Margin-Leak Audit

Guides · Shipping

Free shipping and shipping margin: compare what customers paid with what the label cost

Shipping is where a store can lose a little on almost every order without noticing. The customer pays one number at checkout, the carrier bills a different one, and neither appears next to the other in a standard sales report. This guide shows how to put them side by side.

How Shopify sets what customers pay

Per Shopify's Help Center, shipping options include flat rates you set, free shipping, and carrier-calculated rates, where carriers such as UPS or FedEx work out the cost from the order details. Shipping profiles let you apply different rules to specific products and locations. Every one of those is a rule you chose at some point, and each is worth checking against what actually happens.

Two reports that do the comparing

If you buy labels through Shopify, two order reports help:

Two limits are worth knowing. These reports exclude return labels. And Shopify's product-level sales reports exclude shipping, because an order can hold several products but carries one shipping charge. So shipping needs its own line when you work out profit by product.

If you buy labels outside Shopify, you will need your carrier invoice instead. Match it to orders by order number.

The check

  1. Export Shipping labels by order for 90 days.
  2. Add a column: customer shipping price minus label cost.
  3. Sort from most negative to most positive.
  4. Total the column. This is the net shipping result for the period.
  5. Look for patterns: a product, a destination, a carrier service, an order weight band.

One loss-making order is noise. The same pattern across fifty orders is a rule you can change. The Help Center does not say how often charged and actual shipping differ, so do not assume a direction; the sort will tell you.

Free shipping is a discount

A free-shipping offer, or a free-shipping threshold, is a shipping discount. If the label cost for those orders is $8 and nothing is charged, that $8 comes straight out of the order's profit. Whether the order still earns a profit depends on its product margin, so run the numbers for the products that qualify. The discount impact calculator has fields for shipping charged and label cost for exactly this.

Hypothetical example, invented numbers: a $40 order with a $22 product cost and a $9 label, shipped free, leaves $9 before any fees or other costs. With a 20% discount code on the same order it leaves $1. That is how a discount plus free shipping can erase a margin that looked fine. See discount codes.

Duties and refunds

Two things the label report will not show. If you pay import duties on international orders, record them separately. And on refunds, Shopify's Help Center says shipping can be refunded up to the amount charged, except where an order-level free shipping discount applied. If you refund shipping as goodwill, count it as part of the cost of returns.

What to do with the result

Possible responses, in order of effort: adjust a flat rate, change a free-shipping threshold, set up a shipping profile for heavy or awkward products, or review which carrier service you default to. Change one thing at a time and re-run the report after a month.

Want this done for you?

The Margin-Leak Audit compares charged and actual shipping order by order and ranks the result against your other leaks, for a fixed $199. Or use the free Margin Leak Self-Check.

Sources

Help Center pages change. Check the current page before relying on a detail. Dollar figures above are invented examples.

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