Inventory holding costs

In addition to the cost of acquisition, there can be significant expenses in actually being in possession of inventory, including, but not limited to:

- Borrowing costs of capital
- Cost of storage space
- Insurance
- Spoilage of inventory (e.g. obsolescence or deterioration)
- Theft, pilferage and other losses
- Damage to inventory
- Cost of handling to move or rotate
- Cost of management, measurement and accounting for inventory
- Cost of inefficiency due to inventory issues
- Loss of business due to inventory problems

A reasonable rule of thumb is to estimate that inventory holding costs can equal one fourth to one third of the inventory value each year.