What is a good GMROI?
Typically, a GMROI of 200% or higher is considered good in retail. It means you are earning $2 gross profit for every $1 invested in inventory.
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Analysis
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How to Use
Step-by-step instructions
- 1Enter total sales revenue
- 2Input Cost of Goods Sold (COGS)
- 3Enter average inventory value at cost
- 4Result shows the return on inventory investment percentage
GMROI Formula
Measures how many dollars of gross profit are earned for every dollar invested in inventory.
GMROI = (Gross Profit ÷ Average Inventory Cost) × 100Variables:
Gross ProfitSales - Cost of Goods SoldAvg Inventory(Beginning + Ending Inventory) ÷ 2Example
Retail Store
Inputs:
Sales:$100,000
COGS:$60,000
Avg Inventory:$20,000
Steps:
- 1.Gross Profit = $100,000 - $60,000 = $40,000
- 2.GMROI = ($40,000 ÷ $20,000) × 100 = 200%
Result:
200% Return ($2 profit for every $1 inventory)
Frequently Asked Questions
How can I improve GMROI?
Increase prices (margin), reduce COGS (negotiate), or increase inventory turnover (sell faster/hold less stock).
Why not just use Profit Margin?
Profit margin ignores how much capital is tied up in stock. GMROI accounts for inventory efficiency.