How do you calculate inventory carrying cost?

Multiply the inventory value (quantity times unit value) by a carrying-cost rate, then add any fixed holding costs. In the example, 2,000 units at $45 is $90,000 of inventory; at a 25 percent annual carrying rate plus $250 fixed, the cost is $22,750 a year.

What is a good inventory carrying cost percentage?

A common rule of thumb puts total carrying cost at 20-30 percent of inventory value per year. The 25 percent used in the example is unusually high and would suit slow-moving, perishable, or high-financing-cost stock; tune the capture factor to your real cost stack.

What is included in carrying cost?

Capital cost (the financing or opportunity cost of cash tied up), storage and handling, insurance and taxes, and risk costs like obsolescence, spoilage, and shrinkage. The capture factor in this tool bundles all of those into one percentage of inventory value.

What is carrying cost per unit?

It is total carrying cost divided by the quantity held. In the worked example, $22,750 across 2000 units is $11.38 per unit, which is the figure you compare against margin to judge whether holding that item is worthwhile.

Carrying cost vs ordering cost, what is the difference?

Carrying cost rises as you hold more inventory; ordering cost (setup, freight, PO processing) rises as you order more frequently. EOQ finds the order quantity that minimizes their sum, which is why an accurate carrying cost is essential to the trade-off.

How can I reduce inventory carrying cost?

Lower on-hand quantity through tighter forecasting and safety-stock math, negotiate consignment or vendor-managed inventory, cut obsolescence by tracking aged stock, and shrink the capital component by improving inventory turns so cash is not parked on the shelf.

Supply Chain & Procurement calculator

Inventory Carrying Cost Calculator

Inventory carrying cost is the total annual expense of holding stock you are not yet selling, including capital tied up, warehouse space, insurance, taxes, obsolescence, and shrinkage. Procurement managers, supply chain planners, and finance teams use it to decide order quantities, justify lean initiatives, and price the true cost of safety stock. Most companies underestimate it because the expense is spread across many line items rather than a single invoice. This calculator rolls those costs into one number using a capture-rate percentage applied to inventory value plus any fixed adder.

What this calculator does

Estimate inventory carrying cost from inventory value, carrying rate, and storage burden.
Use it when inventory carrying cost in supply chain and procurement is being put through a supply chain and procurement weighted-cost review.
It multiplies inventory quantity by unit value, applies a carrying-cost capture rate as a percentage, and adds a fixed adjustment to give total carrying cost and cost per unit.

Formula used

Weighted cost = quantity × rate × capture factor + fixed adjustment

Inputs explained

Average units on hand: Average inventory quantity held over the year.
Value per unit: Cost basis of one unit of inventory.
Annual carrying rate: Holding cost as a percent of value (storage, capital, obsolescence).
Fixed storage / handling cost: Flat annual storage or handling cost not tied to volume.

How to use the result

Use it when setting reorder quantities, building an EOQ model, evaluating whether to hold versus reorder, or making the financial case for reducing on-hand inventory.
The capture factor is an aggregate rate; it does not break out capital cost versus storage versus obsolescence, so two SKUs with very different spoilage or financing profiles can be misrepresented by one blended percentage.

Current U.S. benchmarks

U.S. manufacturing runs at 76.0% of capacity (Federal Reserve, Jul 2026). New factory orders are up 7.4% year over year (Census).
Importers paid an average effective tariff of 12.4% of customs value in 2025 across the 57 manufacturing import families MFG Calcs tracks (USITC DataWeb), up from 3.3% the year before. Statutory and effective rates by family, with top source countries, are at mfgcalcs.com/tariffs.
Sourcing currencies as of 2026-08-21 (Federal Reserve H.10): 6.721 CNY and 16.8909 MXN per USD. Landed-cost comparisons move with these daily rates.

Common questions

How do you calculate inventory carrying cost? Multiply the inventory value (quantity times unit value) by a carrying-cost rate, then add any fixed holding costs. In the example, 2,000 units at $45 is $90,000 of inventory; at a 25 percent annual carrying rate plus $250 fixed, the cost is $22,750 a year.
What is a good inventory carrying cost percentage? A common rule of thumb puts total carrying cost at 20-30 percent of inventory value per year. The 25 percent used in the example is unusually high and would suit slow-moving, perishable, or high-financing-cost stock; tune the capture factor to your real cost stack.
What is included in carrying cost? Capital cost (the financing or opportunity cost of cash tied up), storage and handling, insurance and taxes, and risk costs like obsolescence, spoilage, and shrinkage. The capture factor in this tool bundles all of those into one percentage of inventory value.
What is carrying cost per unit? It is total carrying cost divided by the quantity held. In the worked example, $22,750 across 2000 units is $11.38 per unit, which is the figure you compare against margin to judge whether holding that item is worthwhile.
Carrying cost vs ordering cost, what is the difference? Carrying cost rises as you hold more inventory; ordering cost (setup, freight, PO processing) rises as you order more frequently. EOQ finds the order quantity that minimizes their sum, which is why an accurate carrying cost is essential to the trade-off.

Last reviewed 2026-08-13.