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Inventory / Inventory Carrying Cost Calculator

Inventory Carrying Cost Calculator

Add up what it costs to hold your stock for a year: the money tied up in it, storage, insurance and losses. See it in dollars, as a percentage of inventory value, and per unit for the EOQ formula.
$

Enter a number of at least 0

Example figure. (Start-of-year stock + end-of-year stock) ÷ 2, valued at what you paid.

%

Enter a number from 0 to 100%

Example rate. Use the interest rate on the money that funds your stock (your credit line, for example), or the return you could earn on the cash elsewhere.

$

Enter a number of at least 0

Example figure. The share of rent, utilities, shelving and warehouse labour that goes to holding stock.

$

Enter a number of at least 0

Example figure. Insurance on the stock and any inventory or property tax on it. Enter 0 if none.

%

Enter a number from 0 to 100%

Example rate. Stock lost, stolen, damaged, expired or marked down because it went out of date, as a share of inventory value. Use your own write-offs.

$

Enter a number of at least 0

Inventory software, counting, handling. Enter 0 if none.

$

Enter a number of at least 0

Example figure. Gives the holding cost per unit per year, the H in the EOQ formula.

Inventory carrying cost per year
$23,500.00
23.5%of inventory value
$1,958.33per month
$4.70holding cost per unit per year
$0carrying cost $23,500.00 a year
  • Cost of capital
  • Storage
  • Insurance and taxes
  • Shrinkage and obsolescence
Average inventory value$100,000.00
Cost of capital · $100,000.00 × 10%$10,000.00
Storage$8,000.00
Insurance and taxes$1,500.00
Shrinkage and obsolescence · $100,000.00 × 4%$4,000.00
Carrying cost per year$23,500.00
Carrying cost rate · carrying cost ÷ inventory value23.50%
Holding cost per unit per year · $20.00 × 23.50%$4.70

Every $1 of stock you hold for a year costs about 23.5 cents. Cutting average stock by $10,000 saves about $1,400 a year in capital and shrinkage cost, plus any storage you can give up.

See breakdown

How the inventory carrying cost calculation works

  1. Value your average inventory

    Average stock at cost, for example $100,000. Use (start + end) ÷ 2 if you count twice a year.

  2. Price the money tied up

    Multiply by your cost of capital. At 10%, $100,000 of stock costs $10,000 a year in interest or lost return.

  3. Add storage, insurance and losses

    $8,000 of storage, $1,500 of insurance and taxes, and 4% shrinkage and obsolescence ($4,000) bring the total to $23,500.

  4. Turn it into a rate

    $23,500 ÷ $100,000 = 23.5% a year. A $20 unit costs $4.70 a year to hold, which is the holding cost to enter in the EOQ calculator.

Worked example. A small online shop holds $100,000 of stock on average and funds it with a credit line at 10%. Storage costs $8,000 a year, insurance and taxes on the stock $1,500, and it writes off about 4% a year to damage and old stock. Carrying cost is $10,000 + $8,000 + $1,500 + $4,000 = $23,500 a year, or 23.5% of inventory value. A $20 unit costs $4.70 a year to hold.

Inventory Carrying Cost FAQ

What is the inventory carrying cost formula?

Carrying cost = cost of capital + storage + insurance and taxes + shrinkage and obsolescence + other holding costs, all for one year. As a rate: carrying cost ÷ average inventory value. With $23,500 of costs on $100,000 of stock, the rate is 23.5%.

How do I calculate the carrying cost of inventory?

Find your average inventory value at cost. Multiply it by your cost of capital and by your yearly shrinkage rate. Add the yearly storage, insurance and tax costs that come from holding stock. The sum is your carrying cost in dollars; divide it by inventory value for the percentage.

What is a normal inventory carrying cost percentage?

There is no single official figure; it depends on your interest rate, rent and how fast stock spoils or goes out of date. Perishable, fragile or fashion stock costs more to hold than bolts or paper. Work it out from your own costs here and compare with your own past years.

What cost of capital should I use?

The interest rate on the money that pays for your stock, such as your credit line or loan rate. If you pay with your own cash, use the return you could earn on it elsewhere. A higher rate makes holding stock more expensive.

Is carrying cost the same as holding cost?

Yes, the two terms mean the same thing. In the EOQ formula the holding cost (H) is the carrying cost per unit per year: unit cost × carrying cost rate. At 23.5%, a $20 unit has a holding cost of $4.70.

What is the holding cost formula per unit?

Holding cost per unit per year = unit cost × carrying cost rate, or total carrying cost ÷ average units in stock. Both give the same answer when units are valued at cost.

How can I lower my inventory carrying cost?

Hold less stock by ordering smaller amounts more often, sell or clear slow movers before they go out of date, and pay down the credit used to buy stock. The EOQ and reorder point calculators help you find a lower stock level that still avoids running out.

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