Want to Transform Your Inventory Into a Cash Flow Powerhouse? Look No further Than GMROI
GMROI combines profitability with inventory investment, giving you the power to boost cash flow. Here are three steps to help you get started:
Step 1: Compute Company-Wide GMROI
To do this, divide the total gross profit for the last 12 months (e.g., Sep ’23 – Aug ’24) by the cost of your finished goods inventory at the end of August ‘24. Repeat this for the previous months (July, June, May, and so on) to establish a trend for the entire company or division.
Step 2: Set a Realistic GMROI Goal
Based on the trend from Step 1, set a target slightly higher than the average. For example, if your average is 1.60, aim for 1.80 to push profitability and inventory reduction.
Step 3: Identify Product Inconsistencies ️♂️
Sort products by gross profit for the most recent month in descending order to focus on the most impactful items. Look for discrepancies: a product with a gross profit of $250K and a GMROI of 3.0 vs. a similar product with $240K but a GMROI of 1.75. Analyze why the second product that is lower isn’t pulling its weight, despite being similar.
Fix Process Inefficiencies
After identifying variations, you’ll start uncovering process issues (like replenishment, forecasting, or pricing) to address and optimize.
Track GMROI for Continuous Improvement
Make sure your entity-wide GMROI is trending upward. Moving from 1.6 to 1.7 to 1.8 is a clear indicator that your efforts are paying off.
Let’s Connect
If you’re ready to take your cash flow to the next level with targeted GMROI strategies, let’s connect! I can help you implement the reporting and analytics needed to fuel your success.
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