If you’re just starting out in retail, you probably have a lot of questions about all of the various retail formulas. However, many folks seem to find GMROII the most bewildering. So, here is the beginner’s guide to GMROII – everything you need to get you started with this measurement.
Is it GMROII, GMROI or Jim-Roy? And, what does it mean?
The answer to the first question is all of the above. It can be abbreviated GMROII or GMROI, and is pronounced “Jim-Roy.” GMROII stands for gross margin return on inventory investment.
GMROII is defined as the amount of dollar gross profit a retailer receives in return for every dollar they invest in inventory.
How do I calculate it?
Formula: Annual Dollar Gross Profit/Average Dollar Cost Inventory
Annual Dollar Gross Profit = $2,000,000
Average Dollar Retail Inventory = $500,000
Maintain Margin = 35%
GMROI = 6.15
**Note: Often cost dollar inventory figures are not available. They can be estimated using the maintain margin cost compliment (1-MM).
What do I use it for?
GMROII can be calculated for an individual product, a department, or an entire retail chain. It is a measure of how efficiently a retailer is using their inventory to produce gross profit dollars. At a minimum, a retailer’s GMROII must be above 1.0. (Otherwise they are earning less money than they invested.)
If you have questions concerning GMROII, or would like to see a similar beginner’s guide for a different measurement, please let me know via a comment or an email.