Contribution margin calculator
What each order really leaves you, and how much of that you can spend winning the customer.
≈ 3 minutes
Work out my contribution margin
A free shipping threshold that pays for itself
Free shipping is not free: somebody pays for it, and that somebody is you. The useful question is not whether to offer it, but above what order value the extra margin covers the shipping you give away. This calculator combines your average order, your contribution margin and what shipping costs you to find that minimum threshold.
Every calculation runs in your browser. The figures you type are never sent to a server and are never stored.
Your results will appear here
Enter your average order, your contribution margin and the shipping cost.
- Average order value, excluding tax
- Contribution margin as a percentage
- What it costs you to ship one order
Calculation results
Break-even threshold
—
From this order value, free shipping pays for itself.
Required uplift—How much the order has to grow
Increase over the average order—The same rise, as a percentage
Shipping cost—
Proposed threshold—
Uplift of the proposal—
Additional contribution—
Net impact—Additional contribution minus shipping cost
Does it hold up?—
See the breakdown
| Current average order | — |
| Contribution margin | — |
| Shipping cost | — |
| Required uplift | — |
| Break-even threshold | — |
Recommended next step
If the threshold sits far above your average order, a well-built bundle is the most direct way to close the gap — as long as the bundle itself still leaves money.
Check whether a bundle paysResults are estimates based on the information you enter. Fees, taxes and platform terms can change: always check the figure that matters to you against your invoice or the official platform. They do not replace your real invoices, your official accounts or professional tax, financial or legal advice.
What this tool works out
This free shipping threshold calculator looks for the order value above which the shipping you give away is covered by the extra margin on that larger order.
The logic is straightforward: if your average order leaves 35 % contribution and shipping it costs you $4.90, every extra dollar of order brings in $0.35 of contribution. You need the customer to spend enough for those accumulated cents to pay for the whole shipment.
What you need to enter
Three required figures and one optional. Contribution margin is the percentage left after every variable cost, not gross margin: use gross and the threshold comes out lower than you can afford.
- Average order value, excluding indirect taxes
- Contribution margin as a percentage of that order
- The real shipping cost you would absorb
- A threshold you are considering, if you want it checked
How the formula works
The required increase is the shipping cost divided by the contribution ratio. Then it is added to the average order.
ratio = contribution margin % / 100
required increase = shipping cost / ratio
break-even threshold = average order + required increase
If you are testing a specific threshold:
proposed increase = proposed threshold - average order
additional contribution = proposed increase x ratio
net impact = additional contribution - shipping cost
A positive net impact means that threshold pays for itself. Negative means you are subsidizing shipping with margin you already had.
A worked example
A store with a $45 average order, a 35 % contribution margin and $4.90 of shipping cost. It is considering offering free shipping above $60.
| Item | Value |
|---|---|
| Current average order | $45.00 |
| Shipping cost | $4.90 |
| Required increase | $14.00 |
| Over the average order | 31.11% |
| Break-even threshold | $59.00 USD |
| Additional contribution at $60 | $5.25 |
| Net impact of the proposed threshold | $0.35 |
The minimum threshold is $59: below that, free shipping costs money. The $60 under consideration works, though barely: it leaves $0.35 spare per order. And it requires the customer to raise their basket by 31.11 %.
How to read the result
The threshold you get here is the mathematical minimum, not the commercially optimal one. It marks the line below which you lose money for certain; above it, commercial judgment takes over.
That judgment turns on something else: how many people are willing to raise their order that far. A threshold nobody reaches is decoration; one everybody reaches costs you money on every order.
The percentage increase helps you judge whether the threshold is realistic, because it translates the threshold into what you are asking of the customer. A small increase fits inside a purchase they were already making; one that makes them buy several times what they came for is a different decision altogether. Only your own data says how far your catalog stretches a basket.
What this calculation cannot decide for you
The calculator does not guarantee that customers will raise their basket. It only says how much they would have to raise it for free shipping not to cost you money. If your catalog has no complementary products in that price range, the threshold is unreachable however correct the number is.
It also says nothing about conversion. A well-placed threshold can lift the average order and it can also scare off somebody who came for one item. That is measured by testing, not by calculating.
What to decide next
If the threshold lands far above your catalog's reach, the most direct lever is giving the customer something to buy to get there. A well-built bundle lifts the order value without relying on people adding loose items on their own.
What this assumes
- The contribution margin on the extra amount matches that of the average order
- Shipping cost does not change when the order is larger
- Order value is expressed without indirect taxes
- The average order you enter is representative of your store
- Every order above the threshold receives free shipping
What it does not cover
- Whether your customers will agree to raise their order to the threshold
- The effect of the threshold on conversion rate
- Shipping with different rates by weight, volume or destination
- Returns on orders that shipped free
- The opportunity cost of customers who buy just above the threshold
Frequently asked questions
Which margin do I enter, gross or contribution?
Contribution, after every variable cost of the order. Use gross margin and the threshold comes out lower than you can afford, so you end up giving shipping away with money that was already committed elsewhere.
Why is the threshold above my average order?
Because shipping is paid for by the margin on the extra amount, not by the order you already had. That order already has a job: covering its own costs. Only what the customer spends on top can fund free shipping.
Is this the threshold I should put on my store?
It is the minimum, not necessarily the one to publish. Below it you lose money for certain; above it begins a commercial decision that depends on your catalog and on how far people will stretch their basket.
What if my contribution margin is very low?
The threshold shoots up, because each extra dollar contributes so little. At 10 % margin with $5 shipping, the customer would have to spend $50 more than usual. If your margin is not positive at all, no threshold works and the calculator says so outright.
Do I enter the real shipping cost or what I charge for it?
The real cost you absorb, which is what you stop collecting when you give it away. If you charge $3.90 today for shipping that costs you $4.90, you were already subsidizing a dollar: the calculation has to start from $4.90.
Does it work if I have different shipping rates by zone?
Calculate each zone separately with its own cost, or use a volume-weighted average cost if you want a single threshold. A global threshold built on your cheapest rate will cost you money in the expensive zones.
Will the threshold raise my average order?
It might, but this calculation does not say so. Here you learn how far the basket would have to rise to break even; whether it actually rises depends on your catalog, your prices and your customers, and is settled by measuring.
What should I work out after this?
How to help customers reach the threshold. A bundle with its own price lifts the order value without relying on people adding loose items, and it is worth checking first that the bundle still leaves money on the table.
Official sources
Shopify — shipping strategies and minimum order thresholdhttps://www.shopify.com/blog/shipping-strategy
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