About the Inventory Carrying Cost Calculator
This inventory carrying cost calculator totals everything it costs to keep stock on hand for a year. Enter your average inventory value and the four classic cost buckets — capital cost (the return you could earn on that cash elsewhere), storage space and handling, inventory service costs such as insurance and property taxes, and inventory risk from obsolescence, damage and shrinkage — and it returns the total annual carrying cost, the carrying cost as a percentage of inventory value and the cost per month and per unit.
Finance teams use the carrying cost percentage to set the holding cost in EOQ and safety-stock models; operations and purchasing managers use it to justify reducing slow movers, negotiating smaller, more frequent deliveries or consolidating warehouses. Industry rules of thumb put the figure anywhere from about 15% to over 30% of inventory value a year, so working out your own number is worth it.
Percentage costs are applied to average inventory value; storage and handling are entered as yearly dollar amounts. Use average inventory ((beginning + ending) ÷ 2, or a monthly average) rather than a single month-end snapshot.
With the default inputs, the annual carrying cost is $120,000.00. Change any value above to recalculate instantly.
How to use the inventory carrying cost calculator
- 1Enter your average inventory value for the year.
- 2Enter your cost of capital or borrowing rate.
- 3Add yearly storage and handling costs attributable to holding stock.
- 4Enter insurance, taxes, obsolescence and shrinkage as percentages of inventory value.
- 5Optionally enter average units to get a per-unit holding cost for EOQ.
Formula and method
Carrying cost is grouped into four buckets. Capital cost is average inventory value multiplied by your cost of capital — the opportunity cost of money tied up in stock. Inventory service costs (insurance and taxes) and inventory risk costs (obsolescence, damage and shrinkage) are also percentages of inventory value. Storage space and handling are yearly dollar amounts.
Adding the buckets gives the annual carrying cost, and dividing by average inventory gives the carrying cost rate. That rate multiplied by a unit’s cost is the annual holding cost per unit used in EOQ, EPQ and safety-stock models.
- I
- Average inventory value
- r
- Cost of capital (%)
- i, t
- Insurance and tax rates (% of value)
- o, s
- Obsolescence and shrinkage rates (% of value)
Worked examples
$500,000 average inventory, mid-size distributor
Capital cost is 8% × $500,000 = $40,000; storage and handling add $45,000; insurance and taxes 1.5% = $7,500; obsolescence and shrinkage 5.5% = $27,500. Total: $120,000 a year, a 24% carrying cost rate.
Small e-commerce brand with 12,000 units
Capital cost is $21,600, storage and fulfilment-centre fees $20,400, insurance $1,440 and obsolescence plus shrinkage $12,600, totalling $56,040 — 31.1% of inventory value, or $4.67 per unit per year.
Frequently asked questions
What is a typical inventory carrying cost percentage?+
Most estimates fall between about 15% and 30% of average inventory value per year, and fast-obsoleting goods such as electronics or fashion can exceed 35%. The rate depends mainly on your cost of capital and how quickly products lose value.
What are the four components of carrying cost?+
Capital cost (opportunity cost of cash tied up), storage space cost (warehouse rent, utilities, handling), inventory service cost (insurance and taxes) and inventory risk cost (obsolescence, damage, theft and shrinkage).
How is carrying cost different from ordering cost?+
Carrying cost rises with the amount of stock you hold, while ordering cost is incurred each time you place an order, regardless of size. EOQ balances the two: larger orders cut ordering cost but raise carrying cost.
Should I include warehouse rent if I own the building?+
Yes — include depreciation, maintenance, utilities and property costs for the space inventory occupies, or the rent you could earn by leasing it out. Leaving it out understates the true cost of holding stock.
How do I use carrying cost in EOQ?+
Multiply the carrying cost rate by the unit purchase cost to get H, the annual holding cost per unit. For a $20 item and a 24% rate, H = $4.80 per unit per year, which you enter in the EOQ or EPQ formula.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.