Everyone Expects Free Shipping. That's Amazon's Fault.
Let's just say it: Amazon Prime trained an entire generation of online shoppers to believe shipping should be free and fast. A 2024 Shopify survey found that 79% of consumers say free shipping is the most important factor when shopping online. Not price. Not selection. Shipping.
And here's the kicker — 58% of shoppers have abandoned a cart specifically because shipping costs were too high. Not because the total was too high, but because seeing a separate shipping line item felt like a penalty.
So yes, free shipping matters. But the question isn't whether to offer it. The question is how to offer it without destroying your margins.
I've helped stores with $15 average order values and stores with $200 AOVs figure this out. The answer is different for each one, but the math is the same.
The Real Cost Calculation
Before you can decide anything, you need to know your actual shipping cost per order. Not your average — your distribution.
Pull your last 90 days of shipping data. Look at:
- Average shipping cost per order: Let's say it's $7.50
- Average order value (AOV): Let's say it's $55
- Gross margin per order: Let's say it's 45%, so $24.75
If you offer free shipping and absorb the full cost, your margin drops from $24.75 to $17.25 per order. That's a 30% margin hit. Can you afford that?
For some businesses, the answer is yes — because the conversion rate increase from free shipping more than compensates. For others, absorbing $7.50 per order puts them underwater.
This is why blanket "offer free shipping on everything" advice is dangerous. The math has to work for your specific business.
Strategy 1: The Free Shipping Threshold
This is the most popular approach, and it works for a good reason. You set a minimum order value for free shipping — orders above the threshold ship free, orders below pay a shipping fee.
Here's how to set the threshold:
- Find your current AOV (let's use $55)
- Set the threshold 20-35% higher ($68-74)
- Round to a clean number ($70)
When customers see "Free shipping on orders over $70," roughly 30-40% of those who would have checked out at $55 will add items to hit $70. Your AOV goes up, the extra items have their own margin, and the free shipping cost is covered by the higher order value.
Real example: A home goods store I consulted with had a $48 AOV and set their threshold at $65. Within two months, their AOV climbed to $61. The $7 average shipping cost was more than covered by the $13 increase in order value (at their 50% margin, that extra $13 produced $6.50 in gross profit — nearly paying for the $7 shipping cost entirely, plus they kept the conversion lift).
The sweet spot varies, but $50-75 works for most stores. Below $35, the threshold is too easy to hit and you're giving away shipping on orders that were already happening. Above $100, most customers won't bother adding items.
Strategy 2: Bake It Into Product Prices
This is what a lot of successful DTC brands do quietly. Instead of charging $25 for a product plus $7 shipping, they charge $32 with free shipping.
Psychologically, $32 with free shipping converts better than $25 + $7 shipping — even though the customer pays the same amount. Multiple A/B tests have confirmed this across different product categories. A Wharton study found that free shipping offers generating $6.99 in savings were more attractive to shoppers than a straight $10 discount.
The risk: if customers comparison-shop heavily in your category and your prices look $5-8 higher than competitors (who charge separately for shipping), you might lose on price perception. This works best for unique or branded products where direct price comparison is less common.
Strategy 3: Conditional Free Shipping
Not all free shipping has to be unconditional. Conditions let you target the offer where it makes the most financial sense:
Members-only free shipping: Offer free shipping as a perk for loyalty program members or email subscribers. This drives signups while limiting the cost to engaged customers who are likely to order again. Your shipping cost becomes a customer acquisition cost.
Product-specific free shipping: Offer free shipping on high-margin products where you can absorb the cost, but not on low-margin items. A $50 product at 60% margin can handle $7 shipping. A $15 product at 30% margin can't.
Seasonal free shipping: Run free shipping promotions during slow periods to boost orders. Black Friday through Christmas, you probably don't need the incentive — people are buying anyway. But January and February? Free shipping can move the needle on sluggish winter sales.
First-order free shipping: Give new customers free shipping on their first purchase. Customer acquisition cost for most e-commerce businesses is $30-50. If free shipping (a $7-10 cost) converts a browser into a buyer, that's a bargain compared to your Facebook ad spend.
The Flat Rate Alternative
Not ready for free shipping? Flat rate shipping is a solid middle ground. Charging $4.99 or $5.99 flat rate is psychologically much easier for customers to accept than variable rates of $7-15 depending on location and weight.
Flat rate works because it's predictable. Customers know exactly what shipping will cost before they start shopping. There's no surprise at checkout.
The trick is setting your flat rate close to your average cost. If your average shipping cost is $7.50, a $5.99 flat rate means you're subsidizing about $1.50 per order. That's much more manageable than absorbing the full $7.50.
You can also combine flat rate with a free shipping threshold: "$5.99 flat rate shipping, or FREE on orders over $65." This gives customers a reason to spend more while keeping the base shipping cost reasonable.
What the A/B Test Data Says
I've seen the internal numbers from several stores that tested free shipping, and the pattern is consistent:
- Conversion rate increase: 8-25%, depending on the original shipping cost (higher shipping costs = bigger lift when removed)
- AOV increase with threshold: 12-35% (customers actively add items to qualify)
- Cart abandonment decrease: 10-20%
- Repeat purchase rate increase: 5-15% (customers remember the experience)
One apparel brand tested three checkout options:
- Control: $8.99 shipping → 2.8% conversion rate
- Flat $4.99: → 3.4% conversion rate (+21%)
- Free over $75: → 3.6% conversion rate (+29%), AOV up from $52 to $71
The free shipping threshold generated the most total profit despite the shipping cost, because the AOV increase more than compensated.
Calculating Your Breakeven Point
Here's the formula to figure out if free shipping makes financial sense:
Current state: Monthly orders: 1,000 AOV: $55 Gross margin: 45% ($24.75/order) Shipping revenue: $7.99/order Monthly gross profit: $32,740
With free shipping (assuming 15% conversion increase, 20% AOV increase): Monthly orders: 1,150 AOV: $66 Gross margin: 45% ($29.70/order) Shipping cost absorbed: $7.50/order Net margin per order: $22.20 Monthly gross profit: $25,530... wait, that went down.
This is why you need to run the numbers with YOUR data. In this example, the margin hit from absorbing shipping cost outweighs the conversion and AOV gains. The solution? Use a threshold strategy instead.
With $75 free shipping threshold: Monthly orders: 1,150 (15% more from reduced abandonment) AOV: $68 (pushed up by threshold) 60% of orders qualify for free shipping, 40% pay $7.99 Average shipping cost absorbed: $4.50/order (blended) Net margin per order: $26.10 Monthly gross profit: $30,015
Still slightly below the original, but factor in customer lifetime value from the higher satisfaction and repeat rates, and the threshold strategy wins within 2-3 months.
How to Display Shipping Costs to Minimize Abandonment
Even if you don't offer free shipping, how you present costs matters:
Show shipping estimates on the product page. Don't make people go through three checkout steps to find out it's $9.99 to ship. A simple "Estimated shipping: $5.99" under the Add to Cart button sets expectations early.
Use a progress bar for free shipping thresholds. "You're $23 away from FREE shipping!" in the cart is one of the most effective AOV boosters in e-commerce. Shopify apps like Hextom Free Shipping Bar do this well.
Lead with the total, not the breakdown. Instead of showing "$45.00 + $7.99 shipping," some stores show "Total: $52.99 (includes shipping)" — this frames it as one number rather than a penalty.
Offer multiple speed options. Showing "Economy (5-7 days): $4.99" alongside "Express (2-3 days): $12.99" makes the cheaper option feel like a good deal. Without the comparison, $4.99 just feels like a cost.
The Bottom Line
The right answer for your store depends on your margins, your AOV, and your competitive landscape. But here's the decision framework I use:
- Margins above 50% and AOV above $40: You can probably offer free shipping on everything and absorb it.
- Margins 30-50% or AOV $25-40: Use a free shipping threshold at 25-30% above your AOV.
- Margins below 30% or AOV under $25: Flat rate shipping ($4.99 or less) with free shipping only on high-margin items or large orders.
Whatever you choose, test it. Run the new shipping strategy for 30 days against your current setup. Look at conversion rate, AOV, total revenue, and gross profit. The data will tell you whether free shipping is costing you money or making you more.