Inventory finance
GMROI (Gross Margin Return on Inventory Investment)
By the Supply Chain Manager team · Updated October 16, 2026
GMROI (gross margin return on inventory investment) is the gross margin earned per dollar of average inventory held at cost over a period, usually a year.
It combines margin and turnover in one number. A low-margin SKU that turns fast can earn the same GMROI as a high-margin SKU that turns slowly. Below 1 means the item earns less in a year than the money tied up in it.
GMROI is particularly useful when deciding which product lines deserve more shelf space or investment. A line with a modest margin percentage but fast turnover can return more gross margin per dollar of stock than a premium line that sits for months. Comparing lines on GMROI rather than margin percentage often changes the ranking.
How to calculate GMROI
GMROI = Annual Gross Margin ÷ Average Inventory at Cost
GMROI example
Illustrative numbers: a product line earns $90,000 gross margin a year on an average $30,000 of stock at cost, a GMROI of 3. Another earns $40,000 on $50,000 of stock, a GMROI of 0.8, and is a candidate for less stock, better terms or rationalization.
Why GMROI matters for distributors
Distributors often judge lines by margin percentage alone. GMROI shows which lines actually make good use of the cash invested in them.
Common GMROI mistakes
- Using inventory at selling price instead of cost.
- Comparing GMROI across periods of different length.
Examples on this page use made-up round numbers to show the calculation. They are not benchmarks or results from real businesses.