Economic Order Quantity Calculator
Calculate the Economic Order Quantity (EOQ) that minimizes combined ordering and holding costs, from annual demand, ordering cost, and holding cost.
units / year
$
$
EOQ = √(2 × D × S / H)
Results
Economic Order Quantity
707 units
Orders Per Year
14.1
Total Ordering Cost
$707.11
Total Holding Cost
$707.11
Total Annual Inventory Cost
$1,414.21
How Does the EOQ Calculator Work?
Economic Order Quantity (EOQ) is the order size that minimizes the combined cost of ordering inventory and holding it in stock. Enter your annual demand for a product, the fixed cost of placing one order (shipping, processing, setup), and the annual cost of holding one unit in inventory (storage, insurance, spoilage, capital tied up). The calculator applies the standard EOQ formula, EOQ = √(2 × D × S ÷ H), where D is annual demand, S is ordering cost per order, and H is holding cost per unit per year.
Example
With annual demand of 10,000 units, an ordering cost of $50 per order, and a holding cost of $2 per unit per year, the EOQ formula gives √((2 × 10,000 × 50) / 2) = √500,000 ≈ 707 units per order. That works out to about 14 orders a year, balancing ordering and holding costs at their lowest combined total.
Common Use Cases
- Setting reorder quantities for retail or wholesale inventory management.
- Reducing total inventory costs by finding the ordering "sweet spot."
- Comparing how a change in supplier pricing or storage cost shifts the ideal order size.
- Justifying inventory policy decisions with a standard, well-known formula.
FAQs
What assumptions does the EOQ formula make?
Classic EOQ assumes constant, known demand, a fixed ordering cost per order, a fixed holding cost per unit, no quantity discounts, and instantaneous replenishment (no lead-time stockouts). Real-world inventory often violates one or more of these, so treat EOQ as a starting point rather than an exact answer.
What happens if I order more or less than the EOQ?
Ordering more than the EOQ increases holding costs faster than it reduces ordering costs (and vice versa for ordering less) — the EOQ is specifically the quantity where those two costs are balanced and their sum is at its minimum.
How do I estimate my holding cost per unit?
A common approach is to take a percentage (often 15-30%) of the unit's purchase cost to account for storage space, insurance, spoilage/obsolescence risk, and the opportunity cost of capital tied up in inventory rather than invested elsewhere.