Cost excess inventory through carrying charges and the markdown needed to clear it.
Overstock costs twice: once through carrying charges while it sits, and again through the markdown needed to move it. The markdown component usually dominates, which is why aged stock should be cleared early rather than held for a better season. Every month an overstock is held raises both the carrying cost and the eventual markdown, so delay is the most expensive option available.
Overstock Cost
Overstock cost = capital × carrying rate × months ÷ 12 + capital × markdown %
Overstock cost = capital × carrying rate × months ÷ 12 + capital × markdown % Overstock costs twice: once through carrying charges while it sits, and again through the markdown needed to move it. The markdown component usually dominates, which is why aged stock should be cleared early rather than held for a better season.
Every month an overstock is held raises both the carrying cost and the eventual markdown, so delay is the most expensive option available.
This calculator takes 5 inputs: Excess units held, Cost per unit, Annual carrying rate, Months the excess is held, Markdown needed to clear. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.