GMROI: What is it and how to calculate it


#1

GMROI (Gross Margin Return on Inventory Investment)
indicates how much gross margin you get back for each dollar “invested” in inventory. Through careful analysis, you can see which lines, departments or categories are the most rewarding for your inventory investment. And which are least productive!

Calculating GMROI
GMROI% = Annual Sales divided by Average Inventory at Cost times Gross Margin %

For example, consider this merchandise category:

Annual Sales: $130,000. Average Inventory at Cost: $40,625. Gross Margin: 49%
GMROI % = $130,000 / $40,625 X 49%
GMROI% = 157%

The inventory investment in this example category is generating a 157% return in gross margin. Or, stated another way, for the year this retailer is getting $1.57 in gross margin back for every $1.00 invested in inventory in this category.

Want to know more?
Would you like to see GMROI measures in your Phocas database?


#2

From one of our Eclipse Users who wanted to pass along some helpful information:

I’ve used GMROI for years. Since we capture gross profit dollars the calculation is much easier to divide GP Dollars by average inventory. In the example:
• Sales = 130,000; GP% = 49%; implies GP = 63,700. • GMROI = GP/Average inventory = $63,700 / $40,625 = 1.568
o We generated $1.568 for every average $1 in inventory.
o Or GMROI = 156.8%

The calculation is simpler to program and more intuitive.

Jim Deitz | Administrative Manager
Acme Construction Supply Co., Inc.


#3

Great feedback. I like the simplicity of this…