Talk:Gross margin return on inventory investment
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This page needs to be redone. GMROII should be stressed that it is calculated by taking gross margin dollars generated from sales of STOCK items over a year (remember distributors do a lot of directs), call this GM$. Then we take the average inventory value over the year, either by averaging each monthly figure or by taking year start and year end, call this AvgInv. Then GM$/AvgInv. In distribution, a good figure is generally considered to be 1.25 to 1.50. Which means you make $0.25 to $0.50 for every $1.00 invested. That is a 25% to 50% return. But don't get excited because this is Gross and must be used to cover operating costs.
The target GMROII varies by industry. The 3.2 in the example is for retail sales only. Considerations to take into account at arriving at a target GMROII are primarily the business's cost structure and customer service levels.
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