GMROI Calculator
Calculate Gross Margin Return on Investment to measure inventory profitability
GMROI Calculator
Total gross profit for the period
Beginning inventory value
Final inventory value
GMROI Results
Enter values to calculate GMROI
Example GMROI Calculation
Retail Store Example
Starting Inventory: $40,000
Ending Inventory: $60,000
Average Inventory: ($40,000 + $60,000) ÷ 2 = $50,000
Gross Profit: $150,000
GMROI Calculation
Formula: GMROI = Gross Profit ÷ Average Inventory
Calculation: $150,000 ÷ $50,000 = 3.0
Interpretation
GMROI: 3.0 (300%)
Meaning: For every $1 invested in inventory, the store generates $3 in gross profit
Performance: Average - Close to the 3.2 benchmark for retail
GMROI Benchmarks
< 1.0 - Poor
Inventory is losing money
⚠️ Immediate action required
1.0 - 2.0 - Below Average
Breaking even but room for improvement
📈 Optimization needed
2.0 - 3.2 - Average
Acceptable retail performance
✓ Standard performance
> 3.2 - Good/Excellent
Above industry benchmark
🎯 Strong performance
Improve GMROI
Increase Prices
Raise product prices to boost margins
Reduce Inventory
Lower inventory investment levels
Optimize Mix
Focus on high-margin products
Increase Turnover
Sell inventory faster
Related Metrics
Inventory Turnover Ratio
Days Inventory Outstanding
Gross Profit Margin
Return on Assets (ROA)
Inventory-to-Sales Ratio
Understanding GMROI (Gross Margin Return on Investment)
What is GMROI?
Gross Margin Return on Investment (GMROI) is a key retail metric that measures how efficiently a company transforms its inventory investment into gross profit. It shows how much gross profit is generated for every dollar invested in inventory.
Why GMROI Matters
- •Measures inventory profitability efficiency
- •Guides pricing and purchasing decisions
- •Helps optimize inventory mix
- •Identifies underperforming inventory
GMROI Calculation
Formula: GMROI = Gross Profit ÷ Average Inventory Cost
Where:
- • Gross Profit = Net Sales - Cost of Goods Sold
- • Average Inventory = (Starting + Ending) ÷ 2
Industry Standard: A GMROI of 3.2 is typically considered good for retail businesses
Benefits of GMROI Analysis
- ✓Identifies most profitable inventory categories
- ✓Optimizes inventory investment allocation
- ✓Supports pricing strategy decisions
- ✓Improves overall financial performance
- ✓Enables better vendor negotiations
Common Applications
- •Retail store performance analysis
- •Product line profitability assessment
- •Inventory planning and budgeting
- •Vendor and supplier evaluation
- •Strategic business planning