Minimum and maximum shipping prices: how to set the caps

A minimum shipping price is a floor that stops any order going out for less than it costs you to post, and a maximum shipping price is a ceiling that stops a heavy or remote quote from scaring a customer off. Set the minimum from your cheapest real parcel plus your fixed per-parcel costs. Set the maximum only after you've added up what it would have cost you over a normal month, because every dollar it trims comes straight off your margin.

Our guide to setting a shipping markup covers the markup itself. This post is about the two caps that sit on top of it: how to pick the numbers, and how to tell whether a maximum is worth paying for.

What caps actually do

If your checkout shows postage plus a markup, the price changes with every basket and postcode. Caps put limits on that price:

• Minimum: if the calculated charge is below the floor, the customer pays the floor.
• Maximum: if the calculated charge is above the ceiling, the customer pays the ceiling.

Between the two, nothing changes. So caps only ever affect your outliers: the tiniest parcels at one end, and the heaviest, bulkiest or most remote at the other. That's why a quick check of your typical order tells you nothing about them.

The two caps also do very different jobs. A minimum protects your margin. A maximum spends it.

Setting the minimum

A minimum price is a safety net. On a well-set markup it should rarely change a quote. It earns its keep when something unexpected happens, such as:

• a percentage-only markup on a very cheap parcel, which adds too few dollars to cover packaging and packing time
• a product saved without a weight, or with a weight that's far too low, so the live quote comes back cheaper than the parcel really is
• a basket that's quoted cheaply because the packed parcel is smaller than the one you'll actually use

A minimum doesn't fix bad product data. Shopify's help on carrier-calculated rates is clear that rates won't calculate correctly without accurate weights. But it does limit how much a bad quote can cost you while you find and fix the cause.

The formula

Minimum price ≥ (lowest real postage + fixed costs per parcel) ÷ (1 − payment fee rate)

• Lowest real postage is what you're actually charged for your smallest parcel to your cheapest destination, not a theoretical price for an item you never send.
• Fixed costs per parcel are packaging and handling. Our guide to true shipping cost per order shows how to work them out. For handling, our guide to pick and pack cost per order shows how to measure the time, including the minutes a stopwatch misses.
• Payment fee rate is the percentage your payment provider takes, because it takes it from the shipping you charge too.

Worked example: the floor

All figures are illustrative and exclude GST. Say your smallest satchel costs you $9.00 to post, packaging and handling cost $3.50 a parcel, and your payment fees are 1.75%.

Minimum = ($9.00 + $3.50) ÷ (1 − 0.0175)
        = $12.50 ÷ 0.9825
        = $12.72

Round it to a price that looks normal at checkout, such as $12.95.

Now check it against your markup. If you charge postage plus 5% plus $4.00, that same satchel quotes $9.00 × 1.05 + $4.00 = $13.45. The minimum of $12.95 sits just below it, so it won't touch normal orders. It only catches quotes that come back lower than any parcel you really send.

Decision rule: if your minimum changes more than a handful of quotes a month, don't raise the minimum. Fix the markup or the product weights, because the minimum is covering a problem rather than catching an exception.

Setting the maximum

A maximum price is a subsidy. When the calculated charge for a heavy or remote order is $61.75 and your maximum is $35.00, you've chosen to pay $26.75 of that customer's postage. That can be a good trade: a customer who sees a $60 shipping charge on a $150 order may well walk away. But it's a trade, and you should know the price before you make it.

At the time of writing, Australia Post says its prices depend on weight, dimensions, delivery zone and speed of service (business postage costs). So the orders a maximum catches are usually your heaviest, your bulkiest, and the ones going furthest. If you sell anything big, those orders can be a real share of your month.

Worked example: what a cap costs over a month

All figures are illustrative and exclude GST. A made-up store sends 400 orders a month and charges live postage plus 5% plus $4.00. Most orders quote well under $35. These 40 don't:

Orders a month	Postage, say	Charge without a cap	Given up at $35 max	Given up at $45 max
20	$32.00	$37.60	$2.60	$0.00
12	$40.00	$46.00	$11.00	$1.00
6	$55.00	$61.75	$26.75	$16.75
2	$70.00	$77.50	$42.50	$32.50

Checking one row: $55.00 × 1.05 + $4.00 = $61.75. At a $35 maximum the customer pays $35.00, so you give up $61.75 − $35.00 = $26.75.

Now add each column up across the month:

$35 maximum:  (20 × $2.60) + (12 × $11.00) + (6 × $26.75) + (2 × $42.50)
            = $52.00 + $132.00 + $160.50 + $85.00
            = $429.50 a month

$45 maximum:  (12 × $1.00) + (6 × $16.75) + (2 × $32.50)
            = $12.00 + $100.50 + $65.00
            = $177.50 a month

(Your payment fee is charged on the lower price, so the true cost is about 1.75% less than these totals. It's close enough to decide with.)

Will the cap pay for itself?

A cap is worth it if it wins enough extra orders to cover what it gives up. Divide the monthly cost by your average profit per order, after product costs but before shipping:

Extra orders needed = monthly cost of the cap ÷ average profit per order

If your average order earns $30:

$35 maximum: $429.50 ÷ $30 = 14.3, so about 15 extra orders a month
$45 maximum: $177.50 ÷ $30 = 5.9, so about 6 extra orders a month

Then ask whether that's realistic. Fifteen extra orders a month that only happen because heavy and remote shipping is capped at $35 is a big ask if you only send 40 of those orders in the first place. Six is easier to believe. You can't know for sure in advance, but you can check afterwards: compare how many heavy and remote orders you get in the months before and after the change.

Check the capped orders still make money

It's also worth checking one capped order on its own. Take the $55.00 postage order at a $35 maximum, and say the products in it sell for $150 with a 45% gross margin:

Shipping margin = $35.00 − $0.61 fee − ($55.00 postage + $3.50 packaging and handling)
                = −$24.11

Product margin  = $150 × 45% = $67.50

Order profit    = $67.50 − $24.11 = $43.39

That order still makes money. The same cap on a $40 order with the same postage would lose money on every one. Decision rule: a maximum is only safe for the products whose gross profit is bigger than the subsidy it creates. If your heaviest items are also your lowest-margin ones, cap carefully, or not at all.

Mistakes that make caps expensive

One maximum for every service. If the same ceiling applies to Parcel Post and Express Post, a heavy or remote order can be capped at the same price for both. The customer sees the faster service for no extra money, picks it, and you pay the dearer postage. Check the capped prices for each service you offer. Our guide to Parcel Post vs Express Post explains why the gap between them grows with weight and distance.

A maximum that's below what your typical order pays. If your ceiling is close to your everyday charge, it stops being a cap on outliers and becomes a discount on a big share of your orders. Look at the table first, then set the number.

Caps and free shipping pulling against each other. If orders over a threshold ship free, the maximum only matters on orders below it, and the free shipping already carries its own cost. Count both when you work out what shipping is costing you. Our guide to setting a free shipping threshold and our free free shipping threshold calculator help with that side.

A quick checklist

1. Work out your packaging and handling cost per parcel and your payment fee rate.
2. Find your cheapest real parcel and set the minimum with the formula above.
3. Pull last month's orders and list every one whose calculated charge would be above the maximum you're considering.
4. Add up what the maximum gives away, and divide by your average profit per order.
5. Check that the products in capped orders earn more than the subsidy.
6. Check the capped price for every service you offer, not just Parcel Post.
7. Re-run steps 3 to 6 whenever postage prices change, because more orders can drift above a fixed maximum without anyone deciding they should.

Where TrkShp fits

Caps only make sense on top of live postage, which on Shopify needs carrier-calculated shipping; our guide to live Australia Post rates without Shopify Advanced explains which plans include it. TrkShp quotes live domestic Australia Post Parcel Post and Express Post rates at checkout and lets you add a markup, per-service overrides, and optional minimum and maximum final prices. You can preview the services and prices checkout will return for a heavy basket or a remote postcode before you go live. A preview is an estimate of what checkout will charge, not your Australia Post invoice, so keep comparing what customers paid with what you were billed.

Key takeaways

• A minimum price protects your margin; a maximum price spends it. Treat them as different decisions.
• Minimum ≥ (lowest real postage + fixed costs per parcel) ÷ (1 − payment fee rate). If it changes lots of quotes, fix the markup instead.
• Cost a maximum over a month: add up what it gives away, then divide by your average profit per order to see how many extra orders it must win.
• Only cap orders whose products earn more than the subsidy, and check the capped price for every service.
• Re-check both caps whenever postage prices change.

For how shipping fits into the profit on a whole order, see our guide to shipping profitability. To set caps on live Australia Post rates, the TrkShp setup docs walk through each setting.