What are carrying costs?
Carrying costs exist because holding inventory ties up cash and creates ongoing expense the longer goods sit unsold. That expense sets the floor an item must earn back before it can turn a profit.
They are one of several inventory cost categories, alongside purchase costs and ordering costs; here is a fuller breakdown of the types of inventory costs. The stakes are large across retail: IHL Group’s 2026 research found that the combined cost of overstocks and out-of-stocks reached $1.7 trillion globally in 2026, equal to 6.2% of global retail sales.
Key characteristics
- Four cost components: capital cost (money tied up plus interest), storage space cost (rent, utilities, labor), inventory service cost (insurance, taxes, software), and inventory risk cost (obsolescence, shrinkage, and damage).
- Measured as a percentage of inventory value: carrying cost % = total annual holding costs / average inventory value x 100. APQC benchmarking data across 6,468 companies shows a realized median near 10% per year.
- Tied to inventory turnover: faster turns spread the cost over more cycles and lower the per-cycle burden. Learn how to read the inventory turnover ratio.
- Controllable: right-sizing stock with an inventory control system is the main lever to keep them down.
Example
Hodo Foods, a plant-based food producer in Oakland, California, cut its inventory costs by 28% with better inventory visibility, according to its Fishbowl case study, which freed up capital for growth. Less excess stock means fewer dollars tied up in holding, so carrying costs drop with it. You can optimize your inventory levels the same way.
Related terms
FAQ
What is a simple example of a carrying cost?
Warehouse rent for storing unsold stock is a clear one; you keep paying it every month the goods sit before they sell.
What is a typical carrying cost percentage?
It varies by business and by which components you count: APQC’s realized median lands near 10% of inventory value per year, while a common benchmark near 20% is used for planning once more cost components are included.
How can a business lower carrying costs?
Hold less excess stock: sharpen demand forecasting, set smart reorder points, and move inventory faster so less cash sits on the shelf.
Fishbowl’s inventory control keeps stock right-sized so carrying costs stay low. Book a demo to see it on your own numbers.