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- Contribution margin 1 (CM1) is gross margin minus other costs like logistics, payment gateways, etc.
- If one were to sell something below cost and get a higher marketshare, they can go for it during the bubble periods. But that would mean negative gross margins, which can be a problem during times like these.
- This means that CM1 minus digital marketing is CM2. Now that minus brand marketing and it comes to CM3, which has contribution margin and fixed costs and CM3 minus fixed costs is your EBIDTA.
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- The different levels of contribution margins
- This means that CM1 minus digital marketing is CM2. Now that minus brand marketing and it comes to CM3, which has contribution margin and fixed costs and **CM3 minus fixed costs is your EBIDTA.**
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- “CM1 basically says I can make money, but I don’t know if I can grow. The way I would use CM1 is in conjunction with Lifetime Value (LTV) to customer acquisition cost (CAC). So, if you have very high LTV to CAC, I am okay with CM2 being negative. Because your cohorts are strong. So, if you're doing CM1 level investing or CM1 level analysis, please look at cohorts and LTV to CAC, if your CM2 is positive, you don't even need to worry about it because it's paying back immediately.
- "If somebody is giving away things below cost and below their ability to make money, they should show a lot of traction. But the minute you switch that off, do the customers run away? This is why we all know that discount-driven customers are the most disloyal customers,” says Avnish. [For the next 18 months, unit economics will be the key for startups, says Avnish Bajaj](https://yourstory.com/2020/05/matrix-moments-unit-economics-key-startups-coronavirus/amp)
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- TODO Read https://www.intomarkets.com/en/wiki/contribution-margin/