Your best-selling item can be the one that earns the least for the money it holds on the shelf. This GMROI calculator shows, item by item, how much gross profit each 1.00 in stock earns in a year.
| Item | Sales | Cost of goods sold | Average stock at cost |
|---|
| Item | Gross profit | Gross margin | Turns a year | GMROI |
|---|
The calculator runs in your browser. Nothing you type is sent anywhere. The item with the lowest GMROI has a yellow row.
GMROI = gross profit of a year ÷ average stock at cost
GMROI is two numbers multiplied: gross margin % × sales ÷ average stock. The first is how much you keep from each sale. The second is how fast the stock turns into sales. A high margin cannot save an item that sits on the shelf.
Golden Inventory uses the same formula when it tests reorder levels: gross profit × 365 ÷ days, divided by the average stock value at cost.
A hardware shop looks at its last 12 months. Three items bring most of the sales: wall paint, power drills and boxes of screws.
The drills sell for 90.00 each, and the owner thinks of them as the star of the shop. They bring 18,000.00 of sales.
But the owner keeps 150 drills in stock, to show every model. Is that stock worth what it earns?
| Item | Sales | Cost of goods sold | Average stock at cost | Gross margin | GMROI |
|---|---|---|---|---|---|
| Wall paint | 24,000.00 | 14,400.00 | 3,000.00 | 40.0 % | 3.20 |
| Power drills | 18,000.00 | 12,000.00 | 9,000.00 | 33.3 % | 0.67 |
| Screws | 6,000.00 | 3,000.00 | 1,500.00 | 50.0 % | 2.00 |
| All three | 48,000.00 | 29,400.00 | 13,500.00 | 38.8 % | 1.38 |
The drills hold two thirds of the stock value and earn one third of the gross profit. Each 1.00 in drills brings 0.67 a year. Each 1.00 in paint brings 3.20.
The screws have the best margin, 50 %. They still earn less per 1.00 of stock than the paint, because the paint sells almost five times its stock in a year.
The owner cuts the drill stock to the 4 models that sell. Half the drill stock is 4,500.00 of cash back in the bank. If the drill sales stay the same, the drill GMROI goes from 0.67 to 1.33.
Look at GMROI before you look at sales. The item that sells the most is not always the item that pays for its shelf.
Put one item in each row: sales in column B, cost of goods sold in C, average stock at cost in D, and the number of months in cell H1. Then:
=B2-C2=IF(B2=0,"",E2/B2)=IF(D2=0,"",E2*12/$H$1/D2)Sort by column G, smallest first. The top rows are where your cash waits the longest.
Gross margin return on inventory: the gross profit of a year divided by the average value of the stock at cost. A GMROI of 2.00 means each 1.00 in stock earned 2.00 of gross profit in the year.
The item earns less gross profit in a year than the money it holds on the shelf. It can still be worth keeping, but it is the first place to look when you need cash or shelf space.
GMROI = gross margin % × sales ÷ average stock at cost. A high margin with slow sales and a low margin with fast sales can give the same GMROI.
The cost is the money you paid for the stock. GMROI asks what that money earns. A stock value at the sales price makes every item look slower than it is.
Yes. Use the landed cost, the same in the cost of goods sold and in the stock value. The landed cost calculator splits them per item.
No. An item with a low GMROI can bring customers who buy other things. GMROI tells you where to look, not what to cut.
Golden Inventory keeps the cost of each item on every sale and receipt. On the Pro plan, the planning screen tests new reorder levels on your own sales history and shows the gross profit and the average stock of each item before and after. When cash is short, it lowers the stock of the item with the lowest gross profit per stock value first.