Carrying Cost Calculator

Carrying cost rate = (capital + storage + service + risk) ÷ average inventory value × 100. A $480,000 inventory that costs $106,080 a year to hold carries at 22.1%, or $8,840 a month.

Annual carrying cost $106,080 Capital is the largest share at 40.7%

Rate a year22.1%

Per month$8,840

Per unit a year$3.54

Average inventory value at cost ($)

Average units held

Cost of capital (% a year)

Storage bill per month ($)

Insurance and inventory tax (% a year)

Obsolescence, shrinkage, damage (% a year)

Storage by pallet, turns and EOQ inputs

Average pallets stored

Rate per pallet per month ($)

Annual cost of goods sold ($)

Annual demand (units)

Cost per order ($)

Pallet mode fills the storage bill from pallets × rate. Every rate here is an example to replace with your own.

Formula with your numbers($43,200 + $38,400 + $2,880 + $21,600) ÷ $480,000 × 100 = 22.1%

Component	Per year	Per month	% of inventory value	Share of total
Capital	$43,200	$3,600	9.00%	40.7%
Storage	$38,400	$3,200	8.00%	36.2%
Service	$2,880	$240	0.60%	2.7%
Risk	$21,600	$1,800	4.50%	20.4%
Total	$106,080	$8,840	22.10%	100%

Inventory turns6.0 a year60.8 days on hand

Carrying cost per $100 of COGS$3.68what holding adds to each $100 sold

One more month of buffer$53,040a year, or $26,520 as a bigger order cycle

EOQ at this holding cost6,769 units√(2 × demand × order cost ÷ H)

The calculation runs in your browser. Value stock at cost, not retail. Pick-and-pack fees are fulfillment cost, not carrying cost.

Formula

How to Calculate Carrying Cost in 5 Steps

Find average inventory value at cost. Average the month-end stock valuations for the year. For a quick figure, use (opening + closing) ÷ 2.
Price the capital. Multiply that value by your cost of capital: your borrowing rate, or the return the cash would earn elsewhere.
Add storage. Take twelve months of rent or 3PL storage lines, surcharges included. Monthly bills × 12.
Add service and risk. Insurance and inventory tax, then write-offs, shrinkage, damage and clearance markdowns, each as an annual amount.
Divide by the value. Total annual carrying cost ÷ average inventory value × 100 is your carrying cost rate.

Output	Formula	Used for
Annual carrying cost	`Capital + storage + service + risk`	The budget line for holding stock.
Carrying cost rate	`Annual carrying cost ÷ average inventory value × 100`	Comparing years, sites and stock policies.
Cost per month	`Annual carrying cost ÷ 12`	Decisions measured in weeks, not years.
Holding cost per unit (H)	`Annual carrying cost ÷ average units held`	The H term in the EOQ formula.
Inventory turns	`Annual COGS ÷ average inventory value`	Days on hand = 365 ÷ turns.
One more month of buffer	`Monthly COGS × carrying cost rate`	Pricing extra cover before a peak.

Bottom-up: build it from components

Price capital, storage, service and risk separately, then add them. Slower, but it shows which line drives the rate and survives a review with finance.

Top-down: one holding total

Divide a single annual holding total by inventory value. Quick, but it hides the mix, and a missing line such as capital goes unnoticed.

$480,000

Opening and closing average

Opening stock of $450,000 and closing stock of $510,000 average to $480,000. Twelve month-ends give a truer figure when stock swings by season.

$4,800 a year

What one point of rate is worth

On $480,000 of stock, each point of capital, service or risk rate adds $4,800 a year. That is the figure to weigh when finance revises the capital rate.

Components

What Counts as a Carrying Cost

Capital

Interest on stock financed by debt
Return the cash would earn elsewhere
No invoice arrives, so it is often missed

Storage

Warehouse rent or 3PL storage fees
Utilities, racking and equipment
Handling caused by holding, not shipping

Service

Insurance on stored goods
Inventory or property tax on stock
Stock-tracking systems and counts

Risk

Obsolescence and expiry
Shrinkage and damage
Markdowns to clear ageing stock

Component	Where your number comes from	How it usually goes wrong
Capital	Your borrowing rate, or a blended rate finance already uses for working capital.	Left out entirely, because nobody is billed for it.
Storage	Storage lines on twelve months of 3PL invoices, or your lease plus running costs.	Taken from the rate card, not the amount actually billed after surcharges.
Service	Your insurance schedule and any tax assessment on stock.	Assumed trivial without checking it against inventory value.
Risk	Write-off ledger, cycle-count variances and markdown history.	Booked as a bad quarter instead of a rate that recurs.

Not a carrying cost: the purchase price of the goods, inbound freight, and pick-and-pack fees. Capital already charges for the money in the stock, so adding the purchase price counts it twice.

Worked example

A Dallas, Texas Home-Goods Brand

A home-goods brand stores stock with a 3PL near Dallas, Texas and sells across the US. These are the calculator's default inputs. The rates are examples, not benchmarks.

$480,000average inventory at cost

30,000 unitsheld on average, $16.00 each

160 palletsat $20 per pallet per month

$2,880,000annual cost of goods sold

Input	Example value	Where it came from
Average inventory value	$480,000	Average of the month-end stock valuations at cost.
Average units held	30,000 units	The same month-ends, so the average unit cost is $16.00.
Cost of capital	9% a year	The rate finance charges against working capital.
Storage	$3,200 a month	160 pallets on average at an example $20 per pallet per month.
Insurance and inventory tax	0.6% a year	Premium on stored goods divided by average inventory value.
Obsolescence, shrinkage, damage	4.5% a year	Write-offs, count variances and clearance markdowns for the year.
Annual cost of goods sold	$2,880,000	From the income statement, at cost.

Component	Arithmetic	Per year	Per month	Share
Capital	$480,000 × 9%	$43,200	$3,600	40.7%
Storage	160 pallets × $20 × 12	$38,400	$3,200	36.2%
Service	$480,000 × 0.6%	$2,880	$240	2.7%
Risk	$480,000 × 4.5%	$21,600	$1,800	20.4%
Total	Sum of the four	$106,080	$8,840	100%

22.1%

Carrying cost rate

$106,080 ÷ $480,000 × 100. Capital and storage make up 76.9% of the total.

$3.54

Per unit per year

$106,080 ÷ 30,000 units. This is H for the EOQ section below.

$53,040

One more month of buffer

$240,000 of monthly COGS × 22.1%. As a bigger order cycle it costs half: $26,520.

Reference table

Annual Carrying Cost by Inventory Value and Rate

Average inventory value × rate. The rates are examples to bracket your own figure. The last column is the monthly cost at the worked example's 22.1%.

Average inventory	10% a year	15% a year	20% a year	25% a year	30% a year	Per month at 22.1%
$100,000	$10,000	$15,000	$20,000	$25,000	$30,000	$1,842
$250,000	$25,000	$37,500	$50,000	$62,500	$75,000	$4,604
$500,000	$50,000	$75,000	$100,000	$125,000	$150,000	$9,208
$1,000,000	$100,000	$150,000	$200,000	$250,000	$300,000	$18,417
$2,500,000	$250,000	$375,000	$500,000	$625,000	$750,000	$46,042

Reading across a row

Each five-point step in rate adds the same amount: 5% of that row's inventory value. Find your value, then read the dollar gap between the rate you use and the rate you built.

Reading down a column

At a fixed rate, cost scales one-for-one with inventory value. Cutting average stock lowers capital, service and risk together, and storage too once it frees pallets.

EOQ

Carrying Cost in the EOQ Formula

EOQ = √(2 × annual demand × cost per order ÷ H). H is the per-unit carrying cost from the tool. On the example: 180,000 units a year, $450 per order, H = $3.54.

Order quantity	Orders a year	Ordering cost	Carrying cost (Q ÷ 2 × H)	Total
3,385 units	53.2	$23,929	$5,985	$29,914
6,769 units (EOQ)	26.6	$11,966	$11,968	$23,934
13,538 units	13.3	$5,983	$23,935	$29,918
20,307 units	8.9	$3,989	$35,903	$39,892

Where the two costs meet

At the EOQ, ordering and carrying cost are equal, about $11,966 each. Doubling the order quantity adds $5,984 a year in total cost.

Understating H inflates every order

Halve H and the EOQ rises from 6,769 to 9,572 units, 41% more stock per order. Leaving capital out of the rate does exactly that.

What holding stock costs on the example

$291 a day

The whole inventory

$106,080 ÷ 365. Every day stock waits for a sale, this is what it costs to keep it.

$3,536 a year

A 1,000-unit safety buffer

1,000 × H of $3.536. Safety stock never averages down, so it pays the full rate all year.

$24,480 a year

2 more weeks of cover

2 weeks of COGS ($110,769) held permanently, × 22.1%. Weigh it against the stockouts it prevents.

Slow movers

Carrying Cost per Unit Sold, by Inventory Turns

Carrying cost accrues with time on the shelf, not with sales. Cost per unit sold = unit cost × rate ÷ turns, here for the example's $16.00 unit at 22.1%.

Turns a year	Days on hand	Carrying cost per unit sold	Share of unit cost
12	30.4	$0.29	1.8%
6	60.8	$0.59	3.7%
4	91.3	$0.88	5.5%
2	182.5	$1.77	11.1%
1	365.0	$3.54	22.1%

Apply one rate, then divide by each SKU's own turns.
Rank SKUs by carrying cost per unit sold, not by stock value.
Compare it with the margin each SKU earns per unit.
Re-run after promotions, because turns move and the cost follows.

Reduce it

Six Levers, Priced on the Example

Each card changes one input of the worked example and reports the annual saving. Every lever has a cost on the other side.

−$10,608

Hold 10% less stock

Clearing slow stock so value, units and pallets each fall 10%. The cost is a one-off markdown.

−$9,600

Capital at 7%, not 9%

Cheaper financing or longer supplier payment terms. Finance decides it; operations feels it.

−$7,200

Risk at 3%, not 4.5%

Fewer write-offs through first-in first-out picking, cycle counts and earlier clearance.

−$3,840

$18 a pallet, not $20

A lower storage rate on the same 160 pallets. Compare billed totals, not rate cards.

−$5,984

Order at the EOQ

Moving from 13,538 to 6,769 units per order, net of the extra ordering cost.

−$960

Insurance at 0.4%, not 0.6%

The smallest lever here. Check it, but start with capital, storage and risk.

Storage line

Turning a 3PL or Warehouse Bill into the Storage Input

The tool takes storage as a monthly amount, or as pallets × a monthly rate. Convert whatever your bill uses into one of those first.

How storage is billed	Monthly storage input	Watch for
Per pallet per month	Average pallets × rate. Use pallet mode in the tool.	Partial pallets billed as full ones.
Per cubic foot per month	Average cubic feet stored × rate.	Billed on peak volume, not the average.
Per bin or shelf	Locations held × rate per location.	Half-empty bins still billed in full.
Long-term storage surcharges	Add the twelve-month total ÷ 12 to the monthly bill.	They grow as stock ages, so they belong here.
Own warehouse	Rent, utilities, racking and storage labor ÷ 12.	Space used for packing, which is fulfillment.
Receiving and pick-and-pack	Leave out.	These follow orders, not time held.

Use what was billed. Contracts differ by account, so take the storage lines from twelve months of invoices rather than a rate card. That captures surcharges and minimums.

By product

Which Component Drives the Rate, by Product Type

The formula is the same everywhere. What changes is which of the four lines carries the weight, so check that one hardest.

Seasonal apparel

Risk often leads. Styles lose value once the season ends, so markdowns belong in the rate, not in a one-off loss.

Electronics

Capital and risk often lead. Unit values are high and new models make old stock obsolete quickly.

Food and beauty

Risk often leads through expiry dates. Track write-offs by lot, and price storage with any temperature control.

Bulky, low-value goods

Storage often leads. Low value per cubic foot means space can cost more than the money tied up.

When to recalculate

When finance changes the cost of capital, or your borrowing rate moves.
After a storage contract renewal or a move to a new warehouse.
After a large write-off, which shows the risk rate was too low.
Before peak season, when stock and storage both rise.
At least once a year, alongside your stock count.

Terms

Carrying Cost vs Holding, Storage and Ordering Cost

Term	What it means	Part of carrying cost?
Total inventory cost	Purchase, ordering, carrying and stockout costs added together for the year.	Carrying cost is one of the four parts
Holding cost	Another name for carrying cost. Written as H in EOQ.	Same thing
Storage cost	Rent, 3PL storage fees and running costs for the space.	Yes, one of four
Ordering cost	Raising, shipping and receiving each replenishment order.	No, it is the other side of EOQ
Stockout cost	Lost sales and expediting when stock runs out.	No, it is what safety stock buys down
Cost of carry (finance)	Cost of holding a futures or forward position.	No, a different field
Carrying costs (real estate)	Loan, tax, insurance and utilities on a property.	No, a different field

Avoid errors

Eight Carrying Cost Mistakes

Dividing by retail value

At an example 2× markup, $106,080 ÷ $960,000 shows 11.1%, half the true 22.1%.

Leaving out capital

Without the capital line the example reads 13.1% instead of 22.1%, and every EOQ built on it comes out too large.

Using year-end stock

Dividing by an example year-end value of $360,000 shows 29.5%. Use the average across the year.

Counting fulfillment fees

Pick, pack and shipping fees follow orders, not time on the shelf. Keep them out of storage.

Adding the purchase price

The capital rate already charges for money in stock. Adding the goods' cost counts it twice.

One rate for every SKU

A blended rate hides the slow tail. Divide by each SKU's turns, as in the table above.

Mixing monthly and annual figures

Entering the $3,200 monthly storage bill as a yearly figure drops the example from 22.1% to 14.8%. Convert everything to a year first.

Skipping aged-stock surcharges

Long-term storage fees sit on separate invoice lines and grow as stock ages. Leave them out and the oldest stock looks cheapest to hold.

Next step

Related Inventory Planning Tools

EOQ calculator Feed in the per-unit holding cost from this page to size each purchase order. Safety stock calculator Size the buffer, then price it at your own carrying cost rate. Reorder point calculator Set the stock level that triggers the next order. 3PL cost calculator Estimate the storage line before it lands on your invoices.

See all free logistics tools, or read how Locad handles warehousing and ecommerce fulfillment.

FAQ

Carrying Cost Questions

Add the four annual costs of holding stock (capital, storage, service and risk), then divide by average inventory value at cost and multiply by 100. On the example, $106,080 ÷ $480,000 × 100 = 22.1% a year.

Capital tied up in stock, storage (rent or 3PL fees, utilities, handling while stored), service (insurance and inventory or property tax) and risk (obsolescence, shrinkage, damage and markdowns). The purchase price of the goods is not one of them.

Warehouse storage is the most visible one. A brand holding 160 pallets at an example $20 per pallet per month pays $3,200 a month, or $38,400 a year. Interest on the cash in that stock is another, and it never arrives as an invoice.

EOQ needs H, the holding cost per unit per year. H = total annual carrying cost ÷ average units held, or carrying cost rate × unit cost. On the example H = $3.536, so EOQ = √(2 × 180,000 × $450 ÷ 3.536) ≈ 6,769 units.

Multiply average inventory value by your carrying cost rate, or add the four components as annual amounts. Convert monthly bills by multiplying by 12. The example totals $106,080 a year, which is $8,840 a month.

There is no standard figure. Published ranges come from surveys that count different costs, so they rarely match your books. Build the rate from your own inputs: on the example, every point of a value-based rate is worth $4,800 a year.

They mean the same thing. Carrying cost is the commoner term in supply chain writing, and holding cost is commoner in the EOQ formula, where it appears as H. Ordering cost is different: it is the cost of placing and receiving each replenishment.

Divide total annual carrying cost by average units held. $106,080 ÷ 30,000 units = $3.54 per unit per year. The same answer comes from 22.1% × the $16.00 average unit cost.

Not quite. In finance, cost of carry is the cost of holding a position in a futures or forward trade. In real estate, carrying costs are loan payments, taxes and utilities on a property. This calculator covers the inventory meaning.

Yes, and it pays the full rate all year. Cycle stock averages down between deliveries, but a safety buffer sits there permanently. A 1,000-unit buffer on the example costs 1,000 × $3.536 = $3,536 a year to hold.

Paying Too Much to Hold Stock?

Talk to Locad about warehousing and fulfillment for your inventory.

Talk to Locad