Free tool
GMROI calculator
See how many dollars of gross margin each dollar invested in average inventory produces.
Your sales and inventory
Gross margin return on inventory
2.5
- Gross margin
- $200,000
- Gross margin rate
- 40%
- Inventory turns at cost
- 3.75
$2.50 of gross margin per dollar of average inventory at cost. Compare it with turns and margin, not alone.
The formula
Gross margin = net sales − cost of goods sold
GMROI = gross margin ÷ average inventory at cost
Inventory turns = cost of goods sold ÷ average inventory at cost
- Net sales
- Sales after returns and discounts for the period.
- Cost of goods sold
- Cost of goods that sold in the same period.
- Average inventory
- Average stock value at cost, on the same period basis.
Worked example
- Net sales of $500,000 less $300,000 in cost of goods sold gives $200,000 gross margin, or 40%.
- Divide $200,000 by $80,000 average inventory at cost: GMROI is 2.5.
- That means $2.50 of gross margin per dollar of average inventory.
- At cost, inventory turns are $300,000 ÷ $80,000 = 3.75.
When it applies
- Comparing categories or vendors over the same period, with inventory valued at cost.
When it breaks down
- Retail-valued inventory cannot be divided into cost-based gross margin.
- Two balance dates can miss seasonal stock peaks; use a better average then.
Common mistakes
Using inventory at retail
The denominator is inventory at cost; a retail balance distorts the return.
Using ending inventory
Use average inventory across the same period as sales.
Comparing the ratio alone
Look at margin and turns too; different mixes can produce the same GMROI.
Questions
What is a good GMROI?
There is no universal target. Compare your own categories, time periods and inventory costs.
How is GMROI calculated?
Divide gross margin dollars by average inventory at cost.
Is GMROI a percentage?
It is usually expressed as dollars of gross margin per dollar of average inventory, such as 2.5.
How does GMROI differ from inventory turns?
Turns divide cost of goods sold by inventory; GMROI divides gross margin by inventory.
Is a higher GMROI better?
Within a comparable category and period, a higher return means more gross margin for each inventory dollar, but check service and growth too.
Related
Published by Skuvelo. Results are estimates computed from the figures you enter, not a reading of your own sales or stock.
A calculator answers once. Skuvelo keeps answering.
This tool computes one number from what you type. Skuvelo computes it continuously, for every SKU, from your own sales and stock.