What is inventory carrying cost?

Inventory carrying cost is the total of all expenses related to storing unsold goods. The total includes intangibles like depreciation and lost opportunity cost as well as warehousing costs. A business' inventory carrying costs will generally total about 20% to 30% of its total inventory value.

What are inventory holding costs?

Typical holding costs, another name for inventory carrying costs, vary by industry and business size and often comprise 20% to 30% of total inventory value, and it increases the longer you store an item before selling it.

How do you calculate a carrying cost?

Carrying costs are always expressed as a percentage of the total value of inventory. They’re equal to the inventory holding sum divided by the total value of inventory, then multiplied by 100. The inventory holding sum is simply the total of all four components of carrying cost. 1.

How can a business reduce inventory carrying costs?

One powerful step businesses can take to reduce inventory carrying costs is to invest in an inventory management solution. This software offers a multitude of ways to optimize inventory levels, which in turn cuts down on all the expenses outlined above.