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Stock on the shelf is not free. The money in it could be working elsewhere, and storage, insurance, damage and theft all add up.
Carrying cost = inventory value x (capital cost % + storage % + insurance % + risk %). Risk covers damage, theft, expiry and stock that goes out of fashion.
Example: 100,000 of stock with 10% capital cost, 5% storage, 2% insurance and 3% risk. 20% in total, so holding this stock costs 20,000 a year, about 1,667 a month.
Use it to:
Up Stock's aging report groups stock by how long it has been sitting, so you can act on it before carrying costs eat the profit.
Many businesses land between 15% and 30% of inventory value a year. It is higher for goods that expire, break or go out of fashion.
The return you give up by having cash in stock, often taken as your loan interest rate or what you could earn elsewhere.
Hold less of what sells slowly, order smaller amounts more often, and clear old stock before it loses value.
Multiply the unit cost by your total carrying cost percentage. An item costing 10 at 20% costs 2 a year to hold.
The order size with the lowest total cost
How many times your stock sells through, and days on hand
Sale price, margin left and sales needed to keep profit