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Inventory Carrying Cost: Formula, Example & How to Reduce It
Every unit sitting in your warehouse is costing you money, even when nobody is buying it. Rent, insurance, the cash tied up in stock that could be earning elsewhere, and the slow drift of products toward obsolescence all add up to one number that most online sellers never calculate: inventory carrying cost. Industry estimates put it at roughly 20% to 30% of your average inventory value per year, which means a seller holding $100,000 of stock can quietly bleed $20,000 to $30,000 a year just to keep it on the shelf. This guide explains exactly what inventory carrying cost is, breaks down the formula with a worked example, shows what a healthy percentage looks like, and gives you practical ways to bring it down.