Inventory finance
Inventory Carrying Cost
By the Supply Chain Manager team · Updated October 16, 2026
Inventory carrying cost is the full cost of holding stock: capital, storage, insurance, handling, shrinkage and obsolescence, usually a yearly % of value.
The largest part is often the cost of capital: money in stock is money not available elsewhere. Storage space, insurance, counts and handling come next, and then the risk that stock is damaged, lost or never sells.
Textbooks often quote 20–30% of inventory value a year. Your own figure depends on interest rates, warehouse costs and how quickly your products become obsolete, so it is worth estimating rather than borrowing.
How to calculate carrying cost
Annual Carrying Cost = Average Inventory Value × Carrying Cost Rate (% per year)
Carrying cost example
Illustrative numbers: $600,000 of average inventory at a 25% carrying rate costs about $150,000 a year to hold. Every $10,000 of stock you do not need costs roughly $2,500 a year.
Why carrying cost matters for distributors
Carrying cost is what makes overstock expensive. It is the number to compare against a quantity discount, a forward buy or a higher service level.
Common carrying cost mistakes
- Counting only warehouse rent and ignoring the cost of capital.
- Using one rate for perishable and durable goods alike.
Examples on this page use made-up round numbers to show the calculation. They are not benchmarks or results from real businesses.