Gross Margin Return on Investment
Gross margin return on investment (GMROI) is a ratio showing how many dollars of gross margin a business earns for each dollar invested in inventory, measured at cost over a period.
Why it matters for ecommerce brands
GMROI shows how much gross margin each dollar of inventory earns, so it ranks SKUs by return on cash, not just margin per unit. A high-margin product that sits for a year can earn less than a low-margin one that turns every month. Buyers use it to decide what to reorder, expand, or cut. For example, $300,000 of gross margin on $100,000 of average inventory is a GMROI of 3.0. A SKU at 0.8 earns less margin in a year than the cost of the inventory behind it.
Formula and calculator
GMROI = gross margin dollars ÷ average inventory at cost
Common questions
- What is a good GMROI?
- It depends on category, but a GMROI above 1.0 means inventory earns back more than its cost in gross margin over the period. Retailers often aim well above that for annual GMROI, and it is most useful for comparing SKUs and categories within your own business.
- How do you calculate GMROI?
- Divide gross margin dollars for a period by average inventory at cost for the same period. $300,000 of margin on $100,000 of inventory is 3.0.
- How can a brand improve GMROI?
- Raise margin through pricing or lower landed cost, or raise turnover by holding less stock of each SKU. Cutting slow sellers often helps both.