How to use this carrying cost calculator
This calculator prices what sitting inventory costs you per year across three buckets: tied-up capital, storage bills, and risk. Enter your average inventory value plus the three cost inputs. You get the annual total, the carrying rate as a percent of inventory value, and the split by bucket.
- Average inventory value = units on hand × landed cost, averaged over the year.
- Use your real storage bills: FBA monthly storage, a 3PL invoice, or warehouse rent.
- Add units on hand to see the cost per unit per year.
The carrying cost formula
Carrying cost = capital cost + storage cost + risk cost, and the carrying rate divides that total by average inventory value. Inventory textbooks put the typical rate at 20-30% of inventory value per year. Most sellers only ever count the storage bill, which is why slow stock feels cheaper than it is.
The same rate feeds the EOQ formula as its H input, so this calculator and the EOQ calculator describe the same money from two angles: one prices the stock you hold, the other sizes the orders that create it.
What goes in each bucket
Capital is what the cash locked in stock could earn elsewhere: use your loan rate if you borrow, or your expected return if you self-fund. Storage is every warehouse dollar: FBA monthly fees, aged-inventory surcharges, 3PL bills. Risk covers insurance, damage, shrink, and obsolescence; start at 4% and adjust with your own disposal history.
Worked example: $25,000 of inventory
Say you hold $25,000 of stock on average, pay $3,600 a year in storage, borrow at 8%, and set risk at 4%. Capital costs $2,000, risk costs $1,000, and the total lands at $6,600 a year: a 26.4% carrying rate, right in the textbook range.
- Monthly drag: $6,600 ÷ 12 is $550 a month before a single ad runs.
- That $6,600 is capital you could have spent on 825 more units at an $8 landed cost.
- Cut average inventory to $15,000 and the same rates save $2,640 a year.
How to lower your carrying cost
The rate rarely moves; the inventory value does. The four levers below shrink the base the rate multiplies against, and each one comes from a number this suite of calculators already gives you. Work them in order: the first two free the most cash.
- Order closer to EOQ so average stock stays near half an order cycle, never a warehouse full.
- Clear stock before it crosses 181 days and starts drawing aged-inventory surcharges.
- Trim safety stock on slow movers: a 90% service level holds far less than 99%.
- Track sell-through monthly so overbuys surface while they can still be discounted out.
Frequently Asked Questions
What is inventory carrying cost?
Carrying cost is what holding inventory costs per year: capital, storage, and risk combined. Textbooks put the typical rate at 20-30% of average inventory value.
What is the carrying cost formula?
Carrying cost = capital cost + storage cost + risk cost. Divide the total by average inventory value to get the carrying rate as a percent.
What carrying rate should I expect?
Most sellers land between 20% and 30% of inventory value per year. The worked example above lands at 26.4% with an 8% cost of capital and real storage bills.
Do FBA storage fees count as carrying cost?
Yes. FBA monthly storage and aged-inventory surcharges are the storage bucket. Total a year of storage charges from your statements and enter that number.
Is carrying cost the same as holding cost?
Yes, the terms are interchangeable. The EOQ formula calls the per-unit version H; this calculator reports the total and the rate.
What counts as the cost of capital?
Your loan rate if you borrow, or the return your cash could earn elsewhere. Sellers on credit lines often use 8-12%; self-funded sellers pick their opportunity rate.
How do I lower carrying cost fastest?
Shrink average inventory: order closer to EOQ and clear aged stock. The rate barely moves, so the value it multiplies against is the real lever.
How often should I recalculate?
Quarterly, and after any storage price change. Amazon updates storage fees and surcharges often enough that last year’s rate goes stale.