Methodology
Free Shipping Threshold Planner methodology
Educational only: Business decision support, not accounting, tax or legal advice.
Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.
Update policy: Reviewed when formulas or official dependencies change.
Scope: Market-neutral small-business planning using your own assumptions.
1. Formulas and units
K₀ = m × A + H − SWhere
- A, B
- current and qualifying basket revenue excluding indirect tax (currency units/order)Source: Business record
- H, S
- customer shipping charge and outbound shipping cost excluding indirect tax (currency units/order)Source: Business record
- m
- pre-shipping contribution margin (decimal)Source: Business record
- K₀, Kq, K₁, T, Tᵢ, Δ
- contributions, thresholds and period change (currency units/order or currency units/period)Source: Calculated output
T = A + (H ÷ m)Where
- A, B
- current and qualifying basket revenue excluding indirect tax (currency units/order)Source: Business record
- H, S
- customer shipping charge and outbound shipping cost excluding indirect tax (currency units/order)Source: Business record
- m
- pre-shipping contribution margin (decimal)Source: Business record
- K₀, Kq, K₁, T, Tᵢ, Δ
- contributions, thresholds and period change (currency units/order or currency units/period)Source: Calculated output
Tᵢ = T × (1 + g)Where
- g
- fixed zero-tax display assumption for this global model (decimal)Source: User assumption
- K₀, Kq, K₁, T, Tᵢ, Δ
- contributions, thresholds and period change (currency units/order or currency units/period)Source: Calculated output
Kq = m × B − SWhere
- A, B
- current and qualifying basket revenue excluding indirect tax (currency units/order)Source: Business record
- H, S
- customer shipping charge and outbound shipping cost excluding indirect tax (currency units/order)Source: Business record
- m
- pre-shipping contribution margin (decimal)Source: Business record
- K₀, Kq, K₁, T, Tᵢ, Δ
- contributions, thresholds and period change (currency units/order or currency units/period)Source: Calculated output
K₁ = (1 − q) × K₀ + q × KqWhere
- N, q, l
- orders, qualifying share and order change scenario (orders/period and decimals)Source: User decision
- K₀, Kq, K₁, T, Tᵢ, Δ
- contributions, thresholds and period change (currency units/order or currency units/period)Source: Calculated output
Δ = N × (1 + l) × K₁ − N × K₀Where
- N, q, l
- orders, qualifying share and order change scenario (orders/period and decimals)Source: User decision
- K₀, Kq, K₁, T, Tᵢ, Δ
- contributions, thresholds and period change (currency units/order or currency units/period)Source: Calculated output
L = max(0, K₀ ÷ K₁ − 1)Where
- L
- minimum required order lift (decimal)Source: Calculated output
- max
- non-negative maximum operator (operator)Source: Calculated output
- K₀, Kq, K₁, T, Tᵢ, Δ
- contributions, thresholds and period change (currency units/order or currency units/period)Source: Calculated output
Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.
2. Worked example
Input assumptions
The illustrative fixture below is calculated by the engine. It is not a carrier, market or conversion benchmark.
Calculation and outputs
Example
The illustrative fixture below is calculated by the engine. It is not a carrier, market or conversion benchmark.
- Baseline contribution per order
- 40.00 currency units
- Profit-preserving threshold ex indirect tax
- 125.00 currency units
- Profit-preserving threshold inc indirect tax
- 125.00 currency units
- Post-offer average contribution
- 40.60 currency units
- Incremental contribution per period
- 2,630.00 currency units
The exact engine-derived outputs are shown in the labelled rows below.
Interpretation
Use the threshold as the basket value needed to fund the shipping offer under the entered contribution assumptions.
3. Validation and boundary checks
- The threshold reproduces the baseline contribution when the free-shipping basket equals it.
- Changing the same outbound cost in both compared orders does not change the preserved threshold.
- A non-positive post-offer contribution returns no break-even lift instead of Infinity.
4. Assumptions and source classification
- All commercial inputs and order changes are user supplied for one consistent planning period.
- Outbound shipping cost and pre-shipping contribution margin remain constant per compared order.
- The current global model uses a transparent 0% indirect-tax display assumption. It is not an official market rule; treat the including-tax threshold as equal to the excluding-tax threshold and apply your own jurisdictional treatment outside this model.
This planner has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.
5. Limitations
- The model excludes demand elasticity, carrier zones and surcharges, split shipments, partial qualification and returns.
- It is educational scenario planning, not accounting, tax, carrier or commercial advice.
This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.
6. Update and evidence policy
Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this planner. Commercial inputs remain user-supplied because they vary by business and contract.
Change history
- : Initial public release of the planner and methodology after pre-launch calculation, content, source and interaction review.
Related reading
Guides to interpret the decision and its assumptions.
- How to Test a Free-Shipping Threshold
Test basket size, qualifying share, shipping cost and order-change assumptions around a contribution-preserving threshold.
Read guide