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Business Tip 2
GMROI
The Basics
What it means and why you need to know.
A Quadrant Analysis is a simple and visual way to help you plot and analyze information. It's particularly useful to marketers when trying to determine how product categories, segments and individual SKUs are performing.
Gross Margin Return on Investment (GMROI) is one of the most important measures for retail execution. GMROI takes into account both sales velocity of an item and the overhead in terms of inventory.
The prerequisites to applying GMROI include:
- Understanding Gross Margin
- Understanding Inventory Turns
- Access to appropriate data on your product, including: Price, Cost, Sales Volume and Inventory Turns
With a tool such as XP3, the process of calculating GMROI to identify and improve performance becomes a relatively easy task. XP3 transforms what used to be a time consuming process of manual analysis into an automatic process that maintains connections to sources for data changes and provides results on-the-fly.
In Action
Understanding and identifying the impact of "Slow Dimes" versus "Fast Nickels" is a basic, but important, capability. Take, for example, the following table. When looking at one measure in isolation (Gross Margin or Annual Turns), you would come to a very different conclusion on the best item to stock vs. looking at the combination (GMROI).
Table A
Best applied when retailers and manufacturers collaborate, GMROI can be useful at all levels, including item, brand, category and department. It also works for everyone regardless of company size, trade class or product offering. Start looking at GMROI across categories and brands, and you may discover new insights into what products you should emphasize or de-emphasize.
The Deliverables
Applying information from our previous tip, Interactive Edge's XP3 can help you quickly and efficiently analyze large amounts of data and draw your attention to specific results. In the above example (Table A), a quadrant analysis is utilized to visually plot GMROI. Applying conditional formatting in XP3, you can quickly and automatically draw attention to variances based on parameters that you set. (Conditional format: A format, such as cell shading or font color, that automatically applies to cells if a specified condition is met.)
For example, you can automatically highlight the skus that are meeting the margin targets of the category in green and use red to call attention to turns that are below the category average. This color coding makes it easy for anyone to quickly scan the information and find areas that need attention.
This dynamic highlighting is automatically refreshed with new data, drawing the eye to areas of focus. Additionally, creating dynamic data driven charts and tables utilizing XP3 will allow you to quickly shift your GMROI analysis from sku to brand, category, and department.
Clearly, the benefits of visualizing your analytics and making them dynamic will lead to better insights, faster.
The data, products and accounts depicted in this example are fictitious. Any resemblance to actual data, products or accounts is purely coincidental.
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