twelfth · Glossary · Category management
GMROI
Also called gross margin return on inventory investment
GMROI (gross margin return on inventory investment) is the gross profit a product earns for every dollar of inventory held, measured at cost.
What it means for retail and category teams
The usual formula is gross margin dollars over a period divided by the average inventory at cost over the same period. It combines margin and stock turn in one number: a line can earn it through high margin and slow turn, or thin margin and fast turn. GMROI is most useful compared within a format, because what counts as good varies widely between, say, fresh grocery and high-ticket durable ranges.
Why it matters
Margin percentage alone rewards lines that sit on the shelf, and sales alone reward lines that tie up too much stock. GMROI asks whether a line earns its working capital, which is the question a range review and a buying budget are really trying to answer.
Illustrative example
The business and figures are illustrative, not customer data
Two lines in a homewares category each earn $12,000 of gross margin over a year. Line A carries an average of $4,000 of stock at cost, so its GMROI is 3.0. Line B carries an average of $12,000 of stock at cost, so its GMROI is 1.0. Same margin, very different use of cash: Line B is the first candidate for a smaller buy or a range cut.
Related terms
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