MOQ profitability calculator
Whether the supplier's minimum order pays off once you have paid to hold it.
≈ 5 minutes
Evaluate the supplier MOQ
The cost of holding your inventory
Holding stock is not free. Every month a unit waits on the shelf it consumes space, insurance, tied-up capital and a little of its own value. All of that added together is the cost of carrying inventory, and expressed as a percentage of the value stored it tends to surprise anyone calculating it for the first time.
Every calculation runs in your browser. The figures you type are never sent to a server and are never stored.
Your results will appear here
Enter your average inventory value and the annual costs of holding it.
- Average inventory value across the year
- Storage, handling and insurance
- Obsolescence, shrinkage and capital cost
Calculation results
Annual inventory carrying cost
—
What it costs you per year to hold the stock.
Monthly cost—
Carrying rate—Of inventory value
Cost per thousand of inventory—
Cost per average unit—
See the breakdown
| Storage | — |
| Handling | — |
| Insurance | — |
| Obsolescence | — |
| Shrinkage and breakage | — |
| Cost of capital | — |
| Other costs | — |
| Total annual cost | — |
Recommended next step
You know what a full warehouse costs. Apply it where it weighs most: whether the supplier's minimum order still pays once you have paid to hold it.
Evaluate the supplier MOQResults are estimates based on the information you enter. Fees, taxes and platform terms can change: always check the figure that matters to you against your invoice or the official platform. They do not replace your real invoices, your official accounts or professional tax, financial or legal advice.
What this tool works out
This inventory carrying cost calculator adds up what holding stock costs you per year and expresses it four ways: annual total, monthly, per thousand currency units of inventory, and per average unit stored.
Two things are worth keeping apart. Inventory value is what you paid for the goods you hold. Carrying cost is what you spend to have them sitting there, and it is an additional expense that repeats every year the goods go unsold.
The seven components
Carrying cost is usually grouped into four families — capital, space, service and risk — and here it is broken into seven concrete amounts so none gets forgotten.
- Storage: rent, energy and the space occupied
- Handling: internal moves, counts, relocations
- Insurance: the policy covering stored goods
- Obsolescence: value lost by items that stop selling
- Shrinkage: breakage, expiry, theft and count discrepancies
- Capital cost: what it costs to have that money tied up
- Other costs: management software, local taxes, anything not above
Why capital cost is asked as an amount
Many calculators ask for a capital cost percentage and apply it to inventory value. Here the annual amount is asked for instead, and not on a whim.
That cost differs in every business: someone financing stock with a credit line at 8 % can calculate it exactly; someone financing it with their own funds has an opportunity cost only they can estimate. Asking for a generic percentage would mean inventing the most important input in the calculation.
If you finance with debt, multiply average inventory value by your real interest rate. If it is your own capital, decide what return that money would be earning elsewhere and use that.
How the formula works
One sum and three divisions.
annual cost = storage + handling + insurance
+ obsolescence + shrinkage
+ capital cost + other
monthly cost = annual cost / 12
carrying rate = annual cost / average inventory value x 100
cost per thousand = annual cost x 1000 / average inventory value
cost per unit = annual cost / average units in stock
A worked example
A warehouse with an average inventory value of $60,000 and around 4,000 units on average. Over the year it pays $4,200 in storage, $1,800 in handling, $600 in insurance, $2,500 in obsolescence, $900 in shrinkage, $3,000 in capital cost and $400 in other charges.
| Item | Value |
|---|---|
| Average inventory value | $60,000.00 |
| Annual cost of holding it | $13,400.00 USD |
| Monthly cost | $1,116.67 |
| Carrying cost rate | 22.33% |
| Cost per 1,000 of inventory | $223.33 |
| Cost per average unit | $3.35 |
Holding that inventory costs $13,400 a year: 22.33 % of its value. That is $1,116.67 a month, or $3.35 per average unit stored. If a unit's contribution margin were $4, a year of standing still would eat almost all of it.
How to read the result
The carrying cost rate is the figure that makes businesses of different sizes comparable. It says what percentage of your inventory value you spend each year simply on having it.
We are not going to hand you a 'normal' range as if it were a target, because it depends on the product: electronics go obsolete fast, bulk material eats space, and a stable compact product costs almost nothing to hold. Your own trend over time is a more useful comparison than any average.
Cost per average unit is the figure you can carry into other decisions: it is what a year of waiting costs one unit. If that cost resembles the margin the unit leaves, you have a turnover problem, not a pricing one.
What to decide next
With carrying cost measured, the decision it most often feeds is how much to buy at once. A large order lowers the unit price and raises the cost of holding it: without this figure, that comparison cannot be made.
What this assumes
- Average inventory value is representative of the whole year
- Every amount is annual and belongs to the same financial year
- Capital cost was worked out with your own financing cost
- Average units in stock refer to the same period as the value
- Cost is spread evenly across all units
What it does not cover
- The value of the goods themselves, which is not a cost of holding them
- The cost of buying or importing the inventory
- The cost of running out of stock, which is the opposite side
- Allocation by reference when some products cost more to hold
- Seasonality in the space occupied across the year
Frequently asked questions
Which inventory value do I enter?
The average across the year, not the figure on one particular day. If your stock swings with seasonality, average the monthly closes: using the peak inflates the value and artificially sinks the percentage, and using the trough does the opposite.
How do I work out capital cost?
If you finance stock with debt, multiply average inventory value by your real interest rate. If you use your own funds, estimate the return that money would earn elsewhere. We would rather ask you for an amount than apply a generic percentage that is not yours.
Does the product cost belong in carrying cost?
No. What you paid for the goods is inventory value, not the cost of holding them. Only the expenses generated by storing them belong here: space, insurance, tied-up capital, obsolescence and shrinkage.
What is a reasonable carrying cost rate?
It depends on the product and we are not going to hand you a benchmark as if it were a target. Electronics depreciate fast, bulk material eats space, a stable compact product costs little to hold. Compare yourself against yourself over time.
How do I estimate obsolescence?
From what you actually lost last year: goods liquidated below cost, items withdrawn, stock written down. If you have never measured it, start with the value of whatever you cleared at aggressive discounts, which is usually the most visible part.
Does it work if my fulfillment provider bills me per order?
Storage does belong, using the part of the invoice covering the space occupied. What they charge to pick, pack and ship is not a carrying cost: it is a variable cost of the sale and belongs in contribution margin.
What about the cost of running out of stock?
That is the opposite side of the same coin and is calculated separately. Cutting inventory lowers carrying cost and raises stockout risk: deciding well means putting a number on both, not only on the one you are already paying.
What should I work out after this?
Whether the supplier's minimum order pays off. A large order lowers the price per unit and raises the cost of holding it: with your carrying rate measured, that comparison can be made with numbers instead of instinct.
Official sources
QuickBooks — inventory carrying costhttps://quickbooks.intuit.com/global/resources/inventory-management/carrying-costs/
Shopify — inventory carrying costs and how to calculate themhttps://www.shopify.com/blog/inventory-carrying-costs
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