Inventory Carrying Cost Calculator

What is inventory carrying cost?

Carrying cost, also called holding cost, is what it costs to keep inventory over a period, usually a year. It is made up of the cost of the money invested in the stock, the space it occupies, the insurance and taxes on it, and the losses from damage, theft and goods going out of date.

Formulas

• Total carrying cost = capital + storage + service + risk costs
• Carrying cost % = total carrying cost ÷ average inventory value × 100

Worked example

Capital, storage, service and risk costs add up to 13,500.00 a year. Against an average inventory value of 90,000.00, the carrying cost is 15%.

How to use the inventory carrying cost calculator

1. Enter your figures: capital cost, storage cost and average inventory value. Service costs and risk costs are optional and count as zero when left empty.
2. Read the result. It updates as you type, so there is no button to press.
3. Try other numbers to compare scenarios. Reset brings back the example values.

Getting it right

• Capital cost is normally the biggest part: the interest you pay, or could earn, on the money tied up in stock.
• Carrying cost commonly falls between 15% and 30% of inventory value a year.
• The percentage is the holding-cost input that the economic order quantity formula needs.

Frequently asked questions

How do you calculate carrying cost?

Add the capital, storage, service and risk costs of holding inventory for the period, divide by the average value of that inventory, and multiply by 100.

What is a typical inventory carrying cost?

A range of 15–30% of inventory value a year is widely quoted. Perishable or fast-dating goods sit at the top of the range or above it.

How can I lower carrying costs?

Hold less stock by ordering more often, clear obsolete items, negotiate storage rates and improve forecasting so safety stock can come down.