Short answer: The core D2C metrics are CAC (cost to win a new customer), LTV (what a customer is worth over time), ROAS (revenue per rupee of ad spend), AOV (average order value), conversion rate (share of visitors who buy), RTO (orders returned undelivered) and contribution margin (what’s left after product, fulfilment and marketing costs). Together they tell you whether growth is profitable.
D2C is full of acronyms. This glossary explains the ones that matter in plain words, with a formula and a simple example for each.
AOV: Average order value
The average amount a customer spends per order.
Formula: total revenue ÷ number of orders. Example: ₹4,40,000 from 200 orders gives an AOV of ₹2,200.
CAC: Customer acquisition cost
What you spend on marketing to win one new customer.
Formula: marketing spend on acquisition ÷ new customers. Example: ₹1,00,000 spent to win 125 new customers gives a CAC of ₹800. See how to reduce D2C CAC.
Contribution margin (CM1, CM2, CM3)
What each order leaves you after costs, at three levels:
- CM1: revenue minus product cost and discounts
- CM2: CM1 minus shipping, packaging, payment fees and returns
- CM3: CM2 minus marketing cost per order
See our worked example of D2C unit economics.
Conversion rate
The percentage of visitors who make a purchase.
Formula: orders ÷ sessions × 100. Example: 200 orders from 10,000 sessions is a 2% conversion rate. See why D2C websites don’t convert.
COD: Cash on delivery
A payment method where the customer pays when the order arrives. Popular in India, but linked to higher RTO.
CPM: Cost per thousand impressions
What you pay for 1,000 ad views. Rising CPMs, for example during festive season, make efficient creative and conversion more important.
CTR: Click-through rate
The percentage of people who click an ad after seeing it. A high CTR only matters if those clicks convert.
LTV: Customer lifetime value
The total value a customer brings over their relationship with your brand, ideally measured as contribution margin rather than revenue.
Simple formula: average contribution per order × average number of orders per customer. Example: ₹1,116 × 1.4 orders gives an LTV of about ₹1,562.
LTV:CAC ratio
How much a customer is worth compared with what it costs to acquire them. If LTV is well above CAC, you can afford to scale acquisition.
MER: Marketing efficiency ratio
Total revenue ÷ total marketing spend across all channels. Also called blended ROAS, it avoids attribution arguments between platforms.
Repeat purchase rate
The share of customers who order more than once in a period. Higher repeat rates raise LTV. See Klaviyo flows every Shopify brand needs.
ROAS: Return on ad spend
Revenue generated for every rupee spent on ads.
Formula: ad-attributed revenue ÷ ad spend. Example: ₹3,00,000 revenue from ₹1,00,000 spend is a ROAS of 3. Check yours with our break-even ROAS calculator.
Break-even ROAS
The ROAS at which an order makes zero profit after product, fulfilment and ad costs.
Formula: net revenue per order ÷ contribution margin before marketing (CM2).
RTO: Return to origin
An order that couldn’t be delivered and was shipped back, usually a refused or undeliverable COD order. See how to reduce COD returns and RTO.
Frequently asked questions
What’s the difference between ROAS and MER?
ROAS measures revenue attributed to a specific ad platform or campaign. MER divides all revenue by all marketing spend, giving a blended view of efficiency.
What’s the difference between CAC and cost per purchase?
Cost per purchase includes repeat orders. CAC counts only new customers, so it’s usually higher and better for judging acquisition.
Which D2C metric matters most?
No single metric. Contribution margin after marketing tells you whether you’re actually making money, while CAC and LTV tell you whether you can scale.
Should I calculate LTV on revenue or margin?
On margin. Revenue-based LTV overstates what a customer is worth, because it ignores product and fulfilment costs.
Want help tracking the metrics that matter? Our D2C profitability team can set up the reporting.