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Free shipping threshold calculator

The order value from which you can offer free delivery without losing margin per order.

Free shipping threshold

The average value of the goods in an order, excluding VAT and the delivery charge.

£

On average per order: carrier, packaging and packing.

£

Leave blank if customers pay what delivery costs you; enter 0 if you already deliver for free.

£

Gross profit as a percentage of the selling price excluding VAT, for example 40.

%
Test a threshold (optional)

Optional: the order value from which you are thinking of offering free delivery.

£

Free shipping threshold (excl. VAT)

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Enter your average order value, what one delivery costs you and your gross margin to see the result.

Break-even order for free delivery (excl. VAT)
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Extra spend asked of each order
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Extra spend as a share of the average order
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Margin per order today, after delivery
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Recent calculations

Nothing yet: copy, export or save a calculation to find it here.

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How it works

Enter your average order value, what one delivery costs you, the delivery charge customers pay today and your gross margin. The calculator gives the order value from which free delivery keeps the margin of your average order, the break-even order below which a free-delivery order no longer pays for its delivery, and how much more it asks each customer to spend. All amounts are excluding VAT, and the arithmetic is the same across the UK.

Gather your figures

Average order value is sales of goods divided by the number of orders, excluding VAT and delivery charges, over a representative period. The cost of one delivery covers the carrier, packaging and, if you count it, packing time. Gross margin is gross profit as a percentage of the selling price, which HMRC calls the gross profit rate: at 40%, a product sold for £100 excluding VAT leaves you £40 once its cost is paid.

Read the threshold

The threshold is the order value at which a free-delivery order earns as much as your average order does today with its delivery charge. It equals the average order value plus the delivery charge divided by the gross margin: every pound of delivery you give away has to be made up by extra sales, and at a 40% margin it takes £2.50 of sales to earn £1 of margin.

Test the threshold you have in mind

Under ‘Test a threshold’, enter a round figure such as £40 or £50. You see the margin on an order that just reaches it and the difference from your average order today. Below the break-even order, a free-delivery order’s margin no longer covers its delivery.

Rounding and reuse

The threshold and the break-even order are rounded up to the penny, so an order of that value always covers what it must. Every other amount is rounded to the nearest penny, with halves rounded away from zero: up for a margin, down for a loss. Copy the result, export it as a CSV file or save it to Priostack.

Margin per order today = average order value × gross margin + delivery charge − delivery cost.

Threshold = average order value + (delivery charge ÷ gross margin).

Break-even order = delivery cost ÷ gross margin.

Extra spend = threshold − average order value, and as a percentage, extra spend ÷ average order value.

Example: a £36 average order with a £3.95 delivery charge

A shop sells £36.00 excluding VAT per order on average, at a gross margin of 40%. Customers pay £3.95 for delivery and each parcel costs the shop £4.20. Today an average order earns £36.00 × 40% + £3.95 − £4.20 = £14.15. To keep that margin with free delivery, the threshold is £36.00 + (£3.95 ÷ 40%) = £45.88 excluding VAT, £9.88 (27.44%) above the average order; at the standard VAT rate of 20%, the shop shows it as £55.06 including VAT. A threshold of £40.00 would leave £40.00 × 40% − £4.20 = £11.80 on an order that just reaches it, £2.35 less than today. Below £10.50, a free-delivery order no longer covers its delivery.

Frequently asked questions

How do I work out a free shipping threshold?

Add the delivery charge you make today, divided by your gross margin, to your average order value. With a £36 average order, a £3.95 delivery charge and a 40% margin, the threshold is £36 + £3.95 ÷ 0.40 = £45.88 excluding VAT. An order of that value with free delivery leaves you the same margin as an average order that pays for delivery.

Should the threshold include VAT?

Work it out excluding VAT, like your margin, then show customers the VAT-inclusive figure at your goods’ VAT rate: at the standard rate of 20%, multiply by 1.2; at the reduced rate of 5%, by 1.05; zero-rated goods, such as children’s clothes, add no VAT. If you are not VAT-registered, enter your amounts as they are.

What about orders that are already above the threshold?

They stop paying a delivery charge they used to pay. The calculation does not see that loss, because it compares an order at the threshold with your average order. If many of your orders are already above the threshold, raise it, or check against your sales that bigger baskets make up for the delivery charges you give away.

Do I have to refund delivery if a customer cancels?

Yes, for online and other distance sales to consumers. When a customer cancels within the cancellation period, you must refund what they paid for delivery, up to the cost of the least expensive standard delivery you offer. Free delivery leaves nothing to refund, but it is still a cost to you.

Must customers see delivery costs before they order?

Yes: before an order is placed, you must give the delivery arrangements, costs and how long goods will take to arrive. So state the free delivery threshold, and the charge below it, before checkout.

Why is the threshold rounded up?

Because it is a minimum: rounded down, an order of that value would earn a fraction of a penny less than your average order. The break-even order follows the same rule; every other amount is rounded to the nearest penny.

Sources

  1. HMRC Enquiry Manual EM3504 (recalculating profits): gross profit rate and rate of mark-up (12 January 2016)
  2. GOV.UK: VAT rates (standard rate 20%, reduced rate 5%, zero rate) (12 December 2014)
  3. GOV.UK: Online and distance selling (information to give before an order is placed) (14 September 2015)
  4. GOV.UK: Accepting returns and giving refunds, the law (refund of standard delivery) (18 August 2015)
  5. legislation.gov.uk: Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, regulation 34 (1 October 2015)

This calculator gives general information, not legal, tax, financial or accounting advice. It works on an average order: check the threshold against your own sales before you use it.

Last reviewed: