Contribution margin is the money left from a sale after the costs that rise with every order are paid. The textbook form is selling price minus variable cost per unit. D2C brands in India usually split it into three levels, CM1, CM2 and CM3. There is no official standard for the split, so the labels differ between companies.
The usual CM1, CM2 and CM3 split
| Level | Takes off | Question it answers |
|---|---|---|
| CM1 | Product cost and packaging | Does the product itself make money? |
| CM2 | Fulfilment, shipping, marketplace or payment fees, returns | Does the order make money after delivery? |
| CM3 | Marketing and ad spend | Does the order pay for the customer it took to win? |
This is the common convention, not a rule from any regulator or marketplace. Another team may put payment fees in CM1 or ads in CM2. We could not find an authoritative published definition of the three levels, so treat any quoted "CM2" as the speaker's own definition.
A worked example
For example, a ₹1,000 order (all figures made up for illustration): product and packaging ₹400 gives CM1 of ₹600. Shipping ₹80, marketplace fees ₹120 and ₹50 of average return cost give CM2 of ₹350. Ad spend of ₹200 gives CM3 of ₹150, or 15% of the order value. If the same SKU had a CM3 below zero, selling more of it would lose more money.
Why marketplace sellers should track it
Marketplace payouts hide several costs inside one settlement, so the gap between listed price and cash received is easy to underestimate. Our guide to the D2C contribution margin calculator lets you set each level with your own numbers, and the ROAS and TACoS entries cover the ad side. Fee names vary by platform: see referral fee and RTO for two common deductions.
Costs that sit inside CM2 on Amazon.in
If you sell through Easy Ship, Amazon's fee page lists a referral fee, a closing fee and a weight handling fee, with 18% GST on the fees shown. All three fall per order, so they belong in CM2 under the usual split. Add your own courier, packaging and return costs if you ship another way.
Common mistakes
- Using one average margin for the whole catalogue. A heavy item and a light item carry very different shipping cost.
- Leaving returns out of the sum, so CM2 looks healthier than it is.
- Counting GST on fees as income. Fee GST is a cost unless you can claim it as input credit; ask your accountant.
- Changing the definition between months, which makes trends meaningless.
Blooprint, a Bengaluru e-commerce agency, can help you read marketplace fees and ad spend per SKU through Amazon account management. This is general information, not accounting advice.