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Economic order quantity (EOQ) calculator

Economic order quantity is the order size that minimises the combined cost of placing orders and holding stock: EOQ = √(2 × annual demand × cost per order ÷ holding cost per unit).

units/year

Units you expect to sell or use in a year.

$

Admin time, freight and receiving cost that do not change with order size.

$
% of unit cost

Storage, insurance, shrink and the cost of tied-up cash, as a share of unit cost. 15–30% is typical.

Economic order quantity
949 units

Before rounding to your MOQ or case pack.

Orders per year
12.6
Days between orders
29
Annual ordering plus holding cost
$2,277

$1,138 ordering, $1,138 holding.

Working

  1. Holding cost per unit per year: $12 × 20% = $2.4
  2. EOQ: √(2 × 12,000 × $90 ÷ $2.4) = 948.7 units
  3. Orders per year: 12,000 ÷ 948.7 = 12.65

Runs in your browser; nothing you enter is sent anywhere. Results are estimates from the numbers you provide.

The formula

EOQ = √( 2 × D × S ÷ H )

How it works

Ordering often keeps stock low but multiplies per-order costs such as freight and admin. Ordering rarely cuts those costs but ties up cash and space. EOQ finds the balance point where the two annual costs are equal.

Holding cost per unit is usually a share of the unit cost: storage, insurance, shrinkage and the cost of the money tied up. Many businesses use roughly 15–30% a year; use your own figure if you have one.

The result is a starting point. Round to supplier minimum order quantities and case packs, and check cash and shelf life before committing.

Worked example

Annual demand 12,000 units, $90 to place an order, unit cost $12 and holding cost 20% ($2.40 per unit a year). EOQ = √(2 × 12,000 × 90 ÷ 2.40) = 949 units, about 12.6 orders a year, or an order every 29 days.

Watch out for

  • EOQ assumes steady demand and a constant price. It fits staples better than seasonal or launch products.
  • It ignores volume discounts, minimum order quantities, container sizes and shelf life. Treat it as a guide, then adjust.
  • Include only costs that vary with the number of orders in the order cost, and only costs that vary with stock level in the holding cost.

Frequently asked questions

What if the EOQ is below the supplier's MOQ?
Order the MOQ, or negotiate. The EOQ only says what would be cheapest if you were free to choose; a minimum order quantity above it simply means you carry more stock than ideal.
Does EOQ work for seasonal products?
Poorly. It assumes constant demand. For seasonal items plan by period from a forecast instead of using a single annual figure.
How do I estimate the holding cost percentage?
Add the annual cost of storage space, insurance, handling, shrinkage and obsolescence, plus the return you could earn on the cash. Divide by average inventory value. If you cannot, 15–30% is a common starting range.

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