Unit Economics
D2C Unit Economics Formula — CM1, CM2, LTV:CAC for Indian Brands
By Sylvr Founder's Desk
CM1 — Contribution Margin 1 (per order)
CM1 = Revenue − COGS − Platform Fees − Fulfilment − Returns
CM1 measures profitability at the order level before customer acquisition cost. It tells you whether your product economics work, independent of marketing.
Worked example (Sample data; every input is the example's): a ₹799 face wash.
- Revenue: ₹799
- Cost of goods: ₹303
- Platform fee: ₹144
- Fulfilment: ₹60
- Returns: ₹80
- CM1 = ₹212 (26.5%)
There is no single right CM1. Compare yours with your own channel fees and your own repeat purchase.
CM2 — Contribution Margin 2 (per acquired customer)
CM2 = CM1 − Customer Acquisition Cost (CAC)
CM2 measures whether you made money on the first purchase from a new customer after marketing spend.
Continuing the example (Sample data), with an acquisition cost of ₹180:
- CM1: ₹212
- CAC: ₹180
- CM2 = ₹32 (4% of revenue)
Repeat orders carry no acquisition cost of their own, so what you earn on the second order depends on your own repeat purchase.
LTV, payback period and LTV:CAC
LTV (lifetime value) = average order value × purchase frequency × gross margin × retention rate
LTV:CAC compares what a customer is worth with what it cost to win them.
CAC payback period = CAC ÷ (CM1 per order × orders per month)
Use your own order value, frequency, margin and retention. The planner takes them as inputs and shows LTV:CAC and payback.
Questions founders ask
What is CM1 in D2C?
CM1 (Contribution Margin 1) is revenue minus variable per-order costs: COGS, platform fees, fulfilment, and returns. It measures the profit per order before marketing.
What is a good LTV:CAC ratio for an Indian D2C brand?
There is no single figure we can source. The ratio compares what a customer is worth with what it cost to acquire them, so it depends on your own margin, repeat purchase and acquisition cost. Enter yours in the planner.
How is D2C unit economics different for a marketplace and your own website?
On a marketplace you pay platform fees and get its traffic. On your own website you keep that margin but pay for every customer you acquire. Enter the fees and acquisition cost for each channel in the planner to compare what you keep per order.