GMROI Calculator

Enter Calculation

Gross Margin ($)

Average Inventory Cost ($)

Results

Gross Margin Return on Investment

2

return per $1 of inventory cost

GMROI (%)	200%
Gross Margin ($)	$120,000
Average Inventory Cost ($)	$60,000

What Is GMROI?

GMROI (Gross Margin Return on Investment) is a retail and inventory-management metric that tells you how many gross-margin dollars you earn for every dollar invested in inventory. It links profitability with inventory efficiency, making it one of the most useful key performance indicators for buyers, category managers, and store owners. A GMROI above 1.0 means the inventory generates more gross margin than it costs to hold; below 1.0 means it is losing money on a margin basis.

GMROI shows which inventory earns the most profit per dollar invested.

How to Use This Calculator

Enter two figures: your total gross margin in dollars (net sales minus cost of goods sold) and your average inventory cost (the average value of inventory at cost over the period). The calculator divides the first by the second to return your GMROI ratio, and also shows it as a percentage. Use the same time period for both inputs — typically a year, quarter, or month.

The Formula Explained

$$\text{GMROI} = \frac{\text{Gross Margin (\$)}}{\text{Avg Inventory Cost (\$)}}$$ The numerator is the profit you keep after the cost of goods sold; the denominator is the capital tied up in stock. Because it uses inventory at cost (not retail), GMROI cleanly measures the return your inventory investment produces.

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GMROI divides gross margin dollars by the average inventory cost.

Worked Example

Suppose a department generates $120,000 in gross margin and carries an average inventory cost of $60,000. $$\text{GMROI} = 120{,}000 \div 60{,}000 = \mathbf{2.0}$$ or 200%. That means every \(\$1\) invested in inventory returns $2.00 in gross margin — a healthy result for most retail categories.

FAQ

What is a good GMROI? It varies by industry, but many retailers target a GMROI above 2.0 (200%). Grocery often runs lower, while high-margin specialty goods run higher.

How is GMROI different from gross margin percentage? Gross margin % measures profit relative to sales. GMROI measures profit relative to inventory investment, so it rewards both strong margins and fast inventory turnover.

Should I use inventory at cost or at retail? Use average inventory valued at cost, which matches the basis of the gross-margin figure and produces the standard GMROI result.