GMROI Calculator

How to Use the Calculator – Step-by-Step

1. Enter Gross Profit

This is the revenue minus the cost of goods sold (COGS).

2. Enter Average Inventory Cost

This refers to the average value of your inventory during the same period.

3. Click ‘Calculate’

The result is your GMROI ratio, which reflects the profitability of your inventory.

Tip: A GMROI greater than 1 means you’re earning more than you invest; the higher, the better.

Understanding GMROI

GMROI (Gross Margin Return on Investment) is a retail metric that measures how efficiently a business turns inventory into profit. A GMROI value of 1.0 means you’re earning ₹1 in gross profit for every ₹1 invested in inventory.

• A GMROI > 1 indicates profitability.
• A GMROI < 1 indicates you may be losing money on inventory.

This metric helps balance sales performance with inventory holding costs.

Typical GMROI Benchmarks by Industry

Note: Ideal GMROI varies by product category and business model. Fast-moving goods may have lower margins but higher turnover.

Practical Example

Scenario:

A retailer earns a gross profit of ₹5,00,000 and holds an average inventory worth ₹2,00,000.

Calculation:

GMROI = ₹5,00,000 ÷ ₹2,00,000 = 2.5

Interpretation:

For every ₹1 invested in inventory, the retailer earns ₹2.50 in gross profit—a strong indicator of inventory efficiency.

Tips to Improve GMROI

• • Reduce Inventory Holding Costs
    Lower carrying costs by streamlining stock levels.
  • Increase Product Margins
    Negotiate better supplier terms or increase prices to improve gross margins.
    
  • Eliminate Dead Stock
    Identify and remove non-moving inventory to reinvest in high-performing SKUs.
  • Improve Demand Forecasting
    Accurate sales predictions reduce overstock and improve cash flow.
  • Use Just-in-Time Inventory Models
    Reduce average inventory by sourcing more frequently in smaller quantities.
  • Analyze GMROI by Category
    Identify which categories or vendors yield the best return on investment in inventory.
  • Bundle Low-Performing SKUs
    Pair slow movers with bestsellers to boost sales and improve turnover
  • Invest in Inventory Analytics

  Data tools can provide insights on reorder points, demand spikes, and margin trends.