The minimum order value decides the basket from which you accept an order. The free-shipping threshold decides the level above which you stop charging certain delivery costs. The two rules can coexist, but they do not solve the same problem.
Separate the rules in the offer and in the basket
In a fictional example, a brand can accept orders from €100 net excl. VAT, charge €12 of shipping below €300 and offer standard shipping from €300. That does not mean transport costs €12, nor that every destination and every shipping method is covered.
State the basis of the threshold: before or after discounts, excluding or including tax, eligible products, destination and delivery service. State any exclusions too, a special transport arrangement for instance. The customer must understand the price before confirming the order.
What is the eligible amount after discounts?
- Under €100Minimum not reached
Show the threshold to be reached before accepting the order.
- From €100 to under €300Shipping charged: €12
Add the charge set out in the terms of the example.
- €300 and aboveStandard shipping free
Apply free shipping for the destination and service covered.
The €12 charged does not describe the real cost of transport. Check the exclusions.
Calculate the cost of serving an order
Take several real shipments and add up transport, picking, packing and any other relevant variable costs. Distinguish spend per order, per parcel and proportional to revenue. A single average can hide a wide gap between a light case and a bulky shipment.
| Item | Assumption | Effect |
|---|---|---|
| Product margin after discounts | 40% of net revenue excl. VAT | Funds the other costs and the contribution |
| Commission | 8% of net revenue excl. VAT | Proportional variable cost |
| Picking and packing | €6 per order | Fixed cost for this shipment |
| Transport | €14 per order | Borne by the brand under free shipping |
| Contribution before fixed costs | 32% of net revenue − €20 | Valid only in the scenario described |
At €100 net excl. VAT, this order leaves €12 of contribution before fixed costs if the brand absorbs the shipping. At €300 it leaves €76. That difference lets you discuss a threshold with the facts in hand. It does not yet say what the market will accept, nor what is needed to cover the company’s fixed costs.
Derive a threshold from a contribution target
In the same example, suppose a contribution target of 25% of revenue after those variable costs. You have to solve 0.32 × revenue − 20 ≥ 0.25 × revenue. Revenue must therefore be at least 20 ÷ 0.07, or €285.72 rounding up to the nearest cent. A commercial threshold of €300 meets the target under that assumption.
Redo the calculation by family or by representative basket, using the discounts and free goods actually granted. A threshold based on the list price overstates the contribution when customers benefit from significant contractual terms.
Take split deliveries into account
An order of €300 can meet the free-shipping rule when it is entered and then need two shipments because of a stockout. If each costs €20 in our model, the contribution becomes 96 − 40 = €56, or 18.7% of revenue. The initial threshold therefore does not protect profitability when an order is split.
Define the rule before the incident
Decide whether the brand consolidates the products, ships what is available or offers an alternative, with the customer’s agreement where necessary. Any additional charges must follow the agreed terms. The rep and the sales admin team must be able to see the back order and the delivery preference; an isolated note in an email is not enough.
Tracking stock and replenishment helps reduce these exceptions. Their real cost still has to be measured, because a shipping offer can become unprofitable through lack of availability rather than through an insufficient basket.
Check that the rule also serves the customer
A minimum that is too high can lead a small shop to overstock or to postpone its purchase. Watch the order frequency, the references added to reach the threshold and the returns. A bigger basket is not a success if it stretches replenishment so far that annual sales fall.
Depending on the network, regularly consolidating requirements or setting a delivery calendar can work better than raising the threshold. Test a change on a defined scope, compare contribution, frequency and buying customers, then decide. Do not change prices, promotions and the free-shipping threshold at the same time if you want to understand what produced the effect.
Make the rule enforceable and testable
Terms and conditions of sale between businesses govern, among other things, prices, discounts and payment. The Service Public summary of CGV, the general terms and conditions of sale (French) is a starting point for formalising terms suited to your business. Have the delivery arrangements and the exceptions spelled out in your contractual documents, instead of discovering them at invoicing time.
- →Just below the threshold: check the charges displayed, after every applicable discount.
- →Exactly at the threshold: test rounding and equality, not only a basket well above it.
- →Unusual destination: clearly display the service and the charges concerned.
- →Return or partial cancellation: apply the rule you have set, with a trace that can be understood.
Digital ordering must give this result before confirmation. To prepare acceptance testing, take the cases from the digital purchase order and add your baskets close to the thresholds. It is often those few euros at the boundary that reveal a badly defined rule.
By Anatole Briant
By Anatole Briant
By Pierre Lerebours
CEO of Salesia
Anatole Briant is CEO of Salesia. He is your contact for demonstrations, pricing and partnerships.