Free Shipping Threshold: Can the Basket Pay for Delivery?
A free-shipping threshold works only when the qualifying basket leaves enough contribution to fund delivery and the amount your business needs to retain. Test actual product mixes and delivery zones, not just average order value. A larger basket filled with low-margin or heavy items can leave less contribution than a smaller one.
What you’ll get from this guide: Build a basket-and-zone test before deciding which orders can receive a delivery subsidy.
- Use contribution after product and transaction costs, not basket revenue.
- Test expensive destinations and heavy products separately.
- Make eligibility and exclusions clear before customers build a basket.
This worksheet is for an online retailer considering a delivery offer. Start with recent baskets, their product costs, parcel dimensions and carrier charges. Look beyond the average shipping bill to the expensive parcels and destinations.
Decide what an order needs to leave behind
Choose a contribution target after delivery that will help cover your fixed costs. In the fictional example below, the owner wants $20 per order after packing and freight. It is a chosen planning target, not a recommended retail margin.
Product and payment costs leave 40% of basket revenue before packing and delivery. Packing costs $4 per order. Illustrative delivery costs are $8 metro, $14 regional and $25 remote. All baskets in the table receive free delivery; none contributes a separate customer delivery payment.
Assumptions: Fictional Australian-dollar management-costing example. Amounts exclude GST that is assumed recoverable; any non-recoverable tax is already included in costs. These assumptions do not establish your GST entitlement. Contribution is before unallocated overheads and income tax.
| Basket revenue | Before packing/delivery: 40% | Metro: less $4 + $8 | Regional: less $4 + $14 | Remote: less $4 + $25 |
|---|---|---|---|---|
| $60 | $24 | $12: below target | $6: below target | −$5: below target |
| $90 | $36 | $24: meets target | $18: below target | $7: below target |
| $120 | $48 | $36: meets target | $30: meets target | $19: below target |
Original ASBG worked example. All businesses, amounts and scenarios are fictional. The table contains the same figures as the visual.
With that cost mix, the internal revenue threshold is (target + packing + delivery) ÷ contribution rate. Metro needs ($20 + $4 + $8) ÷ 0.40 = $80. Regional needs $95 and remote needs $122.50. Those are revenue amounts on the model's GST basis, not automatically the GST-inclusive thresholds you would advertise to consumers.
Convert to the appropriate customer-facing tax basis and round a proposed offer deliberately. Then retest the actual qualifying baskets. A convenient round threshold may produce different results from the number in this worksheet.
Replace the average margin with real baskets
Suppose a $120 basket contains heavily discounted products leaving only 25% before packing and delivery. It contributes $30, then $12 after the fictional regional packing and freight. It fails the $20 target despite its higher order value.
A heavy item can create a second problem: the parcel's freight cost might jump from $14 to $28. At the original 40% contribution rate, a $120 basket would then leave $16 after $4 packing and $28 delivery. Test both product mix and parcel cost together.
Don't assume everyone adds extra items because you introduced a threshold. Some already-qualified customers may simply stop paying delivery. Estimate that lost delivery revenue alongside the contribution from genuinely larger or new orders.
Write the offer worksheet before the banner
Record the qualifying basket amount, whether discounts are applied first, included delivery method, locations, excluded products, parcel limits and what happens when a customer returns part of an order. Have the actual returns and contract terms checked; this calculation doesn't authorise taking delivery charges from a later refund.
Test a basket just below and just above the threshold, one with a discount code, one heavy item and a remote postcode. Check that the product page, basket and checkout give the same answer.
The ACCC's price-display guidance covers delivery charges and full prices. Use it to check the presentation rather than treating 'free' as permission to hide qualifications. The internal table above is not customer-facing offer copy.
Review the result after a small trial
Compare contribution per order, delivery cost, basket mix, conversion and total contribution with a comparable period. More completed orders can still produce less total contribution. Track whether picking and dispatch capacity became a bottleneck.
Business.gov.au's pricing framework includes market testing. Use the actual trial result to revise the assumptions; keep the threshold only if the orders it produces support the business.
Where to get help
Use marketplace order costing for platform sales and the discount campaign sheet if the offer also reduces product prices. The online-store guide and pricing and profit hub cover the related decisions.
Where to go from here
Discount Campaign Cost Sheet: How Many Extra Sales Do You Need?
Calculate the extra sales a promotion would need.
3 min readMinimum Order Value: Cover the Cost of Small Orders
Compare ways to cover the handling of small orders.
3 min readMarketplace Profit per Order: Include Fees, Returns and Fulfilment
Explore a related question linked in this guide.
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General information only. This guide doesn't take your personal or business circumstances into account and isn't financial, legal or tax advice. Rates and thresholds change — check the official sources linked in this guide and get qualified advice where your circumstances require it.