How to Design Profitable Free Shipping Rules
Free shipping is one of the most powerful conversion tools in e-commerce.
However, if designed incorrectly, it can quickly reduce profit margins.
This guide explains how to design free shipping rules that increase sales without sacrificing profitability.
Step 1 — Understand Your Real Shipping Cost
Before offering free shipping, calculate:
✔ Average courier cost per parcel
✔ Packaging cost
✔ Platform fee (if any)
✔ Payment processing fee
Example:
- Courier cost: RM8
- Packaging: RM2
- Payment fee: RM2
- Total cost per order: RM12
If you offer free shipping without adjusting pricing, you absorb RM12 per order.
Step 2 — Calculate Your Safe Free Shipping Threshold
Use this formula:
Required Threshold = Shipping Cost ÷ Average Gross Margin %
Example:
- Shipping cost: RM12
- Gross margin: 40%
RM12 ÷ 0.4 = RM30
This means customers need to spend at least RM30 for you to safely absorb shipping cost.
Step 3 — Choose Your Free Shipping Model
There are three common models:
Model A — Order Threshold Free Shipping
“Free shipping for orders above RM100”
Best for:
✔ Increasing average order value
✔ Encouraging bundle purchase
Risk:
⚠ Threshold set too low → margin shrink
Tip:
Set threshold slightly above your average order value to push higher spending.
Model B — Free Shipping on Selected Items
Use [FREESHIPPING] tag.
Best for:
✔ Promoting high-margin items
✔ New product launch
✔ Overstock clearance
Risk:
⚠ Applying to low-margin products
Tip:
Only apply to items that can absorb shipping cost.
Model C — Exclude Add-on Items from Threshold
Use [PWP] tag.
Best for:
✔ Purchase-with-purchase campaigns
✔ Add-on deals
✔ Free gift strategy
This prevents low-priced items from artificially triggering free shipping.
Step 4 — Align Shipping Strategy with Product Margin
Different product types require different strategy:
| Product Type | Recommended Shipping Strategy |
|---|---|
| High-margin | Free shipping allowed |
| Medium-margin | Threshold-based |
| Low-margin | No free shipping |
| Add-on items | Use [PWP] |
Never apply one shipping rule to all products blindly.
Step 5 — Psychological Strategy
Free shipping works because customers:
✔ Dislike paying for delivery
✔ Prefer “all-inclusive pricing”
✔ Value savings perception
Often, customers respond better to:
“Free Shipping”
than
“10% Discount”
Even if the value is the same.
Step 6 — Combine with Other Tools
You can combine shipping strategy with:
✔ Voucher
✔ VIP Tier
✔ Credit rewards
✔ Flash Sale
✔ Waitlists
Example:
- Spend RM120 → Free shipping
- VIP members → Automatic free shipping
- Flash sale item →
[FREESHIPPING]
Common Mistakes
❌ Offering free shipping on low-margin items
❌ Setting threshold too close to cost price
❌ Ignoring courier fee increase
❌ Forgetting packaging and payment fees
❌ Overusing free shipping
Advanced Strategy — Tiered Shipping
Instead of full free shipping, consider:
- RM80–RM119 → RM5 shipping
- RM120+ → Free shipping
This protects margin while incentivizing higher spend.
💡 Live Selling Tip
During live:
✔ Highlight how much more needed to unlock free shipping
✔ Encourage bundle purchase
✔ Suggest complementary items
Example:
“Add one more item to enjoy free shipping!”
This increases cart value naturally.
Final Checklist Before Launching Free Shipping
✔ Do I know my real cost per order?
✔ Is my threshold higher than average order value?
✔ Are high-margin items prioritized?
✔ Have I tested the impact on profit?
✔ Am I using [PWP] correctly?