EOQ Calculator
Calculate Your EOQ
What Is Economic Order Quantity?
EOQ is the order quantity that minimizes total inventory cost by balancing two opposing cost forces: ordering cost and holding cost. Every time you place an order you incur a fixed ordering cost (processing, freight admin, receiving). Every unit you hold in stock incurs a holding cost (warehousing, insurance, capital, obsolescence). EOQ finds the exact order size where these two costs are equal and their combined total is lowest.
EOQ is expressed in units and applies to any item with measurable annual demand, a known ordering cost per order, and a known holding cost per unit per year.
How to Use This EOQ Calculator
- Enter D — Annual Demand (units): The total number of units your business sells or uses per year. Use actual sales history or your best forecast for the period.
- Enter S — Ordering Cost ($/order): The fixed cost incurred each time you place a purchase order. This includes internal processing time, purchase-order administration, freight booking, and receiving costs. Do not include the unit cost of the goods.
- Enter H — Holding Cost ($/unit/yr): The cost to store one unit for one full year. This includes warehouse rent allocated per unit, insurance, capital cost (unit cost × annual interest rate), and obsolescence risk. A common starting estimate is 20–30% of unit cost per year.
- Results appear instantly as you type. The calculator returns EOQ (units per order), orders per year, order interval (days), and total annual ordering + holding cost — no button click needed.
After calculating, compare your EOQ to your current order quantity. If your current orders are significantly larger than EOQ, you are over-holding and your holding cost dominates. If they are significantly smaller, your ordering frequency is too high and ordering cost dominates.
EOQ works alongside your Reorder Point — EOQ tells you how much to order; the reorder point tells you when.
How Is EOQ Calculated? (Formula)
EOQ is calculated using the Wilson formula, derived by minimizing the total cost function for ordering and holding:
| Variable | Meaning | Unit |
|---|---|---|
| D | Annual demand — total units demanded per year | units / yr |
| S | Ordering cost — fixed cost per purchase order | $ / order |
| H | Holding cost — cost to hold one unit for one year | $ / unit / yr |
| EOQ | Economic Order Quantity — optimal units to order each time | units |
The formula balances ordering cost and holding cost by setting the derivative of the total cost function to zero. At EOQ, annual ordering cost (D/EOQ × S) exactly equals annual holding cost (EOQ/2 × H). For a full algebraic derivation, see the EOQ formula guide.
EOQ Calculation Example
A distributor faces the following inputs:
| Input | Value |
|---|---|
| D — Annual demand | 12,000 units |
| S — Ordering cost | $50 per order |
| H — Holding cost | $3 per unit per year |
Step 1 — Multiply: 2 × 12,000 × 50 = 1,200,000
Step 2 — Divide by H: 1,200,000 ÷ 3 = 400,000
Step 3 — Take the square root: √400,000 = 632 units
Result: EOQ = 632 units per order.
At this order size, the distributor places 12,000 ÷ 632 ≈ 19 orders per year, roughly every 19 days. Annual ordering cost = 19 × $50 = $950. Annual holding cost = (632/2) × $3 = $948. Total cost ≈ $1,898 — the minimum achievable with these inputs.
Ordering 400 units instead would cost $2,100/yr; ordering 1,000 units would cost $2,100/yr. EOQ sits at the bottom of the cost curve.
EOQ is robust to small input errors. The total cost curve is flat near the optimum — a 10% error in any single input (D, S, or H) raises total cost by less than 0.5%. This means an imprecise holding cost estimate does not meaningfully harm the result. Precision matters most when your actual order quantity is far from EOQ, not when fine-tuning the inputs themselves.
How to Interpret Your EOQ Result
EOQ gives you the cost-optimal order size for a single SKU under stable conditions. Use the result as follows:
| Situation | What it means | Action |
|---|---|---|
| Current order quantity ≫ EOQ | You are over-ordering. Holding cost dominates total cost. | Reduce order size toward EOQ. Review warehouse space and capital tied in stock. |
| Current order quantity ≪ EOQ | You are under-ordering. Ordering cost dominates total cost. | Increase order size toward EOQ. Consolidate orders where possible. |
| Current order quantity ≈ EOQ | Order size is near-optimal for these inputs. | Shift focus to reducing S (ordering cost) or H (holding cost) to lower the cost floor. |
| EOQ far exceeds supplier MOQ | Supplier minimum order quantity forces a higher order than optimal. | Use MOQ as your order size; negotiate or change supplier to approach EOQ. |
Set your Reorder Point independently of EOQ. The reorder point determines when to trigger the next EOQ-sized order.
EOQ Assumptions and Limitations
EOQ is accurate when its assumptions hold. Deviations reduce the reliability of the result.
| Assumption | When it breaks | Fix |
|---|---|---|
| Demand is constant and known | Seasonal products, promotional spikes, or new SKUs with no history | Use rolling 12-month average demand; add Safety Stock to cover variability |
| Ordering cost is fixed per order | Suppliers charge per unit, or freight cost scales with order size | Recalculate S using total order administration cost only; model freight separately |
| Holding cost is fixed per unit per year | Storage rates are tiered, or capital cost changes with cash position | Use a weighted average holding rate; run sensitivity analysis on H |
| Replenishment is instantaneous | Lead time exists (almost always) | EOQ still gives optimal order size; use the Reorder Point to trigger the order before stockout |
| No quantity discounts | Supplier offers tiered pricing for larger orders | Compare total cost (purchase + ordering + holding) at each discount tier against EOQ total cost |
When demand is variable, EOQ is best treated as a starting point. Use Safety Stock to protect against the variability EOQ does not model.
Frequently Asked Questions
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The EOQ formula is EOQ = √(2DS / H), where D = annual demand in units, S = ordering cost per order in dollars, and H = holding cost per unit per year in dollars.
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There is no universal EOQ benchmark. A good EOQ is the one that correctly reflects your D, S, and H inputs. Compare it against your current order quantity and your ordering history — not against a fixed target. EOQ changes whenever your inputs change, so recalculate it quarterly or when demand or costs shift materially.
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No. EOQ is how much to order; the reorder point is when to order. EOQ sets the order size that minimizes cost. The reorder point triggers a new order when inventory falls to the level needed to cover demand during lead time plus safety stock. You need both.
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EOQ assumes constant annual demand, a fixed ordering cost per order, a fixed holding cost per unit per year, instantaneous replenishment, and no quantity discounts. When demand is variable or lead times are long, pair EOQ with safety stock to avoid stockouts.
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Orders per year at EOQ = D ÷ EOQ. For D = 12,000 units and EOQ = 632 units, you place 12,000 ÷ 632 ≈ 19 orders per year, or one order approximately every 19 days. The calculator above computes this alongside EOQ automatically.