Carrying cost calculator

3 min read
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Cost-cutting is a proven way to drive profits. Inventory carrying costs are one of the simplest areas to cut. If done properly, the exercise will be a simple and harmless one. However, you can't cut inventory costs without having a deeper understanding of your stock and a complete picture of your carrying costs. Use our carrying cost calculator to take out the guesswork. 

Carrying cost

What is carrying cost?

Inventory carrying cost is also known as a holding cost. It is essentially the cost of holding stock or inventory. The most basic definition would be calling it storage space costs. Depending on your order volume, you will need certain inventory levels to fulfil orders. That warehouse space comes with storage costs. It costs money to hold inventory and that impacts your cash flow. So, you need an accurate view of this number at all times. 

Carrying cost is a valuable KPI when it comes to inventory. If you are writing a business plan, the carrying cost is an important factor to consider. It remains important even after your business is launched. 

Your carrying cost is critical in determining how much profit your current inventory can make. It is also useful in determining whether you should decrease or increase production to balance income and expenses or change inventory turnover rates. Your carrying cost should run between 20 to 30 percent of your total inventory storage value. It is a significant amount, which is why it is essential to know and account for the total carrying cost.

Read More: How to manage and track inventory

The holding cost formula

To calculate, you can use a holding cost formula. You need – Capital + Taxes + Insurance Premiums + Warehouse Costs + (Scrap - Recovery Costs 1) + (Obsolescence Costs - Recovery Costs 2) divided by the average annual inventory cost. 

The formula might seem complicated, which is why a handy carrying cost calculator removes the risk of error. You can use the formula to work out yours manually. Or, you can use the inventory carrying cost calculator. All you need is the correct figures, and the calculator will do the maths for you.

How to use the inventory carrying cost calculator 

The inventory carrying cost calculator couldn't be easier to use. You just need facts and figures like your capital cost, warehouse cost etc. and you can input them into the boxes provided and submit them for calculation when complete. 

How QuickBooks can help

QuickBooks accounting software can do an excellent job handling the heavy lifting of your finances and account tracking. Visit our pricing page to find a plan that is right for your business or to get a free 30-day trial.

Frequently asked questions

What are some carrying cost examples?

Examples of carrying cost include capital costs, which are the products themselves, as well as depreciation, insurance, taxes labour, storage, taxes, opportunity cost, obsolete inventory, and administrative expenses. This is demonstrative of just how dramatically carrying costs can impact your bottom line.

How do you calculate carrying costs?

Use our free calculator to quickly calculate the carrying cost for your business. Carrying cost can also be calculated by using the holding cost formula:  Capital + Taxes + Insurance Premiums + Warehouse Costs + (Scrap - Recovery Costs 1) + (Obsolescence Costs - Recovery Costs 2) divided by the average annual inventory cost.

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