Control Your Shipping Liability with a Free Shipping Subsidy Cap
Turning an unconditional free shipping promise into shipping subsidized up to a cap, choosing the cap from your rate distribution, and telling customers what happens above it.
Unconditional free shipping means paying whatever the carrier charges. Shipping subsidized up to a cap is a bounded promise: rates at or below the cap ship free, and above it the customer pays the difference. A fictional furniture retailer pairs a $150 minimum with a $10 cap, compares caps on its rate distribution, and states the cap in storefront copy.
At a glance
- Challenge
- Free shipping over $150 was an unconditional promise, and remote freight orders costing $95 or more to deliver made the per-order cost unbounded.
- Approach
- A Free Shipping campaign with a $150 minimum and a $10 maximum shipping rate covered, cap options compared on illustrative rates, and storefront copy that states the cap.
- Discount Prime campaign types used
- Free Shipping
Scenario-based case study: the merchant is fictional and modeled on patterns across Discount Prime stores. Prices, costs and outcome figures are illustrative assumptions for teaching, not measured results from a real store.
Short Answer
"Free shipping over $150" is an unconditional promise: whatever the carrier charges, the merchant pays. "Free shipping over $150, we cover up to $10" is a different, bounded promise: shipping is subsidized up to a cap. Rates at or below the cap ship free; above the cap, the customer pays the difference.
For a catalog where one cart costs $8 to deliver and another $95, the second promise turns an open liability into a known maximum per order. The trade-off is real: some customers will see a shipping charge they would not have seen under unlimited free shipping, and whether that changes conversion in your store is something to measure, not assume.
Fits / Does Not Fit
| Fits when | Does not fit when |
|---|---|
| Shipping cost varies widely between orders (furniture, fitness equipment, garden, large electronics) | Rates are low and uniform; an unconditional promise costs little more than a capped one |
| Finance needs a per-order worst case for budgeting | Your brand position depends on "always free delivery" and you price it into products instead |
| Most orders ship by parcel, with a minority of freight orders | Almost every order ships by freight (consider pricing delivery as a service instead) |
Scenario and Required Data
Consider Oak & Home, a fictional Shopify retailer of furniture and home decor in the United States. Numbers are illustrative assumptions.
| Decision data | Illustrative value |
|---|---|
| Free shipping threshold | $150 |
| Average order value | $420 |
| Parcel decor order, typical rate | $6 to $10 |
| Small furniture, typical rate | $18 to $40 |
| Freight and remote surcharges | $60 to $180 |
| Gross margin | 45% |
| Order | Cart total | Shipping rate | Merchant pays, unlimited free shipping |
|---|---|---|---|
| Decor order, metro address | $240 | $8 | $8 |
| Dining set, remote address | $460 | $95 | $95 |
Both orders cleared the same threshold. The threshold was never the problem; treating every rate as equal was.
The Alternatives
| Option | Customer promise | Merchant cost per order | Fits when |
|---|---|---|---|
| Unlimited free shipping above $150 | Always free | Unbounded (up to the highest freight rate) | Rates are predictable, or margin absorbs the tail |
| No free shipping | Customer pays the rate | None | Free delivery is not expected in your category |
| Category rules (free on decor, paid on furniture) | Free for some products | Bounded by category | Product type predicts shipping cost well |
| Native Shopify: exclude rates over an amount | Free unless the rate is above the limit, then full price | Bounded, but expensive rates get nothing | You prefer "free or full price" over a partial subsidy |
| Subsidy cap (Discount Prime) | Free up to the cap, then pay the difference | Fixed maximum | You want every qualifying order to get some help |
Shopify's own free shipping discount can exclude shipping rates over a certain amount. That is a fair choice when you would rather not subsidize expensive deliveries at all. Discount Prime's cap covers part of the expensive rate instead.
Choosing the Cap
Start from your rate distribution among qualifying orders, not from a round number. Illustrative distribution for 100 qualifying orders:
| Segment | Orders | Average rate |
|---|---|---|
| Parcel decor | 70 | $8 |
| Small furniture | 20 | $26 |
| Freight / remote | 10 | $95 |
| Cap | Merchant cost per 100 orders | Average per order | Orders where the customer pays something | Worst case per order |
|---|---|---|---|---|
| None (unlimited) | $2,030 | $20.30 | 0 | Highest freight rate |
| $40 | $1,480 | $14.80 | 10 | $40 |
| $10 | $860 | $8.60 | 30 | $10 |
How the figures are built: $10 cap = 70 × $8 + 20 × $10 + 10 × $10. $40 cap = 70 × $8 + 20 × $26 + 10 × $40.
The example uses a $10 cap: it covers parcel orders in full and turns furniture shipping into "$10 off". A $40 cap keeps small furniture free and limits partial charges to freight orders, at a higher average cost. Which is right depends on how much gross profit a typical furniture order carries and how price-sensitive those customers are to a delivery charge. With a 45% margin, a $460 order earns about $207 gross profit before fees, so a $40 cap may be affordable there; on a $150 decor order (about $67 gross profit) a large subsidy is not.
To adapt: export qualifying orders with the carrier rate, group them by rate band, and compute this table for two or three caps. Choose the cap whose worst case you would accept on your smallest qualifying order.
What Discount Prime Does
In a Free Shipping campaign with discount type Free shipping:
- Minimum: spend $150 (amount) or a quantity.
- "Limit free shipping for expensive shipping rates" with "Maximum shipping rate covered" $10.
At checkout, each delivery option in the cart's first delivery group is checked separately. If the option's rate is at or below $10, it is discounted to zero. If it is above $10, the discount equals $10 and the customer pays the rest.
Limits to know:
- Only the first delivery group is discounted. If an order splits into several shipments, the customer pays full rate on the others, which can surprise them.
- The cap is per delivery option, per order. It is not a monthly budget.
- The shipping discount does not read product cost or margin. The cap is a rate rule, not a profit guarantee.
- Free Shipping / Cart Incentives requires the Prime plan or higher; check the current plan page in the app.
- If you sell in several currencies, test the threshold and the cap in each presentment currency.
What the Customer Sees
| Customer A | Customer B | |
|---|---|---|
| Cart total | $240 | $240 |
| Shipping rate | $8 | $18 |
| Discount applied | $8 | $10 |
| Customer pays for shipping | $0 | $8 |
| Merchant cost | $8 | $10 |
Customer B sees the $18 rate at checkout with a $10 shipping discount line and pays $8. If the storefront or the progress bar only says "Free shipping over $150", Customer B experiences a broken promise. Say the cap where the promise is made:
- Banner: "Free shipping over $150. We cover up to $10 of delivery on every qualifying order."
- Progress bar text: "Add $22 to get up to $10 off shipping" or "free standard shipping", whichever matches the cap.
- Product pages for freight items: a delivery estimate, so the charge at checkout is not the first time the customer sees it.
Cart walkthrough
- A shopper adds a $128 side table. The progress bar shows $22 to go.
- They add a $34 table runner. Cart: $162, threshold met.
- Metro address, rate $9: shipping is free.
- Remote address, rate $26: $10 discount, the customer pays $16.
Pre-Launch Tests
| Test input | Expected result |
|---|---|
| Cart $149.99 | No shipping discount |
| Cart $150, rate $9 | Free shipping |
| Cart $150, rate exactly $10 | Free shipping |
| Cart $240, rate $18 | $10 off; customer pays $8 |
| Cart with two shipments | Only the first delivery group discounted |
| Storefront copy | Banner and bar mention the cap |
Measurement and When to Change
- Primary metric: shipping subsidy per qualifying order and total shipping subsidy as a share of revenue.
- Customer impact: share of qualifying orders where the customer paid part of the shipping, and checkout completion for carts that reach the shipping step with a partial charge versus fully free.
- Guardrail: Estimated Profit per order in Discount Prime analytics (after cost of goods, discount, and shipping; payment fees not included). Per-order analytics also record whether the rate exceeded the cap and by how much.
- Baseline: compare with a period of similar season and traffic mix, or run a holdout. Before/after differences without a control are directional, not proof.
- Change the cap if checkout completion drops in the segment that now pays partial shipping and the lost gross profit exceeds the subsidy saved. Lower it if Loss orders persist.
Takeaway
A threshold decides who qualifies. A cap decides what qualifying is worth. Saying both out loud, in the campaign and in the storefront copy, gives finance a known worst case and gives customers a promise the checkout will keep.
Frequently asked questions
What is the difference between free shipping and shipping subsidized up to a cap?
Free shipping over a threshold promises the customer pays nothing for delivery, whatever the rate. A subsidy cap promises the merchant covers shipping up to a set amount per order: rates at or below it ship free, rates above it are reduced by the cap. The cap gives a known worst case per order, but some customers will see a delivery charge, so the storefront should say so.
What does the customer see when the shipping rate is above the cap?
At checkout the customer sees the carrier's rate with a shipping discount equal to the cap and pays the remainder. With a $10 cap and an $18 rate, the discount is $10 and the customer pays $8. Delivery options at or below $10 show as free. Only the cart's first delivery group is discounted, so in a split shipment the other groups are charged in full.
How do I choose the maximum shipping rate to cover?
Group qualifying orders by carrier rate and compute total subsidy, average subsidy, and the number of customers who would pay something for two or three caps. In the illustrative example, 100 orders cost $2,030 uncapped, $1,480 with a $40 cap, and $860 with a $10 cap, with 0, 10, and 30 orders paying part. Pick the worst case your smallest qualifying order can afford.
Will a shipping cap reduce conversion?
It can for the orders that now see a delivery charge, and the size of that effect varies by store and category. Measure checkout completion for carts that reach the shipping step with a partial charge against those that ship free, and compare gross profit per order against a baseline period or holdout. Raise the cap if lost orders cost more gross profit than the subsidy saved.
Can Shopify do this without an app?
Partly. Shopify's free shipping discount can exclude rates over a set amount, but an excluded rate gets no discount at all, so the customer pays it in full. If free or full price is acceptable, that may be enough. Discount Prime's Free Shipping campaign (Prime plan or higher) instead covers part of an expensive rate with Maximum shipping rate covered.
Go deeper
Run this architecture in your store
Every campaign type in this case study is included in Discount Prime, with profit analytics to verify the margin impact.