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Spend five minutes Googling “retail KPIs” and you will be told that GMROI (Gross Margin Return on Investment) is one of the most important metrics in the game.
But here is the truth: GMROI is incomplete. On its own, it does not tell you why profitability is suffering. It does not separate overstock from low profit SKUs, two problems that require very different remedies. And most importantly, it is not actionable.
Instead of chasing ratios that are nicely sortable in a spreadsheet, retailers should focus on KPIs they can improve through easy to deploy tactics. Here are the five we recommend, and why they matter.
1. Total Profit $: Money in the Bank
What it is: Pre tax, post discount revenue minus costs.
Why it matters: Businesses run on cash, not ratios. Total profit is the KPI that answers the most important question: Which products are really putting money into my bank account?
On the Happy Buyers platform, profit is tracked at every level (SKU, product line, brand, category, and store) factoring in unit costs, discounts, and taxes for accuracy. Retailers use it to guide menu planning, vendor negotiations, and strategic decisions like inventory budgeting.
If you only do one thing, this is it: regularly identify the bottom 20 percent of SKUs by monthly profit (for example, less than $100 per month). Ask yourself if they deserve space on your shelf or if it is time to free up capital for higher performing products.
2. Realized Margin %: The Truth About Profitability
What it is: The actual gross margin you earn after unit costs, discounts.
Why it matters: List price margins are rarely accurate. If half your products move with markdowns, your “50 percent margin” might actually be closer to 30 percent.
Smart retailers maintain a minimum 40 percent margin threshold to stay financially healthy. Realized margin, especially when trended weekly or monthly, helps you spot erosion early. That erosion could come from excessive discounting, weak vendor terms, or low margin high velocity SKUs.
It also gives you leverage in negotiations. If a product moves quickly but drags down profitability, you have the data to push for better terms.
If you only do two things, this is it: find your top movers with lower than average margins and invest in your relationship with those brands to improve the margin.
3. Discount %: Spot Margin Bleed Early
What it is: Total markdowns as a percentage of sales.
Why it matters: Discounts are a double edged sword. Escalating discounts can clear slow movers, but excessive discounting erodes cash flow fast.
Retailers who win at discount management track both percentage and dollar impact. They benchmark against market norms (i.e. an 11 percent discount rate) , and monitor how promotions or daily specials affect profitability.
In cannabis retail, this is especially clear when comparing categories. A dispensary might discount vapes heavily to match competitor pricing and keep customers coming in, but those same vapes may be pulling down overall realized margin. Without watching discount percentage closely, it is easy to let margin bleed continue unchecked in the name of volume.
4. Overstock $: Predicting Tomorrow’s Dead Stock
What it is: A forward looking metric that estimates the cost of inventory likely to age out, often tracked through days on hand.
Why it matters: Overstock is where retailers get blindsided. Products may look fine on paper until you realize they are sitting 60 days or more in inventory, and now thousands of dollars are tied up in stock you cannot move.
Happy Buyers flags predicted aged inventory costs and sets thresholds, for example > 30 days on hand, for intervention. Reducing days on hand from 57 to 30 can return six figures in working capital back into your business.
Consider flower as an example. If eighths sit on shelves for more than 60 days, they lose freshness and become less appealing to customers. That inventory turns into cash that is locked up and not working for you. It will eventually be returned (wasted space, time, and no profit), or sold at a steep discount, eroding profits. Overstock metrics let you intervene before the flower becomes truly unsellable, whether through vendor co marketing, smarter ordering, or targeted specials. Happy Buyers always suggest the exact amount to order for each SKU (or even suggests NOT ordering) to minimize Overstock with every purchase decision.
5. Aged Inventory $: The Silent Profit Killer
What it is: The dollar value of inventory held beyond its maximum sell through window, commonly 60 days.
Why it matters: Aged inventory is “inventory debt.” It is money tied up in unsold stock that could otherwise be reinvested. Left unchecked, it becomes a drag on both profitability and customer experience.
Trended weekly and monthly, aged inventory costs help retailers make targeted decisions. Which SKUs need escalating discounts? Which vendors should take product back? Which products should never be reordered?
If you only do three things, this is it: set alerts when your product reaches certain aging benchmarks so you can stay proactive; say 25 days, 45 days, 60 days. We wrote much more about being proactive with aging inventory here if you’d like a deeper dive.
“I want a report that outlines where I stand on these 5 KPIs” - good news! We are currently offering an Inventory Health Audit for free. Click here to claim yours.
The Bottom Line: KPIs That Drive Action
GMROI is not useless, but it is not enough. It compresses your business into a single number and hides the real issues.
Profit drag from discounts and overstock clogging your shelves are not the same thing. Each requires a different strategy. That is why actionable KPIs like Total Profit $, Realized Margin %, Discount %, Overstock $, and Aged Inventory $ are the ones that matter.
The difference is simple. GMROI provides an overly simplified ranking, these KPIs tell you what to do next.
Now that you know which KPIs matter, start putting them to immediate action with Happy Buyers.
Try it free for 14 days using live store data and immediately begin chopping away at your overstocked and aging inventory!
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