🏦 Carrying Cost
Carrying cost (also called holding cost) is what it costs you to keep one dollar of inventory on the shelf for a year. It's the "H" in the EOQ formula and the price tag on every unit of safety stock.
What is it made of?
Carrying cost is not one bill you receive — it's five quiet costs added up, each expressed as a percentage of the inventory's value per year:
Cost of capital (6–10%) —
money sitting in stock can't earn a return elsewhere or is financed
with credit. Usually your company's financing rate.
Storage & space (2–5%) —
warehouse rent, racking, energy, forklifts. Refrigeration pushes
this up fast.
Handling & insurance (1–3%) —
labor for put-away, counting and moving stock, plus insuring it.
Shrinkage & obsolescence (1–15%+) —
theft, damage, expiry, and products nobody wants anymore. The wild
card: near zero for steel bolts, brutal for anything trendy or
perishable.
Inventory taxes (0–2%) —
where stock on hand is taxed.
Industry examples: a distributor of industrial fasteners might carry stock at ~13% (cheap shelf space, nothing expires). A grocery chain runs ~28% (spoilage, refrigerated space). Consumer electronics hit ~30% — not because storage is dear, but because a phone loses value every month it sits. Fashion can exceed ~33%: when the season ends, unsold stock is nearly worthless.
Why our pages default to 20%: for typical durable manufactured goods the components land around 8% capital + 5% storage + 3% handling + 3% shrinkage + 1% taxes = 20% — the mid-range figure most textbooks and many companies adopt when they haven't measured their own. Try the presets below to see how far reality can stray from it.
Build your rate
Apply it to your stock
Your carrying cost rate
Try this: click the Fashion preset, then imagine using that 33% in the EOQ page — the optimum order size shrinks sharply. Expensive shelves mean small, frequent orders; cheap shelves forgive big batches.