Inventory carrying cost is what it costs to hold stock for a year, shown as a percentage of the inventory’s value. It combines the cost of money tied up, storage, insurance and taxes, and the risk that stock is damaged, stolen or becomes obsolete.
Enter the average value of your inventory and the four cost rates. The calculator shows the total rate and the yearly cost.
Inventory Carrying Cost Calculator
Enter your numbers to see the result.
Estimates for planning only. Results depend on the accuracy of the inputs and the assumptions of the standard formula.
The formula
Carrying cost rate = capital cost + storage cost + service cost + risk cost (each as a percentage of inventory value)
Annual carrying cost = average inventory value x carrying cost rate
Capital cost is often the largest part for businesses with high-value stock, and risk cost dominates for perishable or fast-obsolescing goods. Use your own finance figures. Published “typical” rates vary widely and may not fit your products.
Worked example
Average inventory of $1,000,000 with 8% capital, 4% storage, 2% service and 6% risk cost.
- Carrying cost rate = 8% + 4% + 2% + 6% = 20%
- Annual carrying cost = $1,000,000 x 20% = $200,000
- Monthly cost = $200,000 / 12 = about $16,667
Every dollar of stock removed saves about 20 cents a year.
How to use the result
The rate feeds decisions such as order size and safety stock: use it as the holding cost rate in the EOQ calculator. It also shows what a reduction in inventory is worth. Cutting inventory by 10% in this example saves about $20,000 a year.
To lower carrying cost, reduce excess and slow-moving stock, shorten lead times, improve forecast accuracy and negotiate cheaper storage. Compare the cost with the cost of stockouts before cutting buffers. See our inventory and warehousing guides.
Common questions
What is a typical inventory carrying cost percentage?
It varies by industry and product, and published figures cover a wide range. Calculate your own from capital cost, storage, service and risk costs rather than relying on a generic number from an article.
Does carrying cost include the purchase price?
No. It is the annual cost of holding stock, expressed as a percentage of the stock's value. The purchase price only sets the base value that the rate is applied to. A cheaper unit price lowers carrying cost only because the stock is worth less.
How is carrying cost used in EOQ?
The holding cost per unit per year in the EOQ formula equals unit cost multiplied by the carrying cost rate. A higher rate pushes the optimal order quantity down and makes smaller, more frequent orders cheaper.
Which cost is usually the biggest?
It depends on the stock. Capital cost often leads for high-value goods, while risk cost dominates for perishable or fast-changing products. The bar chart in the result shows which part drives your total, so you know where to look first.