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Unit Economics

How to Calculate CM1 and CM2 for Your D2C Brand

CM1 is your margin after variable costs per order. CM2 is your margin after the cost of acquiring the customer. A business that can achieve CM2 > 0 from day one is fundable. A business with strong CM1 but negative CM2 is either buying growth or has a structural CAC problem.

Step 1: Calculate CM1

CM1 = Selling Price − COGS − Platform Commission − Fulfilment − Returns

Worked example — ₹649 face serum on Nykaa:
- Selling price: ₹649
- COGS (38%): ₹247
- Nykaa commission (24%): ₹156
- Fulfilment (Nykaa logistics): ₹55
- Returns (6% × ₹649): ₹39
- CM1 = ₹649 − ₹247 − ₹156 − ₹55 − ₹39 = ₹152 (23.4%)

Category benchmark: Beauty on Nykaa — CM1 of 20–30% is standard. Below 18% is a pricing or COGS problem.

Step 2: Calculate CM2

CM2 = CM1 − Customer Acquisition Cost (CAC)

CAC = Total Marketing Spend ÷ New Customers Acquired

If you spent ₹50,000 on Meta Ads and acquired 200 new customers:
CAC = ₹50,000 ÷ 200 = ₹250

Continuing the example:
- CM1: ₹152
- CAC: ₹250
- CM2 = −₹98 (first-order loss)

A negative CM2 on the first order is fine IF the repeat purchase rate is high and LTV covers it. But you need to know your LTV:CAC ratio to be sure.

What's a healthy CM1 and CM2 for Indian D2C?

CM1 benchmarks by category:
- Beauty (Amazon): 25–35%
- Beauty (Nykaa): 20–30%
- Beauty (D2C): 35–50%
- FMCG (any channel): 15–25%
- Health/Supplements: 30–50%

CM2 benchmarks:
- First-order CM2 of +5–15%: strong
- First-order CM2 of 0–5%: acceptable with good LTV
- First-order CM2 negative: requires LTV > 3× CAC

Most healthy Indian D2C brands accept negative CM2 on the first order and recover in months 2–4.

Frequently Asked Questions

What is CM1 in D2C?
CM1 (Contribution Margin 1) is the revenue from an order minus all variable costs directly tied to that order — COGS, platform fees, fulfilment, and returns. It answers: 'Did this order make money on its own, before marketing?'
What is CM2 in D2C?
CM2 (Contribution Margin 2) is CM1 minus the Customer Acquisition Cost (CAC). It answers: 'Did acquiring and servicing this customer make money on the first order?' A negative CM2 is acceptable for brands with strong LTV.
What is a good CM1 for a beauty brand on Amazon India?
For a beauty brand on Amazon India in 2025, a CM1 of 25–35% is healthy. Below 20% indicates a structural problem with either COGS (too high) or pricing (too low relative to fees). Above 40% suggests room for more aggressive pricing or CAC investment.