Inventory Carrying Cost Calculator
What the stock on your shelves really costs per year, and the cash and profit freed by carrying less.
Example scenario—not a forecast or verified benchmark. Enable JavaScript to edit inputs, view charts, save locally and export your analysis.
Example inputs
- Average inventory value (at cost)
- 900,000
- Annual cost of goods sold
- 4,200,000
- Cost of capital
- 10
- Annual storage cost (rent, utilities, racking) for inventory space
- 60,000
- Annual handling labor & systems for inventory
- 45,000
- Insurance + property tax on inventory
- 1.5
- Shrink (theft, damage, count loss)
- 1.5
- Obsolescence / write-downs
- 4
- Inventory reduction to model
- 20
Example results
Holding $900K of inventory costs $258K a year (29% carrying rate); a 20% reduction frees $180K of cash and saves about $41K a year.
- Annual carrying cost
- $258,000
- Carrying cost rate
- 28.7%
- Cash freed by 20% reduction
- $180,000
- Annual cost savings from reduction
- $41,100
- Inventory turns
- 4.7x
- Days inventory on hand
- 78 days
- Carrying cost per day
- $707
What stands out
Carrying rate of 28.7% a year
Every $1 of stock costs about $0.29 a year to hold, or $707 per day across your $900K balance.
4.7 inventory turns (78 days on hand)
Your stock sits about 78 days before it is sold or used. Compare to your industry and to your supplier lead times; days on hand far above lead time usually means excess.
Shrink + obsolescence = 5.5% of value
$50K a year is simply written off. This is usually the most controllable piece of carrying cost.
Capital cost is the largest component ($90K)
35% of total carrying cost.
Next actions
- Run an ABC analysis: rank SKUs by annual usage value and cut safety stock on slow C items first.
- Identify every SKU with no movement in 180+ days and liquidate, return to vendor, or bundle it this quarter.
- Negotiate smaller, more frequent deliveries with your top suppliers; each 10% cut in average stock saves about $21K a year.
- Treat inventory like debt: at 10% cost of capital, $900K of stock is a $90K annual interest bill.
Model assumptions & limitations
- Cost of capital (10%), insurance/tax, shrink, and obsolescence rates are your inputs; defaults are illustrative, not benchmarks.
- Rule of thumb: total carrying costs are often quoted at 20-30% of inventory value per year; verify for your business.
- Storage and handling are assumed to fall by half as much as inventory (some space and labor is fixed).
- Turns = annual COGS / average inventory; days on hand = 365 / turns.