What is the difference between CM1, CM2 and CM3?

CM1 is revenue minus product COGS. CM2 subtracts shipping, payment gateway fees and return/RTO costs from CM1 — it's your margin after fulfillment. CM3 subtracts marketing cost per order from CM2 — it's what's actually left after acquiring and fulfilling the order, the real per-order profit.

What is a healthy CM3 for an ecommerce brand?

A CM3 of 15% to 25% of revenue is generally considered a sustainable scaling range. A brand can show a strong platform ROAS and still have a negative CM3 once product cost, fulfillment, returns and marketing are all accounted for.

Ecommerce Contribution Margin (CM1/CM2/CM3) Calculator

Model Your Per-Order Profitability

Enter your order economics to see the CM1 → CM2 → CM3 waterfall.

Average Order Value (AOV)

Product COGS (% of AOV)

Shipping & Fulfillment (% of AOV)

Payment Gateway Fee (% of AOV)

Returns / RTO Cost Impact (% of AOV)

Marketing Cost per Order (₹)

Revenue (AOV)₹1,800

− Product COGS−₹540

= CM1 (Gross Margin)₹1,260

− Shipping & Fulfillment−₹180

− Payment Gateway−₹36

− Returns / RTO Impact−₹108

= CM2 (After Fulfillment)₹936

− Marketing Cost per Order−₹250

= CM3 (Real Per-Order Profit)₹686

CM1 %

70.0%

Gross margin after COGS

CM2 %

52.0%

After fulfillment & returns

CM3 %

38.1%

Real per-order profit margin

Why CM3, Not Just ROAS

A campaign can show a strong 3.5x ROAS in Ads Manager and still lose money once product cost, shipping, gateway fees, returns and marketing spend are all accounted for. Contribution Margin strips that illusion out, layer by layer.

CM1 — Gross Margin

CM1 = Revenue − Product COGS

CM2 — After Fulfillment

CM2 = CM1 − Shipping − Payment Gateway Fees − Returns/RTO Cost

CM3 — Real Per-Order Profit

CM3 = CM2 − Marketing Cost per Order

CM3 is the number that should decide whether to scale a channel, not platform ROAS alone. For a full walkthrough of blended CAC and how it feeds the marketing cost line here, see our Ecommerce CAC Playbook or model acquisition cost first with the CAC & LTV:CAC Calculator.

Next Step

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Contribution MarginCM1 / CM2 / CM3 Calculator