GMROI tells you how many gross-margin dollars you earn for each dollar invested in inventory — gross margin divided by average inventory cost. The retailer’s profitability-per-dollar-of-stock metric.
The example
$240k margin, $80k inventory.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | Gross margin $ | 240000 |
| 3 | Avg inventory cost | 80000 → 3.0 |
The formula
The formula:
How it works
How it works:
- Gross margin dollars = sales − COGS over the period.
- Average inventory at cost is the capital tied up in stock.
- Divide for GMROI — margin earned per dollar invested in inventory.
- Above 1.0 means you earn more in margin than you hold in stock; retailers often target 2–3+.
GMROI ties margin and turnover together: it roughly equals gross_margin_% × turnover (at cost). A low-margin item can still post a great GMROI if it turns fast, and a high-margin item can disappoint if it sits. That’s why merchants rank assortments by GMROI, not margin alone.
Try it: interactive demo
Gross margin dollars and average inventory cost.
Variations
Margin × turnover
The shortcut:
Gross margin dollars
Sales less COGS:
Per category
By group:
Pitfalls & errors
Inventory at cost. Use average inventory at cost, not retail, in the denominator.
Same period. Margin and inventory must cover the same window.
Rank by GMROI. High margin alone can mislead if the item turns slowly.
Practice workbook
Frequently asked questions
How do I calculate GMROI in Excel?
What's a good GMROI?
How does GMROI relate to turnover?
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