As a small commercial drone manufacturer, things are going great for you this week. A new marketing campaign is hitting the mark, and orders are flooding in. You’ve got a virtually unlimited supply of almost all the parts except for one circuit board, but no worries. You think you’ve got enough extra to — and then they’re gone.



a man and woman preparing food in a kitchen: Woman and man looking at computer monitor in clothing store


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Woman and man looking at computer monitor in clothing store

Suddenly, everything grinds to a halt. Now you’ve got orders you can’t fill and workers who can’t work. Disaster!

What comes next is painful. You pause all orders and pay through the nose to a supplier to get the parts shipped to you within days. Eventually customers start contacting you, but they’re angry at the delay, and some are even canceling orders. Your great week has turned into a mess, and you wonder what you did wrong and how

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a person standing in front of a building: Asian male employee doing stocktaking of product on shelves in warehouse by using digital tablet and pen.


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Asian male employee doing stocktaking of product on shelves in warehouse by using digital tablet and pen.

My first business class was taught by a crusty old guy who spent years as the comptroller for Pier 1, a home decor and furnishings retailer. He had wild white hair sticking out all over the place and waved his hands in the air as he tried to relay nuggets of wisdom to us.

One oft-repeated maxim was: “If you don’t know your costs, you’re going broke.”

When it’s time to calculate the cost of goods sold (COGS), the price per unit you paid for your inventory when buying in bulk isn’t its total cost. Instead, secondary inventory costs can significantly increase your COGS.

We’ll go over the different factors that contribute to inventory holding costs and how to calculate carrying costs so you can integrate these expenses into your

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