Retail KPI: GMROII vs. BEP

GMROII (Gross Margin Return on Inventory Investment), the ratio between Margin and Average Stock Value is one of the most important KPI (Key Performance Indicator) in Retail because it condenses two different and essential sides: Margin and Inventory turns (see http://akite.net/en/key-performance-indicators-in-retail). GMROII is significant and quite popular especially for continuative products, those with a long/medium life cycle and frequently replenished, because the financially important Average Stock Value is embedded on this KPI.

For products with short life cycle, such as the season in the fashion industry, rarely replenished and where stock lose value quickly, a popular KPI is the BEP (Break Even Point), when Revenue equals Cost (of purchase) and profit start. % Sell-through is a similar KPI (when referred to Revenue vs Cost) and 100% is equivalent to the BEP.

We will demonstrate how GMROII can give indications on BEP reaching and % Sell-through, but also about the efficiency of the route to that point, with the advantage of “Less is More”. In modern computing it is not a problem to add new KPIs, but doing so often produce the effect of obscuring the facts which require immediate attention (not seeing the forest, because hidden by the trees). Having a unique and powerful KPI suited to handle both continuative and “spot” products, is a great advantage in a time when the scarcest resource is human attention.

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