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

Gross Margin ($)

Average Inventory ($)

GMROI:

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

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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