A few days, I showed you could improve your shop sales by examining the item (granular) level the quantity, profit and sales. It produced a lot of comments. These are important, but they are not considered the most crucial measurement in modern retail.
The most crucial measure today is the Gross Margin Return on Investment (GMROI)
I will show you here what it is and how to get it immediately from your system.
Using GMROI you can get shop profit up, often dramatically.
What it measures is for every dollar invested in an item by the retailer, what profit did the retailer get back. It combines sales, margins, stock turns and investment theory into one number.
The calculation is.
GMROI = ($Gross Sales -$Cost)/($Ave inventory at cost)
-Consider an item A with an annual sales of $1000 at a Gross Margin (or Gross Profit) of 30%
Gross Margin $$ = $300.00
Say my stock holding on an average over the year was $200
My GMROI = $300.00 / $200.00 = $1.5
What you get with this product is $1.50 back for every $1.00 you invested in that item.
- Now say we have an item B with an annual sales of $2000 at a Gross Margin (or Gross Profit) of 25%
Gross Margin $$ = $500.00
Say my stock holding on an average over the year again was $200
My GMROI = $500.00 / $200.00 = $2.5, so for every dollar, I put into this item, I get back $2.5, which is much better.
Based on this, you should push item B more even though its margins are lower. This is because it has a higher stock turn. So in theory what want items B.
Unfortunately this is an impossible calculation for a person to do for all the items in most shops manually. But it is no problem for a computer.
So what we have made is a training video to show you how to get these figures.
Please get a feel of what your items GMROI are and I will in a couple of days show you some of the benefits and limitations of it.