Gross margin return on inventory investment

What Is Gross Margin Return on Inventory Investment?

Gross margin return on inventory investment (GMROI) is a retail inventory management formula used to measure the effectiveness of inventory investment by calculating the ratio between gross margin and average inventory investment. It is used to help retailers decide how much inventory to purchase and how to price it in order to maximize profits.

How to Calculate GMROI?

The GMROI formula is calculated by dividing the gross margin by the average inventory investment. This equation is expressed as: GMROI = Gross Margin / Average Inventory Investment For example, if the gross margin is $50,000 and the average inventory investment is $10,000, the GMROI is 5.

What Is a Good GMROI?

A good GMROI is highly dependent on the type of business and industry. Generally, a higher GMROI is better, as it indicates that the retailer is making more profits from its investments. A GMROI of 3 or higher is usually considered good for most retail businesses.

Benefits of GMROI

GMROI is a useful tool for retailers as it provides insights into their inventory management. Here are some of the benefits of using GMROI:

  • It helps retailers identify the most profitable items to stock.
  • It allows retailers to determine the ideal inventory levels.
  • It helps retailers make informed decisions on pricing and promotions.
  • It provides insight into how effective a retailer’s inventory management strategies are.


Gross margin return on inventory investment is a useful tool for retailers to maximize profits by measuring the effectiveness of their inventory investments. By calculating GMROI, retailers can make informed decisions on pricing, promotions, and inventory levels.Further Reading:Gross Margin Return on Inventory InvestmentInventory TurnoverInventory Management