Gross Margin Return on Investment (GMROI)

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GMROI is a powerful metric used in retail to evaluate how much gross profit you earn for every dollar invested in inventory. It tells you how efficiently your inventory is generating income.

Formula

GMROI = Gross Margin / Average Inventory Cost

Where:

  • Gross Margin = Net Sales − COGS
  • Average Inventory Cost = (Beginning Inventory + Ending Inventory) ÷ 2

Example:

Let’s say over the year:

  • Net Sales = $150,000
  • COGS = $90,000
  • Beginning Inventory = $20,000
  • Ending Inventory = $10,000
  1. Gross Margin = $150,000 − $90,000 = $60,000
  2. Average Inventory Cost = ($20,000 + $10,000) ÷ 2 = $15,000
  3. GMROI = $60,000 ÷ $15,000 = 4.0

What it means

A GMROI of 4.0 means you earn $4 in gross profit for every $1 invested in inventory. Higher is better. In premium retail, GMROI helps guide decisions on what sells well, what turns quickly, and where your cash is tied up.

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