An important tool in analyzing inventory, sales and profitability is GMROI (also known as GMROII) which stands for Gross Margin Return On Inventory Investment
. The GMROI calculations assist buyers in evaluating whether a sufficient gross margin is being earned by the products purchased, compared to the investment in inventory required to generate those gross margin dollars.
Time Required: < 10 Mins.
- Find the average inventory at cost.
- Calculate the gross margin of the item.
- Divide the gross margin by the average cost of inventory to get GMROI.
- The result is a ratio indicating the number of times gross margin is earned from the inventory investment.
- GMROI calculation can be used to measure the performance the entire shop, but it is more effective if used for a particular department or category of merchandise.