natural inclination to impulse buy

Because free shipping is just out of reach for most customers, your new shipping threshold gives them permission (or further persuades them) to add that one extra item they were previously denying themselves from getting.  

To demonstrate, let's examine how cheeky merchant Poo-pourri helps you justify ordering more in a single sitting. 

Case Study - How Poo-Pourri Persuades You to Build Your Order 

You likely know Poo-Pourri from their hilarious "Girls Don't Poop" video discussing the benefits of using their spray to trap embarrassing odors in the toilet bowl. 

 

But what you may not realize is that Poo-Pourri has also mastered the art of optimizing for eye paths and positioning their product so you end up buying more than you anticipated.

For instance, this is what you see when you land on their homepage.

 There are many elements that are going on right here, most notably: 

Poo-Pourri is self-aware enough to know their product - though valuable - will likely be an impulse purchase, therefore they prime you instantly to end up buying more than you planned on, so you'll commit to using the product and eventually become a repeat customer. 

Notice how the free shipping threshold at $19.99 is displayed prominently between the logo and the search bar? 

It's impossible to miss even if you're half paying attention, and that'll become very important later on.

But for now, let's see what happens as soon as we click on the "Order Now" button.

 

Click 1: Price Anchoring

 

 

Immediately, you'll notice products at 3 different pricing tiers:

  1. A holiday-specific gift box ($24.95)
  2. An "all purpose" gift box ($18.85)
  3. The standard 2oz spray ($9.95 and up)

This is a classic example of both decoy pricing and price anchoring, where the middle product is only there as a distraction. 

If I had to guess, Poo-Pourri knows it's very likely you've only come to the site to buy the smallest 2.oz bottle potentially as a gag gift for a loved one, between the free shipping threshold and the pricing structure, your brain is now at odds with itself. 

Your internal dialog looks something like this:

"If I get the Valentine's box, it'll be really funny and I'll get free shipping." 

"That middle one isn't really holiday specific, and I'd have to buy something else anyways, so I'll skip it."

"Stick to your guns, you only came here to get a small bottle, you'll pay for shipping."

This internal dialog is critical to understanding the effectiveness of the free shipping threshold.

If you recall from our article on impulse purchases, the key to triggering impulse purchases is to first put the brain in a state of disbalance. 

Spend more to get the product, free shipping and nice thematic packaging, or spend less and get exactly what you set out to buy. 

Since it's not likely you'll be buying the middle option, and you'll automatically qualify for free shipping with the Valentine's Day box, let's look at what happens when you buy the lowest price option available.

Click 2: Trading Short-Term Discounts In Short Term Discounts

On this page, you now see the option of making a one-time purchase for $9.95 or you can subscribe, save 10% and only pay $8.96 today. 

We're only three pages into the website, and we're having to make another decision. 

Initially, Poo-Pourri marketing lead you to believe this product would be a gag gift but now, thanks to strategically placed reviews from 350 people, you're thrown into an another state of disbalance.

Subscribing never occurred to you. You could get 10% off and a lower price and still pay for (the currently unknown) shipping, or stick with the original plan, pay for shipping, and only buy the 2oz bottle.

Subscriptions, of course, are far more valuable for Poo-Pourri in the long-term, and with a 10% off discount, it's hard to deny they're mutually valuable to you.

It's also apparent that Poo-Pourri will kindly make you run the gambit of value-added offers if your planning on buying only the lowest price product they have to offer. 

Assuming you're still sticking to your original plan of paying for shipping for a single product at this point, this is what you're presented once you add the product to your cart. 

Click 3: A Reminder That You're Passing on a Good Offer

Before you proceed to checkout, the text directly under the Add to Cart button serves as a not so subtle reminder that you'll only need to spend just over $10 to qualify for free shipping.   

Because you've made a couple of decisions at this point, you're likely questioning whether your decision to pay for shipping is even worth it, or if you should just buy more or a higher priced item to qualify.

This is the sign of a great free shipping threshold as it gives visitors a valuable reason to commit more to your brand. 

Assuming you don't add another product to your cart to qualify, this is what you're presented with on the next click. 

Clicks 4 & 5: Is it Really Worth Passing on the Free Shipping Threshold?

At this point, Poo-Pourri has made well aware of all of the different ways you can take advantage of their free shipping threshold, and through smart design, price anchoring, decoy pricing and even social validation, has made you re-affirm your commitment to pay for shipping.

During the final clicks of the checkout period, you're tested on that commitment to paying full price, and you'll question "how much am I really saving?"

 

$15.76...

Here's what the internal dialogue looks like: 

"You've passed on a pre-wrapped Valentine's day present for them and free shipping just to save $4.32? By the time you get wrapping paper and a card, you'll have spent that anyways.  
Seriously, you're willing to pay half as much as what the product is worth, just to ship it?
Geeze. You should at least get the gift box, or buy a few more bottles to hit that shipping threshold. What's one bottle of spray going to look like as a gift anyways?"

 

Now they have to decide if they want to build their order, continue checking out, or abandon the cart altogether.  

While some visitors will inevitably abandon, if you've done what you can to reduce fears in the checkout it's more likely you'll have more customers building their order or continuing to checkout, as they're not getting hit with a surprise shipping fee, and you've made your shipping costs very clear from the moment they've landed on your website.  

Free Shipping Thresholds Are Anything But Arbitrary

As a business owner, these are exactly the kinds of dialogues you want buyers to have with themselves.

With every decision you encourage your visitor to make, you're reaffirming their commitment to engaging with your brand. Study after study shows that top performing ecommerce companies are set apart by having more items and higher cart values, and this free shipping threshold is the perfect carrot to dangle.

And remember, this is just the beginning. Once they've checked out, reward them with a unique new customer onboarding experience and exceed their expectations with the unboxing to create happy, loyal, lifelong customers.  

Photo of Tommy Walker

About the Author

Tommy Walker is the Editor-in-Chief of the Shopify Plus blog. It is his goal to provide high-volume ecommerce stores with deeply researched, honest advice for growing their customer base, revenues and profits. Get more from Tommy on Twitter.