State the scenario inputs and units
| Input | Unit | Source or status |
|---|---|---|
| Baseline basket | Currency units per order | Reconciled order record |
| Threshold basket | Currency units per qualifying order | User scenario |
| Basket contribution rate | Percentage of basket revenue | Product and fee records |
| Customer shipping charge forgone | Currency units per qualifying order | Current offer record |
| Outbound shipping cost | Currency units per order | Logistics record or scenario |
| Qualifying share | Percentage of scenario orders | User scenario |
| Order volume | Orders per period | Reconciled baseline or user scenario |
Follow the contribution chain
Qualifying-order contribution = threshold basket × basket contribution rate - outbound shipping cost
- threshold basket
- Revenue in an order that reaches the free-shipping threshold (currency units per qualifying order) — user scenario
- basket contribution rate
- Contribution retained before outbound shipping on the chosen cost boundary (percentage of basket revenue) — business record or user scenario
- outbound shipping cost
- Delivery cost paid by the business for the qualifying order (currency units per qualifying order) — logistics record or user scenario
- Reconcile baseline contribution for orders below and above the proposed threshold.
- Calculate contribution for a qualifying basket after the customer shipping charge is removed.
- Apply the qualifying share to the same baseline order volume before adding any lift scenario.
- Compare total contribution for the baseline, no-lift offer and separate lift assumptions.
- Stress-test lower basket contribution, higher delivery cost and higher return loss.
- Check operational capacity and customer communication before changing the offer.
Resolve the shipping cost before testing a threshold
Check the current quote or contract
- Confirm whether the charge uses actual weight, dimensional weight or another billable-weight rule. (not complete)
- Match the destination, zone or geographic service area to the order scenario. (not complete)
- Use the service speed and delivery commitment that the offer will actually provide. (not complete)
- Include applicable fuel, residential, remote-area, peak, handling and other conditional surcharges. (not complete)
- Record the quote or contract date, market, currency, account terms and conditions beside the input. (not complete)
Shipping-cost input question
- Which shipping cost belongs in the threshold scenario?
- Use the amount supported by the current quote or contract for the scenario’s billable weight, destination or zone, service speed and applicable surcharges. Do not substitute a carrier headline rate, a different account’s terms or a universal dimensional-weight rule.
Work through a threshold scenario
Compare basket and shipping assumptions
The values below are neutral user assumptions in currency units. They demonstrate the reasoning chain and do not forecast customer behaviour.
| Scenario | Basket | Contribution rate before delivery | Delivery cost | Contribution |
|---|---|---|---|---|
| Base threshold | 90 | 40% | 10 | 26 |
| Lower qualifying basket | 80 | 40% | 10 | 22 |
| Higher shipping cost | 90 | 40% | 16 | 20 |
Interpret the threshold without turning it into a forecast
| Signal | Interpretation | Next test |
|---|---|---|
| Contribution remains above the required floor | The entered order economics pass the bounded test | Run no-lift total-contribution case |
| A small delivery or return change removes the buffer | The offer is sensitive to fulfilment conditions | Segment or narrow the offer scenario |
| Viability requires assumed order lift | The economics depend on unverified behaviour | Treat lift as an experiment with stop criteria |
Methodology sources
- Free Shipping Threshold methodology — Margin101: Product-owned threshold formula, scenario boundaries and validation rules.
Build shipping cost from the actual zone mix
One average shipping cost can hide a changing destination mix. Weight each entered service/zone cost by its share of aligned completed shipments, require the shares to total 100%, and test the no-order-lift case before adding any basket or conversion assumption.
Weighted shipping cost/order = Σ(zone share × entered cost/order for zone)
- Zone share
- Share of aligned completed shipments in one service/weight class (percentage) — completed shipment records or labelled scenario
- Entered cost/order for zone
- Current carrier/service cost for the declared package, service and tax basis (CU/order) — current contract, invoice or shipment record
Zone shares must total 100%. Keep qualifying share, returns, basket contribution and any order-change assumption outside this weighted-cost step.
| Zone | Entered cost/order | Baseline share × cost | Remote-mix case share × cost |
|---|---|---|---|
| Local | 6 CU | 50% × 6 = 3.00 CU | 40% × 6 = 2.40 CU |
| Regional | 10 CU | 30% × 10 = 3.00 CU | 30% × 10 = 3.00 CU |
| Remote | 18 CU | 20% × 18 = 3.60 CU | 30% × 18 = 5.40 CU |
| Weighted cost | — | 9.60 CU/order | 10.80 CU/order |
Threshold checkpoint before modelling order response
- Confirm shares total 100% for the same period, service and package basis. (not complete)
- Run the threshold with no conversion, order-frequency or basket lift first. (not complete)
- Keep qualifying-order share and return cost visible rather than embedding them in shipping cost. (not complete)
- Reconcile the scenario against current invoices before changing a customer offer. (not complete)
Carry the weighted user input into the threshold model
- Free Shipping Threshold Planner
Set a free-shipping threshold without erasing contribution
- Ecommerce Order Profitability Planner
Test order contribution after the full fee stack