April 28, 2026 · 6 min read
How to calculate inventory holding cost (with a Shopify example)
The real cost of unsold stock is bigger than you think. Here's how to calculate inventory holding cost — and how to cut it.
Most Shopify merchants vastly underestimate what unsold inventory costs them. The sticker price of the goods is only the start. Here's how to calculate the true inventory holding cost (also called "carrying cost") and why it's the most important number you're probably not tracking.
The four components of holding cost
- Capital cost: the opportunity cost of cash tied up in stock — typically 8–15% per year.
- Storage cost: warehouse rent, utilities, 3PL fees, shelving — often 2–5% of inventory value per year.
- Service cost: insurance, taxes, IT systems for tracking — typically 1–3% per year.
- Risk cost: shrinkage, damage, obsolescence, markdowns — often the largest, 6–15% per year.
The formula
Inventory holding cost (%) = (Capital + Storage + Service + Risk) ÷ Average inventory value. Most direct-to-consumer brands land between 20% and 30% per year. That means $100,000 of average inventory quietly costs you $20,000–$30,000 annually before a single sale happens.
A worked Shopify example
A merchant carries $80,000 of average inventory. Capital cost 10% = $8,000. Storage 4% = $3,200. Service 2% = $1,600. Risk 12% = $9,600. Total holding cost = $22,400/year, or 28%. If $25,000 of that inventory is dead stock, they're burning roughly $7,000/year just to keep the dead stock on the shelf.
Run your own numbers
The example above uses our default assumptions. Your capital cost, storage rate and risk profile will differ. Our free calculator does the arithmetic with your figures — no signup, nothing stored.
How to cut it
There are only three levers: carry less stock, turn it faster, or shed the dead portion. The fastest of the three is shedding dead stock — which is exactly what Inventory Surplus is built to do. Even a one-time 25% reduction in surplus inventory can pay for the rest of your tech stack for a year.
Recover revenue from your dead stock
Inventory Surplus is the Shopify app that finds and clears your trapped capital — free for stores up to 100 SKUs.