GMROI Calculator
From revenue, COGS and average inventory cost, compute gross margin return on investment — how much gross profit each dollar of inventory earns.
Input Data
Results
At a glance:GMROI = gross profit ÷ average inventory cost (gross profit = revenue − COGS). It measures 'how much gross profit each dollar of inventory earns', combining gross margin and inventory turnover — a core metric for retail/wholesale inventory efficiency. GMROI > 1 means inventory earns back more than its cost (healthy); < 1 means the capital tied in inventory fails to cover cost (slow sellers, low price, overstock). Use a consistent cost basis (gross profit = price − cost; inventory at cost); GMROI ignores operating costs — pair with the gross-margin and inventory-turnover calculators.
Formula
Gross profit = revenue − COGS.
GMROI = gross profit ÷ average inventory cost.
$$\text{Gross Profit} = \text{Revenue} - \text{COGS}$$$$\text{GMROI} = \dfrac{\text{Gross Profit}}{\text{Average Inventory Cost}}$$How to Use
- Enter revenue and COGS for the period.
- Enter average inventory at cost.
- View gross profit and GMROI.
GMROI examples (HK$)
| Scenario | Revenue | COGS | Avg inventory | Gross profit | GMROI |
|---|---|---|---|---|---|
| Base | 2,000,000 | 1,200,000 | 400,000 | 800,000 | 2.00× |
| Margin down | 2,000,000 | 1,400,000 | 400,000 | 600,000 | 1.50× |
| Overstock | 2,000,000 | 1,200,000 | 500,000 | 800,000 | 1.60× |
GMROI = (revenue − COGS) ÷ avg inventory cost. >1 is healthy; use consistent cost basis.
Case Studies
Case 1: GMROI of an inventory
Shop: revenue HK$2,000,000, COGS HK$1,200,000, average inventory at cost HK$400,000.
Gross profit = 2,000,000 − 1,200,000 = 800,000; GMROI = 800,000 ÷ 400,000 = 2×.
2× means each HK$1 in inventory earns HK$2 gross profit a year. GMROI > 1 is healthy; retail often targets 2+. Below 1 means inventory fails to earn its cost — slow sellers, low price or overstock.
Case 2: Why GMROI beats gross margin
GMROI combines margin and turnover. (A) margin down: COGS rises to 1,400,000 (profit 600,000, inventory 400,000) → GMROI = 1.5×, efficiency falls. (B) overstock: profit stays 800,000 but inventory swells to 500,000 → GMROI = 800,000 ÷ 500,000 = 1.6×, also lower.
Insight: a high-margin but slow item need not have a high GMROI; a low-margin fast item can. That is why GMROI reflects true inventory profitability better than margin — it links 'how much profit' with 'how much capital, how fast'.
Practice: compute GMROI per category/brand/SKU to decide buying, clearance and display. Keep basis consistent (profit = price − cost; inventory at cost). Pair with the inventory-turnover and gross-margin calculators.
FAQ
What GMROI is good?
Generally GMROI > 1 is the healthy threshold — inventory earns back more gross profit than its cost; retail often targets 2 or above. But the right level varies by category (fast-moving consumer goods turn quickly, higher GMROI; high-ticket durables are lower) — compare same category and period, and read with turnover.
GMROI vs gross margin?
Gross margin only shows 'what % you earn', ignoring how fast capital turns; GMROI adds inventory investment, showing 'how much gross profit per dollar of inventory'. So a high-margin slow seller may have a low GMROI, while a low-margin fast mover can have a strong GMROI — more complete.
Why value inventory at cost?
For a consistent numerator/denominator. GMROI measures the return on the cash actually put into inventory, which is its cost (what you paid), not its future selling price. Valuing inventory at selling price would inflate the denominator with unrealised margin and distort the ratio.
Why is GMROI more complete than gross margin?
Both relate to gross profit, but GMROI adds the key dimension of inventory turnover speed. Gross margin = gross profit ÷ revenue (the % earned), ignoring whether stock sits or sells. GMROI = gross profit ÷ average inventory cost, factoring both margin level and how fast capital cycles. Classic contrast: item A has high margin (60%) but sells very slowly, tying up capital; item B has low margin (20%) but turns fast, cycling the same inventory several times a year. By margin alone A looks far better; by GMROI, B's fast cycles create more cumulative gross profit from the same capital, so B's GMROI can exceed A's. That is why retail/wholesale prize GMROI — with limited inventory cash, what matters is not just '% per unit' but 'total gross profit per dollar in stock'. GMROI exposes the 'high margin but dead stock' trap. Pair with the gross-margin and inventory-turnover calculators.
What GMROI is good, and why inventory at cost?
Two key points. Why cost: to keep the basis consistent. GMROI measures the return on the cash you put into inventory, which is its cost (you pay the purchase cost, not the future price), so the denominator must be cost to reflect the real principal tied up. Valuing at selling price would wrongly add unrealised margin into 'invested capital', inflating the denominator and understating GMROI, violating the basic ROI logic (denominator = actual cost). Meanwhile gross profit (revenue − cost) uses cost too, so the basis matches. What is good: GMROI > 1 is the basic healthy threshold (profit > cost); retail often targets 2+. But it varies by category — FMCG (high turnover) run higher, high-ticket durables/luxury naturally lower yet normal. So compare same category/period and with turnover, mind seasonal swings (pre-holiday stocking temporarily raises average inventory and lowers GMROI). GMROI only sees gross profit, not operating costs — for full profitability pair with other metrics.
Related Tools
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.