Holding Costs

DEFINITION of 'Holding Costs'

The associated price of storing inventory or assets that remain unsold. Holding costs are a major component of supply chain management, since businesses must determine how much of a product to keep in stock. This represents an opportunity cost, as the presence of the goods means that they are not being sold while that money could be deployed elsewhere. In addition, holding costs include the costs of goods being damaged or spoiled over time and the general costs, such as space, labor and other direct expenses.

BREAKING DOWN 'Holding Costs'

If a business overestimates how much of a product to purchase and is unable to quickly sell it, then the company will have to store the product. With limited storage space, storing one product creates an opportunity cost because the business can not store as much of other products. Additionally, overpurchasing may also leave a company storing a product that consumers no longer want.

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