GMROI: How to Understand if Your Inventory is Working Efficiently

GMROI (Gross Margin Return on Inventory Investment) is a metric that shows how much gross profit each ruble invested in inventory generates. It is calculated as the ratio of gross profit to the average cost of inventory and is expressed as a percentage. The higher the GMROI, the more efficiently the funds invested in products are being used.

Why a seller should calculate GMROI

GMROI allows you to assess not only the profitability of a product but also the efficiency of using working capital.

If a product generates high profit but sits in a warehouse for a long time, some of the money becomes "frozen" in inventory. Conversely, a product with lower margins can yield a greater return due to a high sales velocity.

Therefore, GMROI is used for making decisions on purchasing, assortment management, and inventory optimization.

How GMROI is calculated

The calculation formula is as follows:

GMROI = (Gross Profit / Average Cost of Inventory) × 100%

where:

gross profit — profit from product sales before accounting for operating expenses;

average cost of inventory — the average cost price of remaining product stock for the selected period.

In many services, the average stock is calculated based on values at the beginning and end of the period. However, at Torgstat we use a more precise approach — using daily stock history, as it allows us to determine the real average capitalization of a product for the selected period.

This approach also provides a more accurate indicator of inventory usage efficiency.

Example of GMROI calculation

Suppose:

gross profit — 400,000 RUB; average cost of inventory — 200,000 RUB.

Then:

GMROI = (400,000 / 200,000) × 100% = 200%

This means that every ruble invested in inventory generated 2 rubles of gross profit for the selected period.

Why margin alone is not enough

Margin shows the profit a product sale generates but does not account for the speed of its sales.

For example:

Product A

margin — 60%;

sells a few times a month;

spends most of its time in the warehouse.

Product B

margin — 25%;

sells daily;

stock is regularly replenished.

Despite the lower margin, the second product may be significantly more efficient in terms of using invested funds. This is why, when analyzing an assortment, it is important to consider not only profitability but also inventory turnover.

What GMROI shows

The main advantage of GMROI is that it combines two important metrics at once:

product profitability;

inventory turnover.

This allows you to see the real efficiency of each SKU.

For example:

high margin and slow sales — low GMROI;

low margin and fast turnover — high GMROI.

This is precisely why GMROI helps find products that yield the maximum return on invested funds, rather than just having a high margin.

What is considered a good GMROI

There is no universal GMROI value, as the metric depends on the product category, seasonality, and business specifics.

However, the following benchmark values are typically used:

less than 100% — inventory is being used inefficiently;

100–200% — average efficiency level;

more than 200% — a good indicator.

The main rule is simple: the higher the GMROI, the more efficiently the money invested in inventory is working.

When analyzing an assortment, it is more useful to compare the metric among your own products within the same category or track its change over different periods.

How to use GMROI in a seller's work

Identify the most efficient products

High profit does not necessarily mean a product is using invested capital efficiently. GMROI helps find SKUs that yield the maximum return on every ruble invested.

Find products with excess stock

If a product sits in a warehouse for a long time, its GMROI decreases. This is a signal to reconsider purchase volumes, pricing, or promotion strategy.

Plan purchases

GMROI helps determine which products should be purchased more frequently and in larger volumes, and for which it is better to reduce warehouse stock.

Optimize the assortment

The metric allows you to identify products that inefficiently use working capital and focus on the most profitable items.

What influences GMROI

Several factors influence the metric:

gross profit;

product cost price;

sales velocity;

inventory volume;

supply management efficiency.

GMROI can be improved in several ways:

increase gross profit;

accelerate sales;

reduce excess stock;

optimize purchases;

decrease product storage time in the warehouse.

Why it is important to consider average stock

The accuracy of GMROI directly depends on the calculation of the average cost of inventory.

If you only use stock at the beginning and end of the period, the metric may be inaccurate, especially if inventory volume changed significantly.

Therefore, calculating average capitalization based on daily stock history is considered more accurate. This approach allows for a more objective assessment of the efficiency of funds invested in products.

Conclusion

GMROI is one of the most useful metrics for analyzing inventory efficiency on marketplaces. It shows how much gross profit each ruble invested in products generates, combining profitability and turnover into a single metric.

Regular GMROI analysis helps find the most efficient SKUs, reduce the amount of funds frozen in inventory, optimize purchases, and make more informed management decisions. This makes the metric an important tool for sellers who want to increase profit not only through sales growth but also through more efficient inventory management.

Frequently Asked Questions

What is GMROI in simple terms?

GMROI is a metric that shows how much gross profit each ruble invested in inventory generates. For example, a GMROI of 200% means that every ruble invested generated 2 rubles of gross profit for the selected period.

How is GMROI different from margin?

Margin shows product profitability, while GMROI additionally accounts for sales velocity and inventory volume. This allows the metric to assess the efficiency of using invested funds.

What is considered a good GMROI?

There is no single standard, but typically:

less than 100% — low inventory efficiency;

100–200% — average level;

more than 200% — a good indicator.

The higher the GMROI, the more efficiently the funds invested in inventory are being used.

Can GMROI be compared across different products?

Yes. GMROI is used to compare the efficiency of different SKUs, find the most profitable products, and make decisions on assortment development.

How to increase GMROI?

The metric can be improved by increasing gross profit, accelerating sales, reducing excess stock, optimizing purchases, and decreasing product storage time in the warehouse.

Where can I see GMROI in Torgstat?

In Torgstat, the GMROI metric is automatically calculated in the "Product Economics" and "Dynamics" sections for Wildberries and Ozon based on daily stock history.