What is GMROI?
Gross margin return on investment (GMROI) shows how much gross profit a business earns for each unit of currency it has invested in inventory. It combines margin and turnover in one figure, so it rewards both selling at a good margin and selling quickly.
Formulas
Gross profit = net sales − cost of goods soldGMROI = gross profit ÷ average inventory at cost
Worked example
Net sales of 250,000.00 less cost of goods sold of 150,000.00 leaves a gross profit of 100,000.00. With 40,000.00 of inventory on average, GMROI is 2.50: every 1.00 held in stock earned 2.50 of gross profit.
How to use the GMROI calculator
- Enter your figures: net sales, cost of goods sold and average inventory at cost.
- Read the result. It updates as you type, so there is no button to press.
- Try other numbers to compare scenarios. Reset brings back the example values.
Getting it right
- Above 1.00 means the stock earned more in gross profit than the money invested in it; below 1.00 means it did not.
- Use it to compare departments or product lines. A low-margin line that sells fast can beat a high-margin line that sits.
- Keep average inventory at cost, not at retail value, or the result will be understated.
Frequently asked questions
How do you calculate GMROI?
Subtract cost of goods sold from net sales to get gross profit, then divide by the average inventory at cost. A gross profit of 100,000 on 40,000 of inventory is a GMROI of 2.50.
What is a good GMROI?
Many retailers aim for 2.00 or more, meaning each unit of money in stock returns two in gross profit over the year. Acceptable levels differ a lot between categories.
What is the difference between GMROI and gross margin?
Gross margin tells you how much of each sale is profit. GMROI tells you how much profit your investment in stock produced, so it also reflects how fast the stock sold.