What are CM1, CM2 and CM3, and why are they mainly used for D2C?
Quick answer
CM1, CM2 and CM3 are just contribution margin measured at three “levels,” peeling away more costs at each step. They're mainly a D2C thing because D2C has a stack of costs — product, fulfilment, marketing — that founders need to see separately to know where the money leaks.
The mistake most founders make
Looking at one blended margin and missing where the problem is. Splitting it into CM1, CM2 and CM3 shows you exactly which layer — product, logistics or marketing — is eating your profit.
The three levels, in plain terms
CM1 = selling price − product cost (COGS). This is your basic product margin. CM2 = CM1 − fulfilment costs (shipping, packaging, payment fees, returns). Now you see margin after getting the product to the customer. CM3 = CM2 − marketing/. This is your margin after winning the customer — the number that tells you if the business truly works.
An example
Order value ₹1,500. Product cost ₹500 → CM1 = ₹1,000 (67%). Minus ₹220 fulfilment → CM2 = ₹780 (52%). Minus ₹400 marketing → CM3 = ₹380 (25%). Each level tells a story: great product margin, decent after logistics, thin after marketing — so the fix is acquisition cost, not the product.
Why mostly D2C
D2C uniquely stacks product + fulfilment + paid acquisition on every order, so seeing them layer by layer is essential. Other models have fewer or different layers, so they don't slice it the same way.
Our honest take
CM1 to CM3 is D2C's X-ray. It shows you exactly where margin disappears — and therefore exactly what to fix. If you run a D2C brand, live in these three numbers.