Contribution margin calculator
Do I make money on each order after ads? CM1, CM2 and CM3 per order, after product cost, shipping, RTO and ads.
Free answer on screenAbout a minuteYour numbers stay in your browser
Do I make money on each order after ads?
YES
Full breakdown
Three fixes for your numbers
- Raise AOV with bundles above the free-shipping line
- Confirm COD orders on WhatsApp before dispatch
- Cap ad cost per order at your CM2
See the full breakdownThe numbers behind your answer and three fixes, also sent to your WhatsApp.
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Book a callHow it is calculated
Worked through with the typical numbers already in the calculator.
What you get
- CM1, CM2 and CM3 for one delivered order
- What RTO really costs per delivered order
- Whether each order makes money after ads
| Step | Formula | Result |
|---|---|---|
| CM1 | ₹1299 price − ₹450 product cost | ₹849 (65.4%) |
| RTO cost per delivered order | 18% ÷ (1 − 18%) × ₹110 × 2 trips | ₹48 |
| CM2 | CM1 − ₹110 shipping − 2% fees − RTO cost | ₹665 (51.2%) |
| CM3 | CM2 − ₹380 ad cost per order | ₹285 (21.9%) |
What a good number looks like
These are the targets we use in audits, not a law. Categories with high repeat buying can accept a lower CM3 on the first order.
| Our working targets for D2C brands | |
|---|---|
| CM1, after product cost | 55 to 70% of price |
| CM2, after shipping, fees and RTO | 35 to 50% of price |
| CM3, after ads | Positive, ideally 10%+ of price |
This page was updated in October 2026 and reviewed by our senior marketing team.
Mistakes that make this number wrong
We see these in most accounts we audit.
Product cost without packaging
Boxes, inserts and labels are part of the cost of every order.
Forgetting payment fees
Payment gateway and COD fees come off every order, and they add up across thousands of orders.
Counting RTO as zero cost
An RTO order pays shipping out and back and earns nothing.
Ignoring GST in the price
Use the price after GST, because the tax is not money you keep.
How to improve it
These are the four levers we pull first, and the service behind each one.
Lever 1
Lift order value
Bundles and a free-shipping threshold spread shipping over more revenue.
Fixed by website conversionLever 2
Cut RTO
We use prepaid offers and COD confirmation where RTO is highest.
Fixed by retention marketingLever 3
Lower ad cost per order
We test creative weekly and move budgets to campaigns with a positive CM3.
Fixed by performance marketingLever 4
Fix pricing and discounts
We check discount depth against CM2, product by product.
Fixed by E-commerce and D2C consultingDefinitions and questions
What is CM1?
CM1 is your selling price minus the product cost.
What is CM2?
CM2 is CM1 minus shipping, payment fees and the cost of RTO, for each delivered order.
What is CM3?
CM3 is CM2 minus the ad cost of winning the order. If it is negative, every order loses money.
What is the difference between CM1, CM2 and CM3?
CM1 is price minus product cost. CM2 also takes off shipping, payment fees and RTO. CM3 also takes off the ad cost to win the order. CM3 is what you keep.
Why is RTO counted twice the shipping?
An undelivered order pays forward and return shipping, and its cost has to be carried by the orders that were delivered.
Should CM3 always be positive?
On a one-time purchase, yes, it should. If customers reorder often, a small first-order loss can be fine, as long as the CAC payback tool says it pays back within six months.
What numbers do I need?
You need your selling price after discount, product cost, shipping and packing, payment fees, RTO rate and ad cost per order.
What is a healthy CM2?
In our audits we aim for 35 to 50% of price, but it depends on your category and how often customers reorder.
How do I raise contribution margin?
Lift order value with bundles, cut RTO, lower the ad cost per order and check discount depth product by product.
Does this include GST?
Use the price after GST and discounts, which is the money you actually keep from each order.
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