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How does Average Order Value factor into the formula when calculating a free shipping minimum?

I understand wanting to consider your AOV when deciding on a minimum order value to qualify for free shipping, but I don't understand how it factors in to the following formula, which I've come across on multiple sites:

((Suggested Min. Cart Val. – AOV) * Avg. Gross Profit Margin) – Avg. Shipping Cost

The result of this formula is supposedly the profit or cost per transaction to offer free shipping at that cart value. But why?

Wouldn't a better, simpler formula merely be:

(Suggested Min. Cart Val. * Avg. Gross Profit Margin) – Avg. Shipping Cost

I feel like I'm overlooking something obvious, but I'm not seeing why AOV factors directly into the given formula.

submitted by /u/psluredd
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