GMROI Calculator — Gross Margin Return on Investment
Measure Your Inventory Profitability & Investment Efficiency
Based on SBA, U.S. Census & retail industry standards
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📊 What Your GMROI Means
What is GMROI?
📊 Gross Margin Return on Investment
GMROI (pronounced "jim-roy") measures how much gross profit you earn for every dollar invested in inventory. It combines two key metrics: gross margin (profitability) and inventory turnover (efficiency). A GMROI of 2.0 means you earn $2 in gross margin for every $1 invested in inventory. Higher GMROI indicates better inventory performance and capital efficiency.
- Calculate Gross Margin: Sales Revenue − Cost of Goods Sold = Gross Margin.
- Calculate Average Inventory: (Beginning Inventory + Ending Inventory) ÷ 2.
- Apply GMROI Formula: Gross Margin ÷ Average Inventory at Cost = GMROI.
- Interpret Results: Compare to industry benchmarks and target GMROI > 1.0.
GMROI Formulas
Basic GMROI Formula
Expanded GMROI Formula
Alternative GMROI Calculation
Components
GMROI Benchmarks by Industry
| Industry | Typical GMROI | Good GMROI | Excellent GMROI |
|---|---|---|---|
| General Retail | 2.0 - 3.0 | 3.0 - 4.0 | 4.0+ |
| Grocery/Supermarket | 1.5 - 2.5 | 2.5 - 3.0 | 3.0+ |
| Apparel & Fashion | 2.5 - 3.5 | 3.5 - 5.0 | 5.0+ |
| Electronics | 1.5 - 2.5 | 2.5 - 3.5 | 3.5+ |
| Pharmacy/Drug Store | 2.0 - 3.0 | 3.0 - 4.0 | 4.0+ |
| Furniture/Home | 1.5 - 2.5 | 2.5 - 3.5 | 3.5+ |
| Auto Parts | 2.0 - 3.0 | 3.0 - 4.0 | 4.0+ |
| Jewelry | 1.0 - 2.0 | 2.0 - 3.0 | 3.0+ |
GMROI Example Calculation
📝 Example: Clothing Retailer
Given:
- Annual Sales: $500,000
- Cost of Goods Sold: $300,000
- Beginning Inventory (at cost): $75,000
- Ending Inventory (at cost): $85,000
Step 1: Gross Margin = $500,000 − $300,000 = $200,000
Step 2: Average Inventory = ($75,000 + $85,000) ÷ 2 = $80,000
Step 3: GMROI = $200,000 ÷ $80,000 = 2.50
Interpretation: For every $1 invested in inventory, the retailer earns $2.50 in gross margin. This is a good GMROI for apparel retail.
How to Improve GMROI
📈 Increase Gross Margin
- Raise prices strategically
- Negotiate better supplier costs
- Reduce markdowns and discounts
- Focus on higher-margin products
- Optimize product mix
📦 Improve Inventory Turnover
- Carry less slow-moving inventory
- Use demand forecasting
- Implement just-in-time ordering
- Clear out dead stock
- Optimize reorder points
GMROI vs Other Metrics
| Metric | Formula | What It Measures |
|---|---|---|
| GMROI | Gross Margin ÷ Avg Inventory | Profit return on inventory investment |
| Inventory Turnover | COGS ÷ Avg Inventory | How often inventory sells |
| Gross Margin % | (Sales − COGS) ÷ Sales | Profit percentage per sale |
| ROI | Net Profit ÷ Total Investment | Overall return on investment |
| Sell-Through Rate | Units Sold ÷ Units Received | Percentage of inventory sold |
Official Resources
Frequently Asked Questions
A GMROI above 1.0 means you're earning more gross profit than your inventory investment. Most retailers target 2.0-4.0. A GMROI of 3.0 is considered good for general retail, meaning $3 gross margin for every $1 in inventory.
GMROI = Gross Margin ÷ Average Inventory at Cost. First, calculate gross margin (Sales − COGS), then divide by average inventory ((Beginning + Ending Inventory) ÷ 2).
GMROI stands for Gross Margin Return on Investment. It measures how much gross profit you generate for every dollar invested in inventory. It combines profitability (margin) and efficiency (turnover) into one metric.
GMROI helps retailers optimize inventory investment. It identifies which products generate the best return on capital, enabling smarter buying decisions, better category management, and improved cash flow.
GMROI focuses specifically on inventory investment and uses gross margin. ROI (Return on Investment) is broader, measuring net profit relative to total investment in the business. GMROI is more actionable for inventory decisions.
GMROI = Gross Margin % × Inventory Turnover. If you have high margin but low turnover (or vice versa), GMROI balances both. You can achieve good GMROI with either high margins or high turnover.
Use inventory at cost for GMROI calculations. This gives you the true return on your capital investment. Using retail value would overstate your investment and understate GMROI.
Either increase gross margin (higher prices, lower costs, less discounting) or improve inventory turnover (carry less inventory, sell faster, eliminate slow movers). Ideally, optimize both factors simultaneously.
A GMROI below 1.0 means you're not earning enough gross profit to cover your inventory investment. This is unsustainable long-term. Review pricing, reduce overstocking, and clear slow-moving inventory immediately.
Calculate GMROI at least quarterly for your business overall, and monthly or weekly for individual product categories. This helps you react quickly to performance changes and optimize inventory allocation.
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Last Updated: January 2026