Unit Economics

Contribution Margin Explained for Indian D2C Founders

Contribution margin is profit-per-order after variable costs. CM1 strips out cost-of-goods, fees, fulfilment, returns. CM2 also strips out CAC. CM3 also strips out fixed marketing. These three numbers decide whether your brand scales.

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The three layers

CM1 — order economics: did the product make money?
CM2 — customer economics: did the first-order customer pay back the marketing?
CM3 — channel economics: did the channel as a whole carry its share of fixed marketing?

Why not gross margin

Gross margin masks channel costs. A 60% gross-margin brand with 30% take-rate channels is actually a 30% margin brand at the order level. Contribution margins force you to see channel reality.

Frequently asked questions

What's a healthy CM1 for Indian beauty?↓

25–40% on hero SKUs. Below 20% signals either COGS or channel-fee problems.

Should CM2 be positive on the first order?↓

Ideally yes, even slightly. Negative-CM2 brands depend entirely on repeat behaviour, which is risky if retention shifts.

How do I track CM2 by channel?↓

Use the Sylvr UEP — model each store separately, then look at the blended portfolio view. CM2 by channel is the most important diagnostic number for a multi-channel D2C brand.

Put this into practice