GMROII
What is GMROII?
GMROII (Gross Margin Return on Inventory Investment) measures how much gross profit you earn for every dollar of inventory you have on the floor. It combines two things that buyers often look at separately — margin and turn rate — into a single number that tells you whether your inventory is actually working hard for you.
The formula:
Gross Profit ÷ Average Inventory Cost × 100
A GMROII of 200 means you generated $2.00 in gross profit for every $1.00 of average inventory. A GMROII of 100 means you broke even — your gross profit exactly equals your average inventory investment. Below 100, the department is not earning back its cost.
Tip
GMROII is most useful as a comparison tool — comparing departments to each other, or the same department across different years.
What's on the Page?
The GMROII report shows your departments ranked by GMROII, with a graph view and a table view. You can filter by date range and view year-over-year comparisons to spot trends.
- Department — The department being measured
- Average Inventory Cost — The average cost-value of inventory on hand across the period (not just the ending snapshot)
- Gross Profit — Net sales minus cost of goods sold for the period
- GMROII — The calculated return: Gross Profit ÷ Avg Inventory Cost × 100
How to Read the Results
GMROII is driven by exactly two levers: margin and turn. Almost every result you see traces back to one of them.
| Situation | What it means | Where to look |
|---|---|---|
| High GMROII | Department earns well per dollar invested | Healthy — use as a benchmark |
| Low GMROII, good turn | Items move quickly but aren't earning much | Pricing problem — margin is too thin |
| Low GMROII, slow turn | Margin is fine but inventory sits too long | Purchasing problem — too much on hand |
| Very high GMROII | Possibly understocked — leaving sales on the table | Check on-hand levels |
The Two Levers
Margin is the percentage you keep after cost. If a department's GMROII is low even though product is moving steadily, the issue is almost always pricing — items are priced too close to cost, or markdowns are frequent.
Turn rate is how often you sell through your average inventory in a given period. A department with strong margins but low GMROII has a purchasing problem: you're buying more than you're selling in a reasonable time, tying up capital that could be deployed elsewhere.
Info
A quick way to isolate the problem: check the Best/Worst Selling report for the same department and period. If your worst sellers are concentrated in the low-GMROII category, it's a purchasing problem. If everything moves but the number is still low, it's a pricing problem.
Practical Uses
Identify hidden underperformers. A department can look busy and still have a low GMROII if margins are thin or if the category carries a lot of slow inventory that never gets counted against it in simpler reports.
Find departments punching above their weight. Smaller, lean departments sometimes show excellent GMROII because they turn quickly with good margins. These are worth investing more in.
Guide seasonal buying decisions. Run GMROII for last season to understand which departments earned well and which tied up cash. Use that to adjust your Open to Buy budgets and Order Planning priorities for the coming year.
Diagnose pricing inconsistencies. If GMROII is unusually low or high compared to similar categories, check whether prices are set correctly. Mis-priced items (especially on cost updates that didn't trigger a price change) show up clearly here.
Relationship to Other Reports
- Open to Buy — Use GMROII to set turn-rate targets for your OTB budget
- Best/Worst Selling — Identifies specific items driving low turn in a department
- Inventory Graphs — Visualize average inventory levels over time to understand the "average inventory" component
- Buyer's Guide — Full workflow for using GMROII alongside other buying tools