GMROI calculator
GMROI (gross margin return on inventory) is the gross profit each dollar of stock earns in a year. Enter a year of net sales, your gross margin and average inventory at cost, then drag your store across the margin and turns map. Or upload sales, costs and stock by product to rank every SKU by GMROI.
GMROI (gross margin return on inventory) is the gross profit each $1 of stock earns in a year. Above 1, your stock earns more than it cost; most stores aim for 2 to 3 or more.
- GMROIGross profit ÷ average inventory at cost. 2.5 means each $1 of stock earned $2.50 of gross profit this year.
2.50
$2.50 of gross profit per $1 of stock- Gross profit
- $225,00045% of $500,000
- Inventory turnsHow many times you sold through your average stock in a year: cost of goods sold ÷ average inventory at cost.
- 3.06×about 119 days of stock
- Stock to reach GMROI 3
- $75,000$15,000 less than today, same sales
Check: $225,000 ÷ $90,000 = 2.50, or 45% ÷ 55% × 3.06 turns = 2.50.
Showing the worked example: $500,000 of sales at a 45% margin on $90,000 of stock. Drag the dot or type your own.
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How to read your number
GMROI, gross margin return on inventory investment, is gross profit divided by the average inventory you held at cost. $500,000 of sales at a 45% margin is $225,000 of gross profit; on $90,000 of average stock that's a GMROI of 2.50, so every $1 tied up in inventory earned $2.50 of gross profit over the year.
Why it matters
Margin alone hides how hard your stock works. A 60% margin product that sits for a year can earn less per dollar of inventory than a 35% margin one that sells every month. GMROI puts margin and turnover in one number, so you can see which products and categories deserve the next dollar of stock, and which tie up cash.
Automations
Check your GMROI on a schedule
Describe the job once. Replo runs it on your data from Shopify, Google Drive and Slack and posts what needs your attention.
Formula
GMROI = gross profit ÷ average inventory at cost
Gross profit is net sales minus cost of goods sold, over the same 12 months. Average inventory is the cost value of stock on hand averaged across the period, such as the mean of 13 month-end counts. Use cost, not retail value, or GMROI reads low.
Other ways to calculate GMROI
- From margin and turns
- GMROI = gross margin ÷ (1 − gross margin) × inventory turns at cost
- When you already know turnover. At 45% margin and 3.06 turns: 0.45 ÷ 0.55 × 3.06 = 2.50. Find turns with the inventory turnover calculator.
- From sales-to-stock ratio
- GMROI = gross margin × net sales ÷ average inventory at cost
- When your report gives sales and inventory but not cost of goods sold.
- By product or category
- GMROI = product gross profit ÷ that product's average inventory at cost
- To rank what to reorder, mark down or drop. The store total averages fast and slow lines together.
- Shorter periods
- Yearly GMROI ≈ quarterly gross profit × 4 ÷ average inventory
- For seasonal stock or new products with less than a year of sales. Annualize so periods compare.
How to calculate GMROI: a worked example
A home goods store had $500,000 of net sales last year at a 45% gross margin. Its stock at cost averaged $90,000 across the year's month-end counts.
- Gross profit = $500,000 × 45% = $225,000
- GMROI = $225,000 ÷ $90,000 = 2.50
- Cost of goods sold = $500,000 − $225,000 = $275,000
- Inventory turns at cost = $275,000 ÷ $90,000 = 3.06, about 119 days of stock
Every dollar of stock earned $2.50 of gross profit. Cutting average stock to $75,000 with the same sales would lift GMROI to 3.00.
What's a good GMROI?
Above 1 means your stock earns more gross profit than it costs to buy; below 1, it doesn't. Beyond that, the bar depends on your other costs: rent, staff, ads and shipping all come out of gross profit, so a store with heavy overheads needs a higher GMROI to make money than a lean one.
Use it to compare within your own store. Rank products by GMROI each quarter: reorder deeper on the top ones, and mark down or drop those at the bottom that also have low sell-through. Raising margin and turning stock faster both lift it, and the table shows how.
| Turns a year | 30% margin | 40% margin | 50% margin | 60% margin | 70% margin |
|---|---|---|---|---|---|
| 1 | 0.43 | 0.67 | 1.00 | 1.50 | 2.33 |
| 2 | 0.86 | 1.33 | 2.00 | 3.00 | 4.67 |
| 3 | 1.29 | 2.00 | 3.00 | 4.50 | 7.00 |
| 4 | 1.71 | 2.67 | 4.00 | 6.00 | 9.33 |
| 6 | 2.57 | 4.00 | 6.00 | 9.00 | 14.00 |
Questions about GMROI
- What is GMROI?
- GMROI, gross margin return on inventory, is the gross profit you earn for each dollar of inventory at cost over a year. A GMROI of 2.5 means every $1 of stock earned $2.50 of gross profit; below 1, the stock earned less than it cost.
- How do you calculate GMROI?
- Divide gross profit by average inventory at cost for the same period. $225,000 of gross profit on $90,000 of average stock is a GMROI of 2.50: each dollar of inventory earned $2.50 of gross profit.
- What does a GMROI of 3 mean?
- Every dollar you had tied up in stock earned $3 of gross profit over the year. You'd get there with a 50% margin and 3 turns, or a 30% margin and 7 turns, which is why fast, lower-margin lines can match slow, high-margin ones.
- Should GMROI use inventory at cost or retail?
- At cost. Gross profit is measured against what you paid for the stock, so dividing by retail value inflates the denominator and makes GMROI look worse than it is. Keep the same choice every time you compare.
- How do I calculate GMROI for every product?
- Divide each product's gross profit by its average inventory at cost over the same 12 months, then sort. In the calculator, switch to the product view and paste or upload a CSV of SKU, net sales, cost of goods sold and average inventory at cost: it plots every product on the margin and turns map, flags those under 1, and lets you download the ranking.
- What is the difference between GMROI and inventory turnover?
- Turnover counts how many times stock sells through in a year. GMROI multiplies that by how much each turn earns, so it captures both speed and margin. Two products with the same turnover can have very different GMROI.
Sources
Do it with Replo
Rank products by GMROI each quarter
Replo reads your sales, costs and stock, then reports GMROI by product so you know what to reorder and what to mark down.
Prompt: “each quarter, rank my products by GMROI with gross profit, average inventory at cost and sell-through”
