Inventory holding cost calculator with carrying cost rate
Work out what your stock costs to hold each year from its average value and four cost rates: capital, storage, service and risk. See the total rate, the annual and monthly cost, each component's share and a worked example.
Stock costs money for as long as it sits on your shelves and in the stockroom. This free inventory carrying cost calculator adds up four yearly cost rates (capital, storage, service and risk) to give your total carrying cost rate, then applies it to your average inventory value to show the annual and monthly cost in money. It also breaks the cost down by component, so you can see which part is largest.
You enter your own figures. The calculation uses only what you type, and nothing you enter is saved or sent.
How to calculate inventory carrying cost
- Enter Average inventory value at cost: the typical value of the stock you hold over a year, valued at what you paid for it, not at selling prices. It must be greater than zero.
- Enter each cost as a percentage of that value per year. Leave a component at 0 if it does not apply, but at least one rate must be above 0%.
- Select Calculate. To load the sample figures first, select Use example.
Each rate accepts up to 100%. The results show the total rate, the annual and monthly cost to the cent, and a bar for each component.
Inventory carrying cost formula
Carrying cost rate = capital cost % + storage cost % + service cost % + risk cost %
Annual carrying cost = average inventory value at cost × carrying cost rate
The monthly figure is the annual cost divided by 12. To find a simple average inventory value, add the stock value at cost at the start and end of the year and divide by 2. Month-end values averaged together give a fairer figure for a seasonal shop.
Inventory carrying cost components
OpenStax's Principles of Finance describes carrying costs as all the costs of having inventory in stock, including storage, insurance, obsolescence and spoilage, and the opportunity cost of the money invested in it. The calculator groups them into four rates:
- Capital cost. The interest you pay on money borrowed to buy stock, or the return you could earn on that money elsewhere. Use your loan or credit line rate if you have one. The Federal Reserve's H.15 release lists current market rates, such as the bank prime loan rate, for comparison.
- Storage cost. The share of rent, utilities, shelving and equipment used to hold stock. Divide the yearly amount by the average inventory value and multiply by 100 to turn it into a rate.
- Service cost. Insurance on the stock, any taxes charged on inventory where you trade, counting and handling time, and the systems used to track it.
- Risk cost. Shrinkage from theft or errors, damage, spoilage, and stock that goes out of date or out of season and must be marked down or written off.
Virginia Tech's inventory management guide lists taxes, insurance, obsolescence, storage space, handling and information technology as the most common parts of holding costs. Each rate is your own estimate. Taxes on inventory depend on where you trade, so ask your accountant which apply to you.
Worked example: an annual carrying cost of $12,500
These are the sample values that Use example loads, for the fictional Meadow Corner shop:
| Input | Sample value |
|---|---|
| Average inventory value at cost | $50,000 |
| Capital cost | 8% a year |
| Storage cost | 6% a year |
| Service cost | 3% a year |
| Risk cost | 8% a year |
The rates add up to 8 + 6 + 3 + 8 = 25% a year. The shop's $50,000 of stock at 25% gives an annual carrying cost of $12,500, or $1,041.67 a month. By component, capital costs $4,000, storage $3,000, service $1,500 and risk $4,000.
The storage rate here comes from $3,000 a year of stockroom rent and shelving: $3,000 ÷ $50,000 × 100 = 6%.
Use the rate for one product
The same rate gives a per-unit holding cost: multiply the unit cost by the carrying cost rate. At 25%, an item that costs $12 costs about $3 a year to hold. That is the yearly holding cost per unit the economic order quantity calculator needs.
To lower the cost, hold fewer days of stock or sell it faster. The days of supply calculator shows how long current stock will last, the inventory turnover calculator shows how often it sells through, and the ABC inventory analyzer shows which products hold most of your stock value.
Frequently asked questions
Can I calculate carrying costs without an account?
Yes. The calculator works without a login or email address. Copy the result before you leave the page if you want a record, because nothing is saved.
What is the carrying cost of inventory?
It is the ongoing cost of owning stock until it sells: the money tied up in it, the space it takes, the cost of insuring and handling it, and the losses from shrinkage, damage and obsolescence. It is usually stated as a yearly percentage of average inventory value.
Holding cost vs carrying cost: are they different?
The names are usually interchangeable, and this calculator treats them as one total. Some sources use holding cost for the storage part alone, so check which a supplier or textbook means before comparing figures.
Is carrying cost the same as landed cost?
No. Landed cost is a one-time cost of bringing goods in: the purchase price plus freight, duty and fees. Carrying cost is what you pay each year to keep them once they arrive. Work out the landed cost with the landed cost calculator, and value your stock at that cost when you enter the average inventory here.
Related free tools
Explore Headoffis features for managing your stores, stock and team.