Establish the true cost of the inventory. The true cost of inventory is often not fully understood. Some firms think only about the “cost of capital.” So, for example, a firm with $15 million in average inventory and an 8% cost to raise money (the blended rate of return needed to pay stockholders, bondholders, and/or private parties to borrow money) sees a carrying cost of $1.2 million per year. Sounds simple, but the actual cost is much greater due to other considerations: