You know free shipping helps you sell more. But you also know it costs you real money on every order. Most Canadian DTC brands pick a free shipping number by guessing, or by copying a competitor. That is a fast way to quietly bleed margin at scale.
This post walks through the actual math. By the end, you will have a threshold that fits your product, your city, and your true shipping cost.
Why "free shipping" is never really free
When you offer free shipping, the cost does not disappear. You are paying it. The question is whether the extra orders (and bigger orders) cover what you give up.
Think of it like a coffee shop giving a free muffin with any drink. It only works if enough people upgrade from a small coffee to a large, or add a second drink. If they just take the muffin and leave, the shop loses money.
Your free shipping threshold is the "you have to spend this much first" line. Set it too low and you ship for free on tiny orders that lose money. Set it too high and shoppers abandon their cart.
Step 1: Know your real per-parcel cost
Before any formula, you need one number: what does it actually cost you to deliver one parcel to a home in Canada?
Not your rack rate. Not the price on the carrier's website. The real, all-in number after every add-on. That includes:
- Base rate for the weight and zone
- Fuel surcharge (changes every month)
- Residential delivery fee
- Any area surcharge (some postal codes cost more)
- Signature or extra handling, if you use it
- Return label cost, spread across all orders
Most Canadian DTC brands are surprised when they add it all up. A parcel they thought cost around ten dollars often lands higher once fuel and residential fees stack on top. If you ship into or across the GTA and Quebec corridors, residential surcharges show up on almost every label, because almost every delivery is to a house or condo.
If you do not know your true per-label cost, stop here and pull last month's invoice. Add every line. Divide by parcels shipped. That is your real number.
Step 2: Know your contribution margin per order
Contribution margin is what is left from an order after the costs that change with each sale. Not rent. Not salaries. Just the costs tied to that one order.
For a simple DTC order, contribution margin per order is roughly:
Order revenue − product cost − packaging − payment fees − shipping cost − pick and pack
That leftover is what pays for everything else and, hopefully, your profit.
Here is the key idea. If you give away shipping, you are handing back part of that leftover on every free-shipping order. So your threshold has to be high enough that the leftover still makes sense.
Step 3: Anchor to your AOV
AOV is your average order value. It is the average amount a customer spends per order.
A good starting anchor for a free shipping threshold in Canada is 15% to 25% above your current AOV. Not 100% above. Not the same as AOV. A bit higher.
Why this range? Because you want the threshold to feel reachable. If your AOV is around fifty dollars and you set the bar at one hundred, most shoppers give up. If you set it at fifty-eight to sixty-two, many shoppers add one more small item to cross the line. That extra item is where the magic happens.
Rough anchors:
| Current AOV | Starting threshold range |
|---|---|
| $40 | $46 – $50 |
| $60 | $69 – $75 |
| $85 | $98 – $106 |
| $120 | $138 – $150 |
These are starting points, not laws. You will adjust with the next two steps.
Step 4: Adjust for your real shipping cost
Now bring in the number from Step 1.
Ask: at my starting threshold, does my contribution margin still make sense after I eat the full shipping cost?
Simple check. Take your threshold. Subtract product cost, packaging, payment fees, pick and pack, and full shipping. What is left?
If the leftover is healthy, keep the threshold.
If the leftover is thin or negative, push the threshold up. Or find a way to lower the shipping cost per label.
Example of the mechanism (not real numbers for your brand, just the shape):
- Threshold: $70
- Product cost: $22
- Packaging + pick and pack: $3
- Payment fees: about 3%
- Shipping: your real all-in number
- What is left is what has to cover marketing, overhead, and profit
If shipping alone is eating a big chunk of what is left, your threshold is too low, or your rates are too high, or both.
Step 5: Adjust for the GTA and Quebec corridors
If you are a Toronto or Montreal brand shipping mostly inside Ontario and Quebec, you have an advantage and a trap.
The advantage: short zones. Most of your parcels travel a short distance, so base rates are lower.
The trap: almost every delivery is residential. Residential surcharges apply to nearly every label. Some Quebec postal codes (parts of Quebec City, Trois-Rivières, and rural pockets) also carry extended area fees. On paper you look cheap. On the invoice, less so.
Two practical moves:
- If most of your volume stays in-province and residential, your true per-parcel cost is higher than the base rate suggests. Bake that in.
- If you also ship to Alberta, BC, or the Maritimes, those orders cost more. A national flat threshold has to cover the expensive orders, not just the cheap ones.
Some brands set two thresholds: one for Ontario and Quebec, a higher one for the rest of Canada. Others keep it simple with one national number, but set it high enough to survive the long-zone deliveries.
Step 6: Test, then test again
Pick your number. Run it for four to six weeks. Watch three things:
- AOV: did it move up?
- Conversion rate: did checkout completion hold, or drop?
- Contribution margin per order: is it healthier, flat, or worse?
If AOV lifts and margin holds, good. If AOV lifts but margin drops, your threshold is still too low relative to your shipping cost. Nudge it up five or ten dollars and test again.
Do not change your threshold every week. Give each test enough orders to trust the numbers.
Practical takeaway
Your free shipping threshold is a math problem, not a vibe. The steps:
- Pull your real, all-in per-parcel cost from last month's invoice.
- Calculate contribution margin per order.
- Start at 15% to 25% above AOV.
- Check that margin still holds after full shipping.
- Adjust for GTA and Quebec residential reality, or split by region.
- Test for a month. Watch AOV, conversion, and margin together.
The single biggest lever in this whole exercise is your real per-label cost. If that number is lower, every threshold works better, and you can offer free shipping sooner in the cart.
Getting Canadian DTC brands to a lower, honest per-label cost — and giving them the tools to see it clearly — is what our TMS side of Shipply does. If your invoice keeps surprising you, that is the place to start.