GMROI Calculator
Gross Margin Return on Investment. The single most important metric for retailers to measure inventory efficiency. How many dollars of profit do you get for every dollar invested in stock?
Inputs
Inventory replaced every 4.0 months
Investment vs Return
Excellent! Your inventory is working hard for you.
Inventory Health Check
GMROI: 2.00
The Ratio
For every $1.00 you invest in inventory, you get back $2.00 in gross profit.
Turnover Rate
You are turning your inventory 3.0 times per year. This is healthy velocity.
Profitability
Your inventory is generating a positive return.
Execution Steps
Enter your Annual Sales Revenue.
Enter your Gross Margin %.
Enter your Average Inventory Cost (not retail value).
The tool calculates your GMROI ratio. A ratio > 1.0 means you are making money. A ratio < 1.0 means you are losing money on inventory holding.
Pro Strategy
- If GMROI is low (< 1.5), you either need to raise prices (boost margin) or reduce inventory levels (boost turnover).
- Stop reordering items with low GMROI. They tie up cash that could be used for better performing products.
- A healthy retail business typically targets a GMROI of 2.0 to 3.0.
Core Concepts
GMROI Formula
Gross Margin $ / Average Inventory Cost. It combines Margin and Turnover into one efficiency metric.
Inventory Turnover
How many times you sell through your inventory in a year. High turnover can compensate for low margin (e.g., Grocery stores).
Earn & Turn
The retail philosophy: You either 'Earn' (High Margin) or 'Turn' (High Velocity). GMROI measures the balance.
What is GMROI Calculator?
GMROI (Gross Margin Return on Inventory Investment) is a ratio that analyzes the ability of a company to turn inventory into cash above the cost of the inventory. It answers the question: 'For every dollar I invest in inventory, how many dollars of gross margin do I generate?'
Best For
- • End of year inventory planning.
- • Deciding which product lines to cut.
- • Comparing performance across different categories.
Limitations
- • Doesn't account for carrying costs (storage, insurance).
- • Can be skewed by end-of-season clearance sales.
- • Ignores labor costs.
Alternative Methods
Inventory Turnover
Measures speed of sales but ignores profitability.
Days Sales of Inventory (DSI)
Measures how long it takes to convert inventory to sales.
Industry Applications
See how this methodology generates real revenue uplift in different sectors.
Clothing Boutique
High sales but cash flow problems.
Calculated GMROI per brand. Found 'Brand A' had huge sales but 0.8 GMROI due to slow turnover and high cost.
Hardware Store
Low margin items (nails, screws) seemed unprofitable.
Analysis showed they had massive turnover (12x/year), resulting in a stellar GMROI of 4.0 despite 20% margins.