Think LauncherGuides · 14 October 2026
How to price a product when you offer free shipping
“Free shipping” means you pay the shipping instead of the customer. That cost has to come out of the price somewhere. Here is how to work out where, using a worked example you can repeat with your own numbers.
The product
| Item | Amount |
|---|---|
| Selling price | $40.00 |
| Your cost per item (landed) | $18.00 |
| Shipping and packaging you pay | $6.00 |
| Payment fee | 2.9% + $0.30 |
| Returns and refunds | 5% of revenue |
What free shipping does to profit
Without shipping cost (the customer pays shipping separately):
- Payment fee: $40 × 2.9% + $0.30 = $1.46
- Returns allowance: $40 × 5% = $2.00
- Profit: $40 − $18 − $1.46 − $2.00 = $18.54, a margin of about 46%
With free shipping (you absorb the $6):
- Profit: $18.54 − $6.00 = $12.54, a margin of 31.4%
The same product, at the same price, now keeps about two thirds of the profit.
The price you need to keep your margin
Work backwards. Add up the fixed costs and divide by what’s left after percentage costs and your target margin:
Price = (cost + shipping + fixed fee) ÷ (1 − payment % − returns % − target margin)
With a $18 cost, $6 shipping and a $0.30 fixed fee, the fixed total is $24.30. The percentage costs are 2.9% + 5% = 7.9%.
| Target margin | Divide by | Price you need |
|---|---|---|
| Break even (0%) | 0.921 | $26.38 |
| 20% | 0.721 | $33.70 |
| 30% | 0.621 | $39.13 |
| 40% | 0.521 | $46.64 |
So at $40, you keep roughly a 30% margin on this product with free shipping. To keep a 40% margin you would need to charge about $46.64.
Free shipping plus a discount
The part that catches people out is stacking a sale on top of free shipping. The $6 doesn’t shrink when the price does:
| Discount | Price | Profit per sale | Net margin |
|---|---|---|---|
| 0% | $40.00 | $12.54 | 31.4% |
| 10% | $36.00 | $8.86 | 24.6% |
| 20% | $32.00 | $5.17 | 16.2% |
| 30% | $28.00 | $1.49 | 5.3% |
The product breaks even at $26.38, so it can take about 34% off before it loses money. At 30% off you keep $1.49 per sale, before any advertising cost or overheads.
Ways to cover the cost of shipping
None of these is always right. Test the numbers for each product:
- Build it into the price. Raise the price of the products that need it, the way the table above shows.
- Set a free-shipping threshold, such as free shipping over a certain order value, so the shipping is spread over a bigger basket. Make sure that, at the threshold, the order still makes the profit you want.
- Charge a flat shipping rate that covers most of your actual cost.
- Limit free shipping to products with room, and exclude thin-margin items.
- Reduce the cost itself: cheaper packaging, a better carrier rate or a lighter pack.
Whichever you choose, use your real average shipping cost per item, not the cheapest rate you can find. Your shipping cost per order will vary with weight, destination and package size.
Check your own products
- The free profit calculator takes a price, a cost, a shipping figure and a discount, and gives the profit, the break-even price and the deepest discount you can afford.
- Margin Guardrails does this for every product in your Shopify store and shows which ones lose money once shipping and discounts are counted.
- If your product cost isn’t the landed cost yet, start with how to calculate landed cost.