Inventory
Inventory carrying cost.
Enter your average inventory value and the yearly costs of holding it. See the total, the carrying cost rate and the cost per unit on hand.
Carrying cost rate = total yearly holding costs / inventory value x 100. Holding $80,000.00 of stock that costs $18,100.00 a year to carry is a 22.63% carrying cost rate, or $1,508.33 a month.
Your yearly costs
Result
Worked example
A shop carries an average of $80,000.00 of stock (4,000 units). It estimates 8% cost of capital ($6,400.00), $6,000.00 for storage and utilities, $900.00 insurance, $600.00 taxes, $2,400.00 for spoilage, damage and obsolescence, and $1,800.00 of handling labour. Total holding cost is $18,100.00 a year, so the carrying cost rate is $18,100.00 / $80,000.00 = 22.63%. Per unit on hand that is $4.53 a year, the figure to use as holding cost in the EOQ calculator. The inputs are illustrative; use your own.
How it works
Carrying cost rate = (inventory holding sum / total inventory value) x 100. The holding sum is every cost of keeping unsold goods over the period, usually a year. Typical components are the cost of capital tied up in stock, storage and warehousing, insurance and taxes, spoilage, damage, theft and obsolescence, and the labour to handle and administer the stock.
Capital cost is the part people forget: it is inventory value x your cost of capital. If you borrow, use the loan rate; if you use your own cash, use what that money could earn elsewhere. This page does not assume a standard rate because none is published for all businesses. Work out your own and re-run it when your stock level changes.
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Sources
- Inventory Carrying Costs: Calculate and Reduce Them (2025) - Shopify (opened 2026-10-08): the carrying cost formula (holding sum divided by total inventory value, times 100) and the list of cost components: warehousing, insurance, labour, utilities, taxes, depreciation, spoilage, obsolescence and the opportunity cost of capital.
FAQ
What is inventory carrying cost?
The total expense of storing unsold goods, usually expressed as a percentage of inventory value. It includes warehousing, insurance, labour, utilities, taxes, spoilage, obsolescence and the cost of the capital tied up in stock.
What is the inventory carrying cost formula?
Inventory carrying cost rate = inventory holding sum / total inventory value x 100, where the holding sum is all holding costs for the period, usually a year.
What percentage should I use?
Use your own. It depends on your cost of capital, how much space and insurance the goods need, and how fast they spoil or go out of date. This calculator builds the rate from your actual yearly costs instead of assuming one.
How do I use the result for EOQ?
Enter the average units on hand to get the cost to hold one unit for a year, then put that figure in the EOQ calculator as dollars per unit per year. Or enter the rate there as a percentage of unit cost.
Does lower inventory always lower carrying cost?
The rate is a percentage of value, so the dollar cost falls when you hold less. But cutting stock too far raises stockout risk, which the stockout cost calculator can price.