Inventory carrying cost rate
Inventory carrying cost rate is the annual capital, storage, risk and service cost of holding stock divided by average inventory value; it expresses the yearly cost of excess stock as a percentage.
Also calledcarrying cost of inventory, holding cost rate, inventory holding cost, stock carrying cost
Formula
(Capital + Storage + Risk + Service cost) ÷ Average inventory value × 100- Capital cost
- The annual cost of money tied up in stock: interest on borrowing or the business's own return on capital.
- Storage
- Share of warehouse rent, energy, handling and warehouse staff.
- Risk
- Obsolescence, write-downs, shrinkage, damage and markdown loss; taken from past years' records.
- Service
- Insurance, stock counts and inventory management costs.
- Average inventory value
- The average of month-end inventory values, at cost.
Calculator
Enter your own figures and the result updates instantly. The defaults are the figures from the worked example below.
Result%43
Worked example
How to read it, and what good looks like
Carrying cost never sits on a single line in the accounts, which is why most businesses treat it as zero and buying decisions lean towards too much stock. The detailed calculation of each component and worked decision examples are in the inventory carrying cost guide; this page is for calculating your own rate quickly.
The largest component is the cost of capital, and in a high-inflation environment finance is expensive too: TÜİK (the Turkish Statistical Institute) put annual CPI at 31.51% in August 2026. That is why rates from foreign sources are not used as they are; the capital component comes from the business's own weighted average borrowing rate or return on capital. The risk component is concrete as well: according to BİM's 2024 Integrated Annual Report, food waste amounted to 0.56% of total sales in 2024, or 50,813 tonnes. The risk rate is taken from records like these, not estimated.
The rate is a decision input: whether a volume discount really pays, the denominator of economic order quantity, markdown timing and the floor for GMROI all come from it. The ageing report in Mind Stock gives the value each product ties up; multiplying that value by the rate gives the annual cost of non-moving stock. Mind Cost allocates freight, customs and insurance to products, keeping inventory on the correct cost basis. If the components are scattered across different ERP accounts, installation brings them into a single model.
Where it misleads
- Not borrowing does not make capital cost zero: money tied up in stock was put there by giving up the return it would earn elsewhere.
- Dividing by closing stock misses the load carried through the year in a business with seasonal swings; use average inventory value.
- Entering the risk component as an estimate understates the rate; calculate it from disposal, write-down, shrinkage and markdown loss records.
- A single company-wide rate is enough for rough decisions; ordering and markdown decisions use category rates, because the risk component varies widely between categories.
Data you need
- Month-end inventory value (at cost)
- Weighted average borrowing rate or return on capital
- Warehouse rent, energy, staff and handling costs
- Disposal, write-down provision, shrinkage and markdown loss records; insurance premium and count costs
Mindpera products that calculate this KPI
Mind Stock
Stop treating stock accuracy as something that waits for a count and a month-end close. See movements in and out, expiry dates and profitability on one screen.
Mind Cost
The cost of what you buy for the shelf and the cost of what your bakery, deli and kitchen produce are calculated on the same model; in both, where the gap comes from is visible line by line.
Frequently asked questions
- How is the rate used in a volume discount decision?
- Compare the discount gained with the extra carrying cost of the additional stock. If a supplier offers ₺12,000 off for buying more, and the extra goods add ₺100,000 of average inventory for three more months, the extra cost at 43% is 100,000 × 0.43 × 3 ÷ 12 = ₺10,750. The net gain is only ₺1,250; without the rate, the decision cannot be made.