What is inventory carrying cost?

Inventory carrying cost — also called holding cost — is the total annual cost of holding stock. It combines the cost of capital tied up in inventory, storage and handling, service costs like insurance and taxes, and risk costs like shrinkage, obsolescence, and damage.

How do you calculate the inventory carrying cost rate?

Add the four component rates — capital, storage, service, and risk — each expressed as a percent of inventory value. Multiply that total rate by your average inventory value to get the annual carrying cost in dollars.

What is a typical inventory carrying cost percentage?

A common rule of thumb is 20% to 30% of inventory value per year, with 25% often used as a default. The right figure depends on your cost of capital, warehouse costs, and how perishable or obsolescence-prone your stock is.

Inventory Carrying Cost Calculator

Find what it really costs to hold stock for a year — capital, storage, service, and risk. Enter a carrying-cost rate you already use, or build it from its four parts. Add a unit cost and you also get the per-unit holding cost that the EOQ formula needs.

Average inventory value ($)

Cost per unit ($, optional)

Carrying-cost rate (% of inventory value / year)

Capital / cost of money (%)

Storage & handling (%)

Insurance & taxes (%)

Risk: shrink, obsolescence, damage (%)

Annual carrying cost

per year

Carrying-cost rate —

Holding cost / unit / yr (H, for EOQ) —

What carrying cost is

Carrying cost — or holding cost — is the price of keeping inventory on the shelf for a year. It’s more than rent: the biggest piece is usually the capital tied up in stock that can’t be spent elsewhere. It’s almost always expressed as a percentage of inventory value.

Annual carrying cost = average inventory value × carrying-cost rate

The four components of the rate

Build the rate from four buckets, each a percent of inventory value: capital (your cost of money or required return), storage & handling (space, utilities, labor to move it), service (insurance and inventory taxes), and risk (shrinkage, obsolescence, spoilage, and damage). Add them up and you have the total rate — commonly landing in the 20–30% range.

Why it feeds EOQ

The economic order quantity balances ordering cost against holding cost, and it needs holding cost as a dollar amount per unit per year. That’s just your carrying-cost rate applied to the cost of one unit. Enter a unit cost here and this tool hands you that number directly, ready to drop into EOQ.

Hold less and carrying cost falls — but order more often and ordering cost climbs. EOQ finds the point where the two balance.