Free delivery threshold: discounts and returns maths

Free delivery becomes expensive when the margin used to justify it belongs to a full-price order while the customer checks out with a discount. Returns and split parcels introduce similar gaps. This guide builds a contribution calculation you can reproduce, then tests the offer against real checkout rules. The existing country-by-country free shipping guide answers the geographical comparison. Here the question is whether your chosen threshold still works after the basket and its costs change.

Which figures belong in the calculation? #

Start with R, the qualifying merchandise revenue after discounts and before tax you must remit. Define m as the expected product contribution per unit of that revenue after product costs, including any effect of expected refunds and unrecovered stock. Define p as variable fees expressed on the same revenue basis. Then define C as costs per order that the offer must cover, including postage, preparation and any additional expected handling. Choose t as the contribution rate you want left for overhead and profit.

The resulting contribution is R × (m − p) − C. Requiring at least R × t leaves R × (m − p − t) ≥ C. Therefore the minimum revenue is C ÷ (m − p − t). If the denominator is zero or negative, increasing the basket cannot satisfy that target under these assumptions. Fix the margin, variable costs or target first. This is a model of one offer, not a prediction that a particular threshold increases sales.

What is the shipping input in this worked example? #

The carrier-only European rate index retrieved on 9 October 2026 lists €4.70 for the cheapest listed German domestic 2 kg parcel. For an illustrative small-parcel preparation arrangement, add the platform fee €0.85 and recommended sender fee €2.25. That gives a shipping-and-preparation subtotal of €7.80. The sender’s actual fee can differ, and the correct label still depends on the packed dimensions, postcode and service.

Treat the displayed shipping subtotal as an unrecovered cost for this arithmetic example. For your own worksheet, use costs after any tax you actually recover and revenue after any tax you must remit. Put fixed transaction charges, packaging and inbound stock allocation into C where they apply. Convert a fee calculated on a different base into a consistent input before using the simple percentage formula. Mixing checkout totals with accounting revenue can make the answer look precise while using incompatible figures.

How do you obtain the full-price minimum? #

At the example’s full-price margin, 40% − 2% − 10% leaves 28% of merchandise revenue available for C. Divide €7.80 by 0.28 and round upward to the next cent: €27.86. This is the minimum under the stated inputs, before adding omitted costs. A commercially chosen threshold can be higher, but the calculation does not tell you that a higher offer converts better or that customers will increase their baskets.

Check actual products around that boundary. A basket containing a low-margin product does not acquire the assumed 40% margin merely because its total exceeds the threshold. Calculate product contribution for realistic combinations or use an appropriately conservative margin for the offer. A gross margin and a markup are different ratios: margin uses selling revenue as its denominator. Substituting markup into this formula can substantially overstate the revenue available to pay for delivery.

What changes when you discount products by 20%? #

Assume product costs remain 60% of the original selling value. At full price, that leaves a 40% product margin. A 20% price discount reduces revenue to 80% of original value while product costs remain at 60%. The contribution before fulfilment is now 20% of original value, or 20 ÷ 80 = 25% of the discounted revenue. Do not simply reduce the old margin by a fifth: the denominator changed as well.

Using the example fee and target rates, the available fraction becomes 25% − 2% − 10% = 13%. The minimum discounted merchandise revenue is therefore €7.80 ÷ 0.13 = €60.00. If the whole eligible basket receives that discount, its original listed merchandise value must be €75.00 to leave the required discounted value. These amounts are calculated results, not carrier tariffs or suggested prices for your products.

Suppose you instead kept the old minimum and qualified the customer on its original listed value. After the discount, that basket brings in only €22.29. Under the model, contribution after the variable percentage fee and shipping becomes -€2.67, before overhead. That is why the free delivery rule and promotional discount rule need to be tested together, rather than approved in separate spreadsheets.

How do returns and split orders change the minimum? #

Build an expected allowance from your own returned-order data. As a deliberately limited logistics illustration, assume one order in ten adds an extra cost equal to C. The average extra allowance is C ÷ 10, or €0.78 per placed order. Adding it to C raises the full-margin minimum to €30.65. This is an assumption for the calculation, not a European return-rate claim, and it covers only that specified extra cost.

Refunded merchandise revenue and unrecovered product costs must also be reflected in m. Adding a return-label allowance while keeping the original product contribution unchanged can understate the loss from returns. Conversely, avoid counting the same return transport twice in C. Model resalable returned stock separately from damaged stock. Use the returns without a warehouse guide for practical preparation and receipt questions; use your own records to determine the financial inputs.

A split order can also change packaging, preparation and carrier charges independently. The two-parcel row assumes two identical copies of the example cost solely to show the effect. Obtain the real costs for the actual split, especially if items dispatch from different stock locations. A threshold based on one small parcel should not automatically subsidise two larger parcels under the same margin assumption. Check realistic baskets before advertising one blanket offer.

Does the checkout use the value your worksheet assumes? #

Shopify’s free shipping discount guidance says its minimum purchase amount counts product prices and excludes other costs such as taxes. Products count at their discounted prices when a combined discount applies. It also distinguishes gift cards bought as products from gift cards or store credit used as payment. Those are rules for this discount mechanism, so verify the configuration you actually use rather than assuming all shipping-rate and discount setups behave identically.

Test baskets just below, at and above your chosen boundary, with each allowed promotion. Include mixed products, gift cards, changed quantities and a destination using another delivery service. For multiple currencies, Shopify’s Markets guidance says a free-shipping discount minimum in the store’s default currency is converted at checkout. Check what the customer sees after conversion. A sensible financial rule can still fail if the checkout qualifies a different merchandise value or a more expensive service than your model.

How can you reduce the cost before lowering the threshold? #

Check packaging, service suitability and the stock location that supplies the order. AirPost’s local fulfilment model lets shops agree a batch with a verified sender near customers, who prepares and hands over parcels. Compare the full arrangement, including inbound transport and the sender’s actual fee, before changing C. A low domestic label alone cannot establish a lower complete fulfilment cost. Update the worksheet with an actual workable arrangement, then decide whether the offer can support a lower threshold.