Average Inventory Cost is a financial metric that measures the cost of keeping inventory items in stock over the course of a set period. By calculating the weighted average of all purchases—including purchase price, freight costs, and other ancillary fees—it helps to determine how much you are spending per inventory item on average. This calculation can help businesses plan their budgets more accurately and also make decisions about what inventory items to buy and when. Knowing your Average Inventory Cost helps you maximize profits by reducing inventory-related expenses.