Tags: commerce concept

Shipping Thresholds

Date: 2026-08-16


The free-delivery minimum. It’s the most-used pricing lever in ecommerce and it’s usually set by copying a competitor — when the right answer is derivable from your own basket distribution in an afternoon.


What it is

A shipping threshold is the order value at which delivery becomes free. It works by giving customers a concrete goal, which lifts AOV — and it costs margin on every order that would have qualified anyway.

Deriving it from your own data

Plot the basket value distribution and find where customers already cluster:

basket value distribution

  ▌▖
  ▌▝▖▁▁
  ▌   ▝▖▁▁▁▁
 ─┴──┬──┴────┬────────
    £38     £50
   median   ← threshold here

Set it modestly above the median, close enough that the gap is bridgeable with one more item. On the running model — £38 median basket, £50 AOV — a threshold around £50 asks most customers for one small addition.

Too low and you give away delivery on orders that were coming anyway. Too high and it stops motivating — customers give up rather than reach.

The arithmetic

The calculation almost nobody does before setting one:

delivery cost                              £3.00
contribution per £1 of incremental spend    30%

threshold £50, customer at £38
  needs to add                             £12.00
  incremental contribution                  £3.60
  delivery cost absorbed                   −£3.00
                                          ───────
  net gain                                  £0.60

Thin. And that’s only for baskets genuinely pushed upward. For everyone already above £50, you’ve simply given away £3.

1,000 orders at threshold £50
  620 already above £50   →  −£3.00 each  =  −£1,860
  180 pushed up from below →  +£0.60 each =    +£108
  200 below, unchanged     →    £0          =       0
                                             ────────
                                              −£1,752

A threshold can lose money and still raise AOV. Which is why AOV is the wrong metric to judge it on — contribution per order is — Contribution Margin, Average Order Value.

What makes it work anyway

The arithmetic above ignores the conversion effect, which is usually where the value is:

  • Unexpected delivery cost at checkout is a leading cause of abandonment. A visible free-shipping threshold removes the surprise, and that conversion gain often exceeds the margin cost
  • It’s a competitive expectation in most categories — not offering one costs conversion regardless of the maths
  • Padding items are often high-margin accessories, which improves the incremental contribution figure above

So the honest position: the threshold is usually justified by conversion, not by AOV — and it should be judged on total contribution, not on basket size.

Variants

  • Tiered — free standard over £X, free express over £Y. Captures more value from larger baskets
  • Members only — ties delivery to a loyalty or subscription programme rather than to basket size — Loyalty Programmes
  • Category-specific, where bulky low-margin items would otherwise be subsidised
  • Progress indicator — “£12 away from free delivery” in the basket. The mechanism that makes any threshold work, and the cheapest part to implement

Testing it

  • A genuine A/B test on threshold value, judged on contribution per session rather than AOV or conversion alone
  • Watch what people pad with. If baskets reach the threshold via 15%-margin accessories, the threshold is buying volume at the expense of mix — Basket Composition
  • Watch return rate. Items added purely to reach a threshold are returned more often, and that cost lands weeks later — Return Rate and Reverse Logistics
  • Recompute annually. Delivery costs and basket distributions both move, and a threshold set three years ago is priced against a different business