Charge at least what your claims cost you, plus a margin. Your break-even fee is the share of protected orders that end in a claim, multiplied by the average cost to resolve one. Everything above that is profit or buffer.
This guide shows the formula, three worked examples, how to pick between flat, percentage and banded pricing, and what to check every month. For the basics of how protection works, start with our shipping protection guide.
What is the break-even shipping protection fee?
Use this formula:
Break-even fee = claim rate on protected orders × average cost per claim
- Claim rate is the share of protected orders that file a valid claim. Pull it from your last 90 days of lost, damaged and stolen orders.
- Average cost per claim is what it costs you to make one claim right: the product cost (not the retail price) plus reshipping, or the refund amount if you refund.
Then set your fee above break-even:
Fee = break-even × margin multiplier, rounded to a friendly price
A multiplier of 2 to 3 leaves room for bad months, fraud attempts and payment processing fees on the protection fee itself.
What does the math look like for real stores?
Here are three example stores. The numbers are illustrative assumptions, not benchmarks. Swap in your own.
| Apparel store | Home goods store | Electronics store | |
|---|---|---|---|
| Average order value | $45 | $90 | $250 |
| Claim rate on protected orders | 1% | 2% | 1.5% |
| Average cost per claim | $20 | $45 | $160 |
| Break-even fee | $0.20 | $0.90 | $2.40 |
| Fee at ~3× margin | $0.60, rounded up to $0.98 | $2.70, rounded up to $2.95 | $7.20, rounded up to $7.50 |
| As a share of the order | 2.2% | 3.3% | 3.0% |
Notice how the right fee follows each store’s risk. The electronics store needs a much higher fee in dollars, but as a share of the order it is in line with the others. That is the case for percentage or banded pricing.
Should you charge a flat fee, a percentage or price bands?
| Model | How it works | Best for | Watch out for |
|---|---|---|---|
| Flat fee | Same price on every order, e.g. $1.98 | Stores where most orders cost about the same | Large orders pay too little for their risk |
| Percentage | A share of the cart, e.g. 3% | Wide range of order values | Tiny fees on small carts and large fees on big ones, unless you set a minimum and maximum |
| Price bands | A set fee per cart range | Most stores | A little more setup |
Price bands give you the best of both. Here is an example:
| Cart value | Fee |
|---|---|
| Under $50 | $1.50 |
| $50 to $149.99 | $2.95 |
| $150 to $299.99 | $4.95 |
| $300 and above | 2.5% of the cart |
Keep the bands simple. Customers should be able to guess the fee before they see it.
How does the fee affect how many customers add protection?
The share of customers who add protection (your attach rate) usually falls as the fee rises. What matters is the total:
Monthly fee revenue = orders × attach rate × average fee
A higher fee with a lower attach rate can still earn more. So can a lower fee that more customers accept. The only way to know is to test:
- Run your starting price for three to four weeks.
- Change one thing: the fee, or the widget placement, not both.
- Run the new version for the same length of time.
- Compare fee revenue minus claims, not attach rate alone.
Widget placement and wording often matter as much as price. A clear line such as “Protect my order from loss, damage and theft” beats a vague label. See how to add shipping protection to Shopify for placement options.
What else affects the price?
- Payment processing fees apply to the protection fee too, so leave room for them in your margin.
- Taxes on protection fees vary by country and state. Ask your accountant how your fee should be taxed.
- Products you exclude. Gift cards, digital goods and services do not ship, so leave them out of protection and out of the fee.
- Seasonality. Claim rates can rise when carriers are busiest. Look at last year’s November and December before setting holiday prices.
How should you review your shipping protection price?
Check three numbers once a month:
- Attach rate: protected orders ÷ all orders.
- Claim rate: claims ÷ protected orders.
- Loss ratio: claims paid ÷ fees collected.
Then act on what you see:
| What you see | What to do |
|---|---|
| Loss ratio well under 100% and attach rate healthy | Keep the price; test a small increase |
| Loss ratio creeping toward 100% | Raise the fee or tighten claim rules |
| Low attach rate | Make the widget easier to see or test a lower fee |
| Claims cluster on a few products or regions | Exclude them or price them separately |
If you are paying a provider today and keeping none of the fee, compare your options on our Route alternatives page, or see what Sam Shipping Protection costs at your volume.
Frequently asked questions
What is a typical shipping protection fee?
There is no single right number, because claim rates and order values differ by store. Work out your break-even fee from your own claims, add a margin, and test. Many stores land on a small flat fee for low-value carts and a percentage or banded fee for larger ones.
Should shipping protection be a flat fee or a percentage?
Use a flat fee if most orders cost about the same. Use a percentage or price bands if order values vary a lot, so expensive orders pay their share of the risk and small orders are not overcharged.
What is a good loss ratio for shipping protection?
Loss ratio is claims paid divided by fees collected. Anything well under 100% means the program pays for itself. If it creeps toward 100%, raise the fee, tighten your claim rules or stop offering protection on high-risk products.
Does a higher fee lower the number of customers who add protection?
Usually, yes. That is why you should test: run one price for a few weeks, then another, and compare total fees collected rather than attach rate alone.
Part of our guide: Shipping protection →