1. What is GMROI?

GMROI (Gross Margin Return on Investment) is a retail profitability ratio that measures how much gross profit is returned for every dollar invested in inventory. It helps retailers evaluate inventory investment efficiency.

2. How Does the Calculator Work?

The calculator uses the GMROI formula:

Where:

• \( Gross\ Margin \) — Total sales revenue minus cost of goods sold
• \( Average\ Inventory\ Cost \) — Average value of inventory during a period

Explanation: A higher GMROI indicates better inventory investment performance, showing that more gross profit is being generated per dollar of inventory investment.

3. Importance of GMROI Calculation

Details: GMROI helps retailers make informed decisions about inventory management, purchasing, and product assortment. It identifies which products are most profitable relative to their inventory investment.

4. Using the Calculator

Tips: Enter gross margin and average inventory cost in dollars. Both values must be positive numbers. The result shows the return on inventory investment.

5. Frequently Asked Questions (FAQ)

Q1: What is a good GMROI value?
A: Generally, a GMROI above 1.0 is considered good as it indicates you're earning more than your inventory investment. The ideal value varies by industry and product category.

Q2: How often should GMROI be calculated?
A: It's typically calculated monthly, quarterly, or annually to track inventory performance over time and make seasonal adjustments.

Q3: How does GMROI differ from ROI?
A: GMROI focuses specifically on inventory investment and gross profit, while ROI considers all investments and net profit.

Q4: Can GMROI be used for individual products?
A: Yes, GMROI can be calculated for individual SKUs, product categories, or the entire inventory to identify best and worst performers.

Q5: What factors can improve GMROI?
A: Increasing sales, improving margins, reducing inventory costs, optimizing pricing, and better inventory turnover can all improve GMROI.