Gross Margin Return on Investment (GMROI) Calculator

What is Gross Margin Return on Investment (GMROI)?

Gross Margin Return on Investment (GMROI) is a retail inventory profitability evaluation ratio that measures the amount of gross profit earned for every dollar of inventory investment. It helps retailers understand how their inventory investment translates into profit.

GMROI Calculator


GMROI Calculation

  • Formula: (Gross Margin / Average Inventory Cost) × 100
  • Example: Gross Margin of $100,000 and Average Inventory of $50,000
    • GMROI = ($100,000 / $50,000) × 100 = 200%
    • This means for every dollar invested in inventory, the company earns $2 in gross margin

Key Points

  • GMROI is typically calculated on an annual basis
  • A higher GMROI indicates better inventory management and profitability
  • Generally, a GMROI above 200% (or 2:1) is considered good for most retailers
  • GMROI can vary significantly by industry and product type
  • It's important to compare GMROI across similar products or categories

Why GMROI Matters

  • Helps evaluate the profitability of inventory investments
  • Guides decisions on which products to stock and promote
  • Assists in optimizing inventory levels and turnover
  • Provides insights into pricing strategies and their effectiveness
  • Helps identify underperforming product lines or categories
  • Supports better allocation of resources and shelf space

Strategies to Improve GMROI

  • Optimize pricing strategies to increase gross margin
  • Improve inventory turnover through better forecasting and demand planning
  • Negotiate better terms with suppliers to reduce inventory costs
  • Implement just-in-time (JIT) inventory management where possible
  • Focus on high-margin products and consider discontinuing low-margin items
  • Use data analytics to identify trends and optimize stock levels
  • Improve merchandising and marketing to boost sales of high-margin products
  • Implement cross-selling and upselling strategies
  • Reduce holding costs through efficient warehouse management
  • Consider dropshipping for certain products to minimize inventory investment