How to Make More With Less
You don’t necessarily have to increase your sales to improve your profits. What matters is the productivity of each dollar of inventory.
As a retailer, your primary means for earning profits is your inventory investment. So it only makes sense to put your inventory dollars into merchandise that will give you the greatest return on your investment. But how do you know, for example, whether you should cut back on department A and build up your collection of department B? GMROI can be a very useful tool in your analysis.
GMROI (also known as GMROII) stands for Gross Margin Return On Inventory Investment. This dynamic measure of inventory productivity expresses the relationship between your total sales, the gross profit margin you earn on those sales, and the number of dollars you invest in inventory.
GMROI is expressed as a percentage or a dollar multiple, telling you how many times you’ve gotten your original inventory investment back during one year. Either way, it is the #1 measure of inventory productivity available to retailers.