CM1
CM1 is the first rung of the contribution margin step-down: revenue minus landed cost of goods sold (unit cost plus freight-in plus duty). Calculated per order, SKU or period, it answers one question for an ecommerce operator: can the product itself carry its cost, before operations and marketing are paid?
| Variable | What it covers |
|---|---|
| Revenue | Net revenue for the order, SKU or period - gross sales minus discounts, returns and refunds. |
| Landed COGS | Supplier unit cost plus freight-in plus duty - the true cost of getting the unit to your warehouse. |
One caution: CM1 boundaries are not standardised, and some operators fold fulfilment into CM1 or number the rungs differently. Our canonical step-down, taught in full on The Math, stops CM1 at landed COGS; CM2 then removes fulfilment, shipping and payment fees, and CM3 removes variable marketing. State the convention you are using and most CM1 arguments disappear.
Worked example
Example numbers. Landed COGS totals A$50.40, so the order carries A$69.60 of CM1. The same order steps down to 45.0% at CM2 and 23.0% at CM3 on The Math.
What is a good CM1?
There is no single good CM1: landed cost structure differs too much by category, and a high-AOV brand can run a lower CM1 percentage than a low-AOV brand shipping heavy product and still win. What matters is headroom - CM1 is the pool that must fund fulfilment, payment fees and marketing before anything contributes. For most DTC brands CM2 sits 10 to 15 points below CM1, so a CM1 that barely covers your cost of acquisition is already underwater before the order ships.
Compute your own floor with the free contribution margin calculator - it steps real order economics down from CM1 to CM3.
CM1 vs related metrics
| Metric | What comes out of revenue | How it relates to CM1 |
|---|---|---|
| Gross margin | COGS as booked in the P&L. | Identical to CM1 when COGS is landed; many P&Ls book supplier cost only, so reported gross margin often sits above CM1. |
| Contribution margin | Every variable cost, down to CM3. | The full step-down CM1 opens - it answers whether the next order makes money. |
| Landed COGS | Not a margin - the cost input. | The number CM1 subtracts: unit cost plus freight-in plus duty. |
| Variable costs | The full set of costs that move with the order. | What CM2 and CM3 go on to remove after CM1. |
Common mistakes
- Assuming everyone shares your definition. CM1 boundaries differ between tools and finance teams; state yours (ours stops at landed COGS) before comparing numbers.
- Computing on the supplier invoice. Landed means unit cost plus freight-in plus duty; leaving freight and duty out overstates CM1 on every order.
- Starting from gross revenue. Discounts, returns and refunds come out of revenue first, or the percentage flatters.
- Celebrating CM1 on its own. A strong CM1 can still die at CM2 or CM3 - fulfilment and acquisition cost decide whether the product margin survives.
CM1 FAQ
Related
Blufire S2 Unit Economics computes CM1, CM2 and CM3 on every order, customer and SKU in the Profitability Cube and the CM waterfall & bridge. The Math teaches the full step-down free.
Updated July 2026