How it's calculated
- Margin per order = what the customer pays + shipping charged − product costs − pick and pack − extra picks − packaging − label − card fees − refund reserve
- Gift cost per order = gift unit cost + one extra pick + gift handling. Revenue does not change
- Lift to break even = margin without the gift ÷ margin with the gift − 1
- Profit per visitor = margin per order × conversion rate
Every figure on this page comes from Offer Suite's own margin engine, the same code the product uses to forecast each offer's and option's profit and to compute realized margin on orders. Money is computed in whole cents.
Worked example
A coffee brand sells a bag at $40.00 with free shipping. The bag costs $12.00; the warehouse charges $1.18 to pick and pack the order, the box is $0.50 and the label $7.50. Card fees come to $1.16 plus $0.30, and $2.00 is set aside for refunds. The order keeps $15.36, 38.4% of what the customer paid.
Now add a mug as a gift. It costs $4.00, one more pick is $0.20, and wrapping it is $0.25. The customer still pays $40.00, so the order now keeps $10.91.
At 3.0% conversion, the page earned $0.46 per visitor before the gift and $0.33 with it. To get back to $0.46, the gift has to bring 40.8% more buyers. A gift that lifts conversion by 10% on this order loses money.
Assumptions
- Every order gets the gift. A gift above a spend threshold is a threshold question as well; the free-shipping threshold calculator shows how to count orders that already qualify.
- The gift ships in the same parcel, so it adds a pick but no second label or box.
- Card fees and the refund reserve are a share of what the customer pays, so a gift doesn't move them.
- Pick and pack $1.18 per order and $0.20 for each extra item are the defaults of the engine's DTC-US profile, a typical third-party warehouse contract. Use your own contract.
- The shipping label ($7.50) is an assumption for a domestic ground parcel of about a pound. Your carrier account or shipping app has your rate.
- Card processing of 2.9% + $0.30 is Shopify Payments' online rate for a standard card on the Basic plan in the United States. The Shopify Payments fees pages list every plan and country; enter yours.
- The refund reserve (5%) is a share of revenue set aside for refunds. Cost is not reduced by a refund, because the goods were already picked and shipped.
Questions
How do I calculate the cost of a free gift with purchase?
Add the gift's unit cost, the fee your warehouse charges for picking one more item, and any handling such as tissue or a card. That sum comes straight off the order's margin, because the customer pays the same with or without the gift.
How much does a gift with purchase need to lift conversion?
Divide the order's margin without the gift by its margin with the gift, and subtract one. With the defaults on this page, a $4.00 mug on a $40.00 order needs roughly 40% more buyers to earn the same profit per visitor, because the order's margin is small once shipping and fees are paid.
Why does the gift's retail value not matter?
Profit only sees what you pay for the gift and what the customer pays you. A mug that retails at $18.00 and costs you $4.00 costs $4.00, plus its pick and handling. The retail value can change how attractive the offer looks, which is the conversion side of this calculation.
Should the gift go on subscription renewals too?
Usually not. A gift on the first order only is a one-time acquisition cost. On every renewal it lowers the margin of every order the subscriber ever places. The subscription calculator shows the first-order and renewal margins side by side.