A beginner’s guide to GMROI (GMROII)

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

Example:
Annual Dollar Gross Profit = \$2,000,000
Average Dollar Retail Inventory = \$500,000
Maintain Margin = 35%

Solution:
2,000,000/(500,000*(1-.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.

Note:  Other retail math formulas may be found on the Three Buckets Cheatsheet.  Beginner’s Guides on other retail math topics are also available in the Beginner’s Guides Category.