Inventory Carrying Cost Calculator
Put a dollar figure on the invisible 20–30% per year it costs just to hold your inventory.
Written by Dorothy Ibrahim, 10+ years in banking & finance
Loading calculator…
How we calculate this
This calculator puts a dollar figure on what it costs just to hold your inventory — storage, the cost of the capital tied up in it, insurance, and shrinkage/obsolescence — expressed as an annual cost and as a percentage of inventory value. Holding cost is invisible on most P&Ls because it is scattered across rent, interest, and write-offs; seeing it in one number changes reorder, discounting, and stocking decisions.
The formulas
- Storage component (% of value per year)
- monthly storage cost × 12 ÷ average inventory value (or entered directly as a percent)
- Total carrying rate
- storage % + cost of capital % + insurance % + shrinkage/obsolescence %
- Annual carrying cost
- average inventory value × total carrying rate
- Monthly carrying cost
- annual carrying cost ÷ 12
- Cost per inventory turn
- annual carrying cost ÷ inventory turns per yearOptional — only computed when you enter your turns.
Worked example
- Say you hold $80,000 of average inventory, pay $500/month for storage, use a 10% cost of capital, 1% insurance, and 4% shrinkage/obsolescence.
- Storage as a percent of value = ($500 × 12) ÷ $80,000 = 7.5%/yr.
- Total carrying rate = 7.5% + 10% + 1% + 4% = 22.5% — inside the typical 20–30% range (rule of thumb).
- Annual carrying cost = $80,000 × 22.5% = $18,000, or $1,500/month.
- Put another way: every $1,000 of inventory that sits a full year quietly costs about $225.
Rates, benchmarks & sources
- Inventory carrying cost typically runs 20–30% of inventory value per year — a heuristic band, not an accounting standard — Industry rule of thumb
- Shrinkage/obsolescence presets by product type: durable goods 2%, fashion/seasonal 8%, perishable 15% — Rule-of-thumb presets
Figures current as of 2026-07-02. See our methodology & editorial standards for how constants are versioned and verified.
What this tool doesn’t model
- The result is only as good as your component estimates — cost of capital and shrinkage are the two owners most often under-count, which makes a suspiciously low carrying rate worth double-checking.
- Uses average inventory value as one number; businesses with strong seasonality should run peak and trough separately.
- Does not model opportunity cost beyond the single cost-of-capital rate, or step costs like needing a bigger warehouse.
- Shrinkage and obsolescence are entered as smooth annual percentages, but in reality they arrive lumpy — one write-off event can exceed the annual estimate.
- It measures the cost of holding stock, not the cost of running out — balance it against stockout risk with the Reorder Point tool.
Frequently asked questions
What counts as inventory carrying cost?
Four buckets: storage (warehouse rent, 3PL, or storage bills), the cost of the capital tied up in stock (what that cash could earn or what you pay to borrow it), insurance on the inventory, and shrinkage plus obsolescence (theft, damage, and stock that ages out of sellability). Added together they typically come to 20–30% of inventory value per year as a rule of thumb.
Why does my carrying cost come out below 15%?
Either your operation is genuinely lean, or a component is under-counted. The usual suspects are cost of capital (owners often use 0% for cash they already have, though that cash could be working elsewhere) and shrinkage/obsolescence (write-offs are easy to forget between events). The tool flags sub-15% results as "lean or under-counting" rather than celebrating them.
What should I use for cost of capital?
If you borrow to fund inventory, use that interest rate. If you fund it from cash, use what the money could earn in its next-best use — many owners use their line-of-credit rate as a practical proxy, since inventory cash and borrowing capacity are interchangeable at the margin. The default here is 10%, but it is fully editable and your real rate may differ.
Is it better to discount slow inventory or keep holding it?
At a 22.5% carrying rate, stock that sits another full year costs you about 22.5% of its value in holding costs alone — before any further markdown risk. That is why discounting slow movers around 20% now often beats carrying them: the discount roughly equals a year of carrying cost, and you get the cash and the shelf space back today. Run your own numbers; the trade-off depends on your carrying rate and how likely the item is to sell at full price.
How do I use the shrinkage/obsolescence presets?
They are rule-of-thumb starting points by product type: about 2% for durable goods, 8% for fashion and seasonal items, and 15% for perishables. Your actual figure should come from your own write-off history — count damaged, stolen, expired, and unsellable stock as a percentage of average inventory value over the past year.
Related calculators
themoneysheet provides educational estimates, not financial, tax, or legal advice. Figures use published rates and formulas current as of the date shown, but your situation may differ. Consult a qualified professional (CPA, attorney, or licensed advisor) before making financial decisions.