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Glossary

What is GMROI (Gross Margin Return on Investment)?

Last updated July 2026

Definition

GMROI measures the gross profit earned for every dollar invested in inventory. A GMROI above 1 means inventory generates more margin than it costs to hold.

Also known as: gross margin return on inventory investment

Formula GMROI = Gross Margin $ ÷ Average Inventory Cost

GMROI ties margin and inventory efficiency together, which makes it a favorite of both merchandising and finance. It rewards moving profitable stock quickly and punishes holding low-margin dead weight.

Improving GMROI usually comes from the same levers as turns: clear the slow movers, right-size safety stock, and stop over-buying.

Benchmark

Above 1 is the floor; strong distributors target 2–3+.

Part of Working capital & inventory turns.

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