What is contribution margin for a D2C brand, and what do CM1, CM2 and CM3 mean?
The short answer
Contribution margin is what's left from an order after the costs that move when you sell one more unit; in Indian D2C the convention is to stack it in three layers. CM1 = net revenue minus COGS (your product margin), CM2 = CM1 minus fulfilment, shipping, payment fees and returns/RTO (your operating margin per order), and CM3 = CM2 minus marketing/ad spend (what actually contributes to fixed costs and profit). Gross margin lies to you; CM2 and CM3 tell you whether order number one makes money.
A quick summary to orient you. The real value is below: the resources worth your time, from people who've actually done it, not us.
Here are the resources
Hand-picked from around the web, each with a note on why it earns your time. India-specific ones carry a badge.
Why we picked it
An Indian CA breaking down the exact CM1/CM2/CM3 framing that Indian founders and investors use in board meetings and Shark Tank pitches. Short, rupee-native, and the fastest way to internalise the three-layer stack the rest of this category assumes you know.
Why we picked it
The cleanest plain-English starting point from the platform most Indian D2C brands actually run on. It nails the core idea - contribution margin is what's left after the variable costs of selling one more unit - and gives you the formula before you get lost in CM1/CM2/CM3 jargon.
Why we picked it
A reference list broader than just CM1/CM2, useful once you've got the basics down and want to know what an actual CFO would track for a scaling Indian D2C brand.
Why we picked it
The best worked-example explainer for actually doing the math: Net Sales minus product cost, shipping, payment fees, fulfilment and allocated ad spend, computed across orders and SKUs. It shows you the arithmetic rather than just defining the term.
