Quick answer
Set your free shipping threshold from your basket data, not a round number. Start just above your most common basket, then count three things: the shipping income you give up on orders already above the line, the extra items people add to reach it, and any lift in conversion. In our illustrative store, a threshold at $100 needs only about 3% more orders to pay for itself; free shipping on everything needs 31% more.
Key points
- A threshold costs you on every order that was already above it — that's the hidden subsidy.
- It earns back through extra items added to reach the line and fewer abandoned carts.
- If you're registered for GST, one-eleventh of any shipping fee you charge isn't yours.
- In the illustrative store, free shipping on everything needs 31% more orders to stand still; a $100 threshold needs about 3%.
- Setting the line at or below your average order mostly gives margin away.
- Delivery can sit outside your displayed price if it's optional, but it must be clear before checkout.
Free shipping is one of the few offers customers actually notice. It’s also one of the easiest ways for a small store to give margin away without seeing it on any dashboard.
The fix isn’t “free shipping or not”. It’s where you draw the line, and whether you’ve counted what the line really costs. October is the month to settle it, before Black Friday (27 November) and Christmas lock in whatever setting you’re running.
What does a free shipping threshold actually cost you?
More than the courier bill. A threshold has three moving parts, and most founders only count one of them.
- The subsidy. Every order that was already above the line now ships free. You give up the shipping fee on those orders and get nothing extra in return. This is the cost people forget.
- The stretch. Some customers add an item to reach the line. Each added item brings its own contribution — that’s the payoff.
- The conversion lift. Some people who would have abandoned their cart at the shipping step now buy. More orders, same ad spend.
A threshold works when the stretch plus the conversion lift beats the subsidy. That’s the whole game.
One more thing to know: if you’re registered for GST and selling taxable goods, a shipping fee you charge is generally part of the sale, so one-eleventh of it is GST. Giving up a $9.95 fee doesn’t cost you $9.95. After GST and payment fees, it’s closer to $8.85. Still real money, multiplied by every order.
How do you calculate contribution with and without free shipping?
Contribution per order is what’s left after GST, landed product cost, shipping and payment fees — before ads and overheads. (Landed cost means the product price plus freight, duty and anything else it took to get the stock to you.)
Here’s an illustrative store. It sells products at $36 each, GST inclusive, with a landed cost of $10.80 per unit. It currently charges a flat $9.95 for shipping. Shipping and packing costs it $10 for one item, $11 for two and $12 for three. Payment fees are assumed at 2%.
| Basket | Customer pays $9.95 shipping | Free shipping |
|---|---|---|
| 1 item ($36) | $20.05 | $11.21 |
| 2 items ($72) | $40.26 | $31.41 |
| 3 items ($108) | $60.47 | $51.62 |
Illustrative only. Figures rounded. Use your own costs.
Notice what free shipping does to a single-item order: contribution nearly halves. On a three-item order, it barely dents it. That’s the core insight. Free shipping is cheap on big baskets and expensive on small ones — so the threshold’s job is to keep it away from small baskets.
Where should you set the threshold?
Look at how your orders are distributed, not just your average. Say this store does 1,000 orders a month: 400 single-item orders, 350 two-item orders and 250 three-item orders. Its average order value (AOV) — the product value of an average basket, excluding shipping — is $66.60. Monthly contribution today is about $37,230.
Now compare three options. The assumptions about how customers respond are made up for illustration; yours will differ.
| Option | What happens (assumed) | Monthly contribution | Extra orders needed to break even |
|---|---|---|---|
| Today: $9.95 flat | — | $37,230 | — |
| A: Free shipping on everything | Same baskets | $28,383 | about 31% more |
| B: Free over $100 | 30% of two-item buyers add a third item | $36,211 | about 3% more |
| C: Free over $70 | 25% of single-item buyers add a second item | $33,058 | about 13% more |
Illustrative only. Same costs as the table above.
A few things stand out.
Option A is the most generous and the most dangerous. To earn the same dollars, the store needs roughly 1,312 orders instead of 1,000. Unless removing shipping costs genuinely transforms conversion, that’s a big ask.
Option C looks friendly because $70 sits just above AOV. But it hands free shipping to all 600 customers already buying two or more items. The subsidy swamps the stretch.
Option B gets closest. Even so, the 250 customers already buying three items now ship free, costing about $2,210 a month. To cover that from stretch alone, more than half of two-item buyers would need to add a third. In practice, the gap is small enough that a modest lift in conversion — around 28 extra orders a month — closes it. AOV rises to about $70.40 as well, which helps your ad maths.
The pattern: set the line where it asks most customers for one more item, not where most customers already are. The business.gov.au guide on choosing a pricing strategy makes a similar point about testing price options against real sales rather than guessing.
If your numbers already work and it’s stock depth holding you back, check what funding could suit your store — the enquiry takes about a minute.
How does the threshold change your ad maths?
A higher AOV with healthy contribution lowers your break-even ROAS — the return on ad spend (revenue ÷ ad spend) where ads just pay for themselves on the first order. The break-even ROAS guide walks through it in detail.
The catch is that free shipping lowers contribution on qualifying orders at the same time. So check both effects together. Plug your AOV and contribution for each threshold option into the ad-spend payback calculator and compare. If the threshold lifts AOV but your break-even ROAS barely moves, the extra items aren’t carrying enough margin.
Also watch which products people add to reach the line. If it’s always the cheapest, lowest-margin item, the stretch is worth less than your average item. A curated “add one of these to get free shipping” row of higher-margin products can fix that.
What are the alternatives to a single threshold?
A threshold isn’t the only tool. Depending on your products, these can do the job better:
- Flat-rate shipping that covers cost. Charge close to what it costs you and stop worrying. Honest and simple, though it may hurt conversion.
- Price shipping into the product. Lift product prices slightly and advertise free shipping on everything. Works for light, high-margin items; risky for heavy ones.
- Free shipping on bundles only. Bundles naturally lift basket size and ship as one parcel.
- Free shipping for members or repeat customers. Rewards loyalty without subsidising cold traffic.
- Free local pick-up. If you have a studio or warehouse, a pick-up option can win local orders cheaply.
Whatever you choose, keep the display rules in mind. Your displayed price must include unavoidable charges, but it doesn’t need to include optional delivery. The ACCC’s guidance on price displays notes that where customers can choose free click and collect, delivery charges don’t have to be built into the displayed product price. Either way, make the shipping rules obvious before checkout — a threshold buried in the footer helps nobody.
A worked example: tightening the line before peak season
Illustrative only — a made-up store. A candle brand has run “free shipping over $60” since launch. Its AOV has crept up to $78, so most orders now qualify without anyone trying.
The founder pulls three months of orders and finds 70% are already over $60. That’s a lot of free shipping given away for no change in behaviour. They model $95 instead — just above a common two-candle basket — and add a row of matches, wick trimmers and refills at checkout, all with strong margins.
They also work out what happens if conversion drops slightly because fewer orders qualify. The maths still comes out ahead, as long as about one in four two-candle buyers adds an accessory. The founder runs the new threshold for two weeks in October, checks it against those numbers, and keeps it through Black Friday rather than slashing it on top of a discount (the Black Friday discount maths guide explains why stacking offers compounds the hit).
The one thing the founder hadn’t planned for: higher baskets mean more units per order, so the accessory lines need much deeper stock before November.
A quick checklist before you change your threshold
- I’ve pulled my basket distribution, not just my average order value.
- I know contribution per order with and without free shipping, after GST, landed cost, shipping and fees.
- I’ve counted the subsidy on orders already above the proposed line.
- I’ve estimated how many customers will stretch, and what they’ll add.
- I know how many extra orders the change needs to break even.
- I’ve checked the effect on break-even ROAS.
- Shipping rules are clear on product pages and in the cart.
- I’ve ordered enough stock of the add-on products people will use to reach the line.
Threshold sorted, but the stock bill arrives first?
That last checklist item is where most stores get caught. A smarter threshold lifts baskets, and bigger baskets mean buying more units in October — often before Black Friday payouts land. That’s the gap peak-season stock funding and a line of credit for online sellers are designed to cover, as long as your contribution per order still holds up once shipping is free.
If that sounds like your store, here’s how we work. The enquiry takes about 60 seconds and there’s no credit check when you first enquire. Your details aren’t sent to a pile of lenders, so your phone won’t start ringing with strangers. A real person who understands online stores reads your situation and calls you to talk it through. Please fill the form in accurately — monthly revenue, months trading and whether you own property — so we can match the right option the first time. Have your threshold numbers handy; they make the conversation quicker.
Frequently asked questions
What is a good free shipping threshold for an Australian online store?
There's no universal number. A useful starting point is a little above your most common basket size, so a customer needs one more item to qualify. Then test it against your own data: how many orders already sit above the line, how many get nudged up, and whether conversion improves.
Should my free shipping threshold be above or below my average order value?
Usually above. If the line sits at or below your average order value, a large share of customers qualify without changing what they buy, so you're paying their shipping for nothing. A threshold slightly above the average asks for one more item, which is where the extra contribution comes from.
Do I charge GST on shipping fees?
If you're registered for GST and you're shipping taxable goods, the delivery fee you charge is generally part of the taxable sale, so one-eleventh of it is GST. That's why giving up a $9.95 shipping fee costs you less than $9.95 — but it still costs you.
Is free shipping on everything ever worth it?
It can be for high-margin products, light parcels or brands where conversion jumps sharply once shipping disappears. But it needs a big lift in orders to pay for itself. Run the numbers first: divide your current contribution per order by the contribution per order with free shipping to see how many more orders you'd need.
Do I have to include delivery costs in my advertised price?
Not if delivery is optional — for example, if customers can also pick up for free. The total price must still include unavoidable charges, taxes and fees, and delivery costs should be clear early, not sprung on people at the last step of checkout.
Should I change my free shipping threshold for Black Friday?
You can, but model it first. A temporary lower threshold stacks on top of your discount, so the margin hit compounds. Many stores do better keeping the threshold steady and using bundles that naturally lift baskets over it.
Can I borrow to fund stock for a higher threshold strategy?
A threshold that lifts baskets means more units per order, so you need deeper stock in the lines people add. Funding that stock can make sense when your contribution per order holds up after free shipping and you have sales data showing which add-on products actually move.