Contribution Margin 1 (Direct Product Gross Margin) (CM1)

Mathematical Formula

What is CM1?

CM1 is the purest measure of a product's raw margin. It subtracts variable cost of goods sold (COGS)—like credit card processing fees, database hosting scale, and physical packaging—from gross revenue.

Where is CM1 Used?

Applied in SaaS and eCommerce unit economic spreadsheets to isolate server and assembly costs from variable operational elements.

What Does It Mean & Strategic Value

It reveals the baseline profitability of your technology or service structure before any human support or advertising spend is introduced.

Down-Funnel Impact

If CM1 is low (under 50%), scaling your business will require massive infrastructure spend, limiting long-term profitability.

Real-World Usage & Auditing

Used to assess hosting model efficiencies and negotiate payments with payment processing platforms.

Why CM1 Matters for Growth

The foundational starting point for the multi-tier Contribution Margin modeling system.

Operational Example Scenario

If your app generates $200 in subscription revenue and incurs $15 in database costs and $5 in Stripe transaction fees, your CM1 is $180 (90%).