How Free Shipping Affects Profit Margin

Free shipping can improve conversion, but the shipping cost still has to be paid. When the seller absorbs that expense, profit margin falls unless the product price or other costs change.

Free Shipping Profit Formula

Profit = Product Revenue – Product Cost – Shipping – Packaging – Selling Fees – Other Costs

Example

Suppose a product sells for $60, costs $25, shipping is $8, packaging is $1.50, selling fees are 5%, and other costs are $2. Free shipping reduces the amount left after those expenses.

Build Shipping Into the Product Price

One approach is to increase the product price enough to cover shipping and preserve your target margin. The exact increase depends on percentage-based selling fees as well as shipping cost.

Use the Free Shipping Profit Calculator

Use the Free Shipping Profit Calculator to estimate profit, margin, break-even price, and the selling price needed for your target margin.

Related Pricing Tool

The Product Pricing Calculator can help when you want to build fulfillment costs directly into your base product price.