What is contribution margin for a D2C brand, and what do CM1, CM2 and CM3 mean?
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.
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4 resources, 2 India-specific, 4 link-checked.
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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.
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.
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.
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.
