What Is CM1? (Contribution Margin = Revenue Minus Landed COGS)

Contribution Margin 1 (CM1) is revenue minus landed Cost of Goods Sold (COGS). And only landed COGS. CM1 is the dollar (or percent) amount each order generates before any variable fulfillment, payment processing, or marketing costs hit. It is functionally the same as gross margin at the unit level — provided your landed COGS is correctly capitalized.

How CM1 is calculated

CM1 (dollars) = Revenue minus Landed COGS.

CM1 (percent) = CM1 dollars divided by Revenue, times 100.

Landed COGS = unit manufacturing cost + inbound freight + duty + import handling. Anything required to land the product into your warehouse goes here. Anything to move it OUT of the warehouse (outbound shipping, 3PL pick-pack) is variable sales expense — that hits at CM2, not CM1.

A worked example

A DTC beauty brand sells a serum for $80. Landed COGS is $18 (manufacturing $14, inbound freight $2.50, duty + import handling $1.50). CM1 = $80 - $18 = $62, or 77.5 percent. That $62 is what's available to absorb variable fulfillment (CM2), then marketing (CM3), then contribute to fixed costs and profit.

What's a good CM1?

Vertical-dependent. CM1 is the gross-margin layer, so these track public gross-margin benchmarks. Composite 2026 ranges:

• Beauty / personal care DTC: 70 to 82 percent
• Apparel DTC: 55 to 70 percent
• Footwear DTC: 50 to 65 percent
• Food and beverage DTC: 35 to 55 percent
• Outdoor / hardgoods DTC: 50 to 65 percent

For the public-comparable data, see average DTC gross margin (public companies).

The most common mistake

Not capitalizing landed cost into COGS. Brands quote their CM1 using ex-factory product cost only — leaving inbound freight, duty, and import handling in OpEx. Result: CM1 looks 4 to 8 points higher than reality. The "save freight as a separate line" approach is fine for AP — it's wrong for unit-economics math. Land everything required to get the product into your warehouse into COGS.

CM1 sets the ceiling on what you can afford to spend acquiring a customer. For the framework that turns CM1 into a max-CAC budget plus weekly marginal-CAC decision rule, see our customer acquisition cost pillar.

CM1 is the first step on the contribution margin ladder. For the full framework that walks CM1 → CM2 → CM3, the DTC-specific formula, the worked example with Shopify payment fees, and how CM2 sets your max allowable CAC, see our contribution margin pillar.

Browse the full ecommerce finance glossary for every metric and money term a DTC operator needs.

Frequently Asked Questions

is cm1 the same thing as gross margin?

Yes — CM1 is gross margin computed at the unit level with landed cost properly capitalized into COGS. Many CFOs use the terms interchangeably. The distinction only matters when you're walking down the contribution-margin ladder (CM1 to CM2 to CM3), where naming them in sequence keeps the conversation precise.

what's the difference between CM1, CM2, and CM3?

CM1 = revenue minus landed COGS (the gross-margin layer). CM2 = CM1 minus variable fulfillment (outbound shipping, payment processing, 3PL, returns reserve). CM3 = CM2 minus variable marketing. See what is CM2?

which contribution margin sets the max CAC ceiling?

CM2 — not CM1. CM2 is what each order brings home after both COGS and fulfillment. If you spend more than CM2 on customer acquisition, you lose money on the first order. CM1 is the layer above; it doesn't account for fulfillment costs and so overstates your CAC headroom.

Want a CFO to pressure-test your CM1 against your real cost stack? Talk to a CFO — 30 minutes, no strings.