How do I calculate contribution margin for my D2C startup?
Same question, your business
Quick answer
Take the price of an order and subtract every variable cost of fulfilling it — product cost, shipping, packaging, payment fees, returns, and often the that customer. In D2C, this is where the truth hides, because those costs stack up fast.
How to calculate it
Contribution margin = order value − variable costs of that order. For D2C, variable costs include: the product's cost (COGS), shipping, packaging, payment fees, a share of returns, and — depending on which “level” you're measuring — the marketing cost to acquire the customer. (D2C often splits this into CM1, CM2 and CM3 — see the CM1/CM2/CM3 question.)
An example
You sell a skincare set for ₹1,500. Product cost ₹500, shipping ₹100, packaging ₹40, payment fees ₹30, returns (averaged) ₹50 — ₹720 in variable costs. Contribution margin before marketing = ₹780, or 52%. But if it costs ₹400 in ads to win that customer, your margin after marketing drops to ₹380, or 25%. Both numbers matter — and many D2C founders only look at the first.
Our honest take
In D2C, the margin before marketing can look healthy while the margin after marketing quietly bleeds. Always calculate it both ways — the second number is the one that decides if you have a business.