Inventory Carrying Cost Calculator
Calculate the annual cost of holding inventory — capital, storage, insurance and taxes, shrinkage and obsolescence — as dollars and as a carrying cost rate.
Inventory costs money long after you pay the supplier. Carrying cost adds up the price of the capital tied up in stock, the warehouse space it fills, insurance and taxes, and the goods lost to shrinkage, damage and obsolescence. Expressed as a percentage of inventory value it tells you what each extra dollar of stock costs per year, which feeds into order quantities, safety stock and pricing decisions.
How to use this tool
- Enter the inventory value at the start and end of the period to get the average.
- Enter your cost of capital as a yearly percentage.
- Enter yearly storage, service (insurance, taxes) and risk (shrinkage, obsolescence) costs.
- Optionally add annual cost of goods sold for turnover and days on hand.
Formula
Average inventory = (start + end) ÷ 2
Carrying cost = average inventory × capital rate + storage + service + risk
Carrying cost rate = carrying cost ÷ average inventory × 100
Capital cost scales with the value of stock, so it is entered as a rate; the other components are entered as yearly amounts from your accounts. Only include the costs that actually change with how much you hold.
Example
Inventory of $480,000 at the start of the year and $520,000 at the end averages $500,000. At an 8% cost of capital that ties up $40,000 a year; add $30,000 of storage, $7,500 of insurance and taxes and $20,000 of shrinkage and obsolescence for $97,500 — a carrying cost rate of 19.5%. With $3 million of cost of goods sold, stock turns 6 times a year, or about 61 days on hand.
Frequently asked questions
What is a typical carrying cost rate?
There is no universal benchmark. Financing, storage and obsolescence differ by business. Use consistent annual costs and more frequent inventory observations if seasonality makes the two endpoint average unrepresentative.
Which cost of capital should I use?
Use the interest rate on the credit that funds your inventory, or your company's required return if it is funded with equity. That is the cost of having cash sitting on shelves instead of working elsewhere.
How can I reduce carrying costs?
Order smaller quantities more often, cut slow movers, improve forecasting so safety stock can shrink, and negotiate shorter supplier lead times.
Last updated: 2026-10-30