Attention, all you math geniuses! ? 
I’m looking to set up a Free Shipping Threshold for my Shopify store, and I could really use your expertise. Any tips on how to calculate the perfect amount? Thanks in advance! 
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hi @gongdwana I can help you understand the optimal threshold for Free Shipping, however, it will depend on your preference.
Step 1: Understand Your Costs
- Product Cost: Let’s say your average product cost (including production, packaging, etc.) is $20
- Shipping Cost: The average cost to ship an order is $7
- Profit Margin: You sell your products at an average price of $50, giving you a profit margin of 60% (because $50 - $20 = $30 profit per item).
Step 2: Analyze Your Average Order Value (AOV)
- Suppose your current AOV is $50. This means that, on average, customers are spending $50 per order in your store.
Step 3: Set the Free Shipping Threshold
- Goal: You want to encourage customers to spend more. A good strategy is to set the Free Shipping Threshold slightly above your AOV.
- Threshold Calculation: If your current AOV is $50, you could set the Free Shipping Threshold at $60 or $65. This encourages customers to add an extra item to their cart to qualify for free shipping.
Example Scenario:
- Current Setup: Without the threshold, customers spend $50, and you charge them $7 for shipping.
- New Setup with Free Shipping Threshold: You set the Free Shipping Threshold at $65. Now, a customer with $50 in their cart sees a message like, “Free shipping for orders above $65!”
Step 4: Profit Analysis
- Customer A (Before Threshold):
- Spends $50.
- Pays $7 shipping.
- Total order: $57.
- Your profit: $30 - $7 (shipping) = $23
- Customer B (After Threshold):
- Spends $65 to get free shipping.
- Total order: $65
- Your profit: $65 - $20 (product cost) - $7 (shipping) = $38.
In this example, Customer B spends more and even though you cover the $7 shipping cost, your overall profit increases from $23 to $38.
There are a couple of things that you may need to take care of while doing this, including,
- On your store, you prominently display: “Free Shipping on Orders Over $65!".
- If possible, as customers add items to their cart, it would be great if they could see a progress bar or message like, "Add $15 more to your cart to qualify for free shipping!
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Hi Gongdwana,
While I can’t advise you on choosing the best shipping threshold, I hope to save you some time by showing you how to set up your free shipping threshold in Shopify.
- On the “Discounts” page in the Shopify admin, click “Create discount.”
- Select “Free shipping” in the “Select discount type popup.”
- Select “Automatic discount” as the method.
- Here’s the important part - set a “Minimum purchase amount” in your store’s currency.
- I also recommend excluding shipping rates over a certain amount to prevent eroding your margins.
Best,
Tobe
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Great question! Do you think a VAT calculator could be helpful in determining the right threshold for free shipping, by factoring in tax rates and shipping costs? I’d love to hear more about how your services could help streamline this calculation for my Shopify store!
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@jameskirion A VAT calculator can surely be a valuable tool for determining an appropriate free shipping threshold, particularly when dealing with international sales or varying VAT rates.
Accurate cost calculation, inclusive of VAT on both products and shipping (wherever applicable), is essential to ensure the free shipping offer doesn’t eat into your profits after VAT. If you have a store on Shopify, a VAT calculator (or a tool that does the same thing) can be really helpful. This way you can look at your sales and costs to figure out the best amount for free shipping, rather than just guessing.
And the best part, by using the data and considering VAT, you can make sure that offering free shipping doesn’t lose you money.