Calculate GMROI Before Granting More Space
Calculate and interpret GMROI for a merchandising space decision.
A candle family generated $48,000 in net sales last quarter at a 45% gross margin. Its average inventory cost was $18,000. Should the line automatically receive four more feet? GMROI = gross margin dollars / average inventory cost. The common trap is to reward high sales without asking how much inventory investment those sales required. Step 1 Gross margin dollars = $48,000 x 45% = $21,600. GMROI starts with profit contribution, not top-line sales. A high-sales family can still underperform if margin is thin. Step 2 Average inventory cost = $18,000. Use the inventory investment tied up in the family.…
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