Inventory Holding Cost Calculator
Estimate the cost of holding inventory over a period based on inventory value and a holding-rate percentage.
These tools are provided for educational and operational guidance only. Results are estimates and may not reflect all factors in your business. Always review calculations and use your own professional judgement before making decisions.
What is this tool?
This calculator estimates how much it costs you to hold inventory over time, including capital cost, storage, insurance, shrinkage, and obsolescence. It helps translate abstract “% carrying cost” into a clear currency amount.
Formula
With inventory value and annual holding rate, the calculation is:
Holding cost = inventory value × holding rate% × period (years)
For example, a holding rate of 20% per year means that keeping 100,000 in inventory for one year generates about 20,000 in carrying costs.
Example
If inventory value is 50,000, holding rate is 20%, and the period is 1 year:
Holding cost = 50,000 × 20% × 1 = 10,000.
This number can then be used in EOQ, pricing, and project-evaluation discussions to reflect the true cost of tying up capital in stock.
When should you use this tool?
- When estimating the financial impact of increasing or reducing inventory levels.
- When choosing between different lead times, order quantities, or suppliers.
- When evaluating projects that free up or require more working capital.
- When discussing inventory targets with finance and operations stakeholders.
How this tool helps your business
- Makes the cost of holding excess inventory visible and measurable.
- Supports better trade-offs between service level and working capital.
- Encourages decisions that reduce waste, obsolescence, and write-offs.
- Links daily inventory choices to financial metrics like ROI and cash flow.
Related tools
- EOQ Calculator – use holding cost as an input when optimising order quantities.
- Average Inventory Calculator – estimate the inventory value you plug into this tool.
- Inventory Turnover Calculator – connect turnover performance with holding cost outcomes.
Frequently Asked Questions
What should I include in the holding rate%?
Holding rate usually bundles capital cost, storage, insurance, shrinkage, and obsolescence. Finance can help you estimate a reasonable percentage for your business.
Can different product groups have different holding rates?
Yes. High-risk, fragile, or fast-obsolescence items often justify higher rates than stable commodities. You can run separate scenarios with different inputs.
Should I use average inventory or ending inventory?
Average inventory is usually better because it reflects typical levels across the period. Ending inventory may be misleading if you had unusual purchases or clearances.
How does this relate to ROI calculations?
Holding cost quantifies the “rent” you pay on inventory capital. You can compare this against the returns generated by additional stock or by freeing capital for other projects.